<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 24, 1996
COMPRESSION LABS, INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-13218 94-2390960
(State of jurisdiction) (Commission File No.) (IRS Employer
Identification No.)
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350 E. Plumeria Drive
San Jose, CA 95134
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 435-3000
2860 Junction Avenue
San Jose, CA 95134
(Former name or former address, if changed since last report)
1.
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Item 5. Other Events
On October 24, 1996, Compression Labs, Incorporated entered into an agreement
with an institutional investor for the private placement of up to $20,000,000 of
its convertible preferred stock. The Company completed the issuance of
$7,000,000 of its convertible preferred stock on October 25, 1996 and has the
option to complete the remaining investment in two separate installments. In
connection with the private placement, the Company also issued warrants to
purchase up to 375,000 shares of it's common stock to the investor and certain
advisors involved in the transaction. The Company will issue a warrant to
purchase an additional 75,000 shares of it's common stock to the investor upon
the completion of the issuance of the second installment of its convertible
preferred stock. The press release announcing such financing is filed herewith
as Exhibit 99.1 and incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
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EXHIBIT
NUMBER DESCRIPTION
<S> <C>
4.1 Convertible Stock Purchase Agreement, dated October 24, 1996
4.2 Registration Rights Agreement, dated October 24, 1996
4.3 Certificate of Designation of Convertible Series C Preferred Stock
99.1 Press Release, dated October 24, 1996.
</TABLE>
2.
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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.
Compression Labs, Incorporated
Dated: November 1, 1996 By: /s/ Michael E. Seifert
--------------------------------
Michael E. Seifert
Vice President, Finance and
Chief Accounting Officer
3.
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
<S> <C>
4.1 Convertible Stock Purchase Agreement, dated October 24, 1996
4.2 Registration Rights Agreement, dated October 24, 1996
4.3 Certificate of Designation of Convertible Series C Preferred Stock
99.1 Press Release, dated October 24, 1996.
</TABLE>
4.
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EXHIBIT 4.1
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
COMPRESSION LABS, INCORPORATED
and
INFINITY INVESTORS, LTD.
and
SEACREST CAPITAL LIMITED
------------------------------
Dated as of October 24, 1996
------------------------------
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TABLE OF CONTENTS
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ARTICLE I PURCHASE AND SALE OF PREFERRED SHARES.............................................................. 1
1.1 Purchase and Sale.................................................................................. 1
1.2 Purchase Price..................................................................................... 2
1.3 The Closings....................................................................................... 2
(a) The Series C Closing.................................................................... 2
(b) The Series D Closing.................................................................... 3
(c) The Series E Closing.................................................................... 4
ARTICLE II REPRESENTATIONS AND WARRANTIES..................................................................... 5
2.1 Representations, Warranties and Agreements of the Company.......................................... 5
(a) Organization and Qualification.......................................................... 5
(b) Authorization; Enforcement.............................................................. 5
(c) Capitalization.......................................................................... 5
(d) Issuance of Shares...................................................................... 6
(e) No Conflicts............................................................................ 6
(f) Consents and Approvals.................................................................. 7
(g) Litigation; Proceedings................................................................. 7
(h) No Default or Violation................................................................. 7
(i) Schedules............................................................................... 8
(j) Private Offering........................................................................ 8
(k) SEC Documents........................................................................... 8
(l) Seniority............................................................................... 8
(m) Investment Company...................................................................... 9
(n) Certain Fees............................................................................ 9
(o) Solicitation Materials.................................................................. 9
2.2 Representations and Warranties of the Purchasers................................................... 9
(a) (1) Organization; Authority................................................................. 9
(2) Investment Intent....................................................................... 9
(3) Purchaser Status........................................................................ 9
(4) Experience of Purchaser................................................................. 10
(5) Ability of Purchaser to Bear Risk of Investment......................................... 10
(6) Prohibited Transactions................................................................. 10
(7) Access to Information................................................................... 10
(8) Reliance................................................................................ 10
(b) (1) Organization; Authority................................................................. 11
(2) Investment Intent....................................................................... 11
(3) Purchaser Status........................................................................ 11
(4) Experience of Purchaser................................................................. 11
(5) Ability of Purchaser to Bear Risk of Investment......................................... 11
(6) Prohibited Transactions................................................................. 11
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(7) Access to Information................................................................... 12
(8) Reliance................................................................................ 12
ARTICLE III OTHER AGREEMENTS OF THE PARTIES.................................................................... 12
3.1 Transfer Restrictions.............................................................................. 12
3.2 Stop Transfer Instruction.......................................................................... 13
3.3 Furnishing of Information.......................................................................... 13
3.4 Notice of Certain Events........................................................................... 14
3.5 Copies and Use of Disclosure Materials............................................................. 14
3.6 Blue Sky Laws...................................................................................... 14
3.7 Integration........................................................................................ 14
3.8 Certain Agreements................................................................................. 14
3.9 Purchaser Ownership of Common Stock................................................................ 15
3.10 Listing of Underlying Shares....................................................................... 15
3.11 Conversion Procedures.............................................................................. 15
3.12 Purchaser's Rights if Trading in Common Stock is Suspended......................................... 15
3.13 No Violation of Applicable Law..................................................................... 16
3.14 Redemption Restrictions............................................................................ 16
3.15 Piggyback Registration Rights...................................................................... 16
3.16 Notice of Breaches................................................................................. 17
3.17 Conversion Obligations of the Company.............................................................. 17
3.18 Right of First Refusal............................................................................. 17
3.19 The Warrants....................................................................................... 17
3.20 Break-up Fee....................................................................................... 18
3.21 Book Entry Arrangements............................................................................ 18
ARTICLE IV CONDITIONS......................................................................................... 19
4.1(a) Conditions Precedent to the Obligation of the Company to Sell the Series C
Shares............................................................................................. 19
(i) Accuracy of the Purchaser's Representations and Warranties.............................. 19
(ii) Performance by the Purchaser............................................................ 19
(iii) No Injunction........................................................................... 19
(iv) Required Approvals...................................................................... 19
(b) Conditions Precedent to the Obligation of the Purchaser to Purchase the Series
C Shares........................................................................................... 19
(i) Accuracy of the Company's Representations and Warranties................................ 19
(ii) Performance by the Company.............................................................. 19
(iii) No Injunction........................................................................... 20
(iv) Adverse Changes......................................................................... 20
(v) No Suspensions of Trading in Common Stock............................................... 20
(vi) Listing of Common Stock................................................................. 20
(vii) Legal Opinion........................................................................... 20
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(viii) Required Approvals...................................................................... 20
(ix) Shares of Common Stock.................................................................. 20
(x) Delivery of Stock Certificates.......................................................... 20
(xi) Registration Rights Agreement........................................................... 21
(xii) Warrants................................................................................ 21
(xiii) Certificate of Designation.............................................................. 21
(xiv) Company Certificates.................................................................... 21
(xv) Change of Control....................................................................... 21
4.2 Conditions Precedent to the Obligation of each Purchaser to Purchase the
Series D Shares and the Series E Shares............................................................ 21
(i) Series C Closing........................................................................ 21
(ii) Series D Infinity Warrant............................................................... 21
(iii) Accuracy of the Company's Representations and Warranties................................ 21
(iv) Performance by the Company.............................................................. 22
(v) Underlying Securities Registration Statements........................................... 22
(vi) No Injunction........................................................................... 22
(vii) Adverse Changes......................................................................... 22
(viii) Litigation.............................................................................. 22
(ix) Management.............................................................................. 22
(x) No Suspensions of Trading in Common Stock............................................... 23
(xi) Listing of Common Stock................................................................. 23
(xii) Change of Control....................................................................... 23
(xiii) Legal Opinion........................................................................... 23
(xiv) Required Approvals...................................................................... 23
(xv) Shares of Common Stock.................................................................. 23
(xvi) Delivery of Stock Certificates.......................................................... 23
(xvii) Performance of Conversion/Exercise Obligations............................................. 23
ARTICLE V TERMINATION........................................................................................ 24
5.1 Termination by Mutual Consent...................................................................... 24
5.2 Termination by the Company......................................................................... 24
5.3 Termination by the Purchasers...................................................................... 24
ARTICLE VI MISCELLANEOUS...................................................................................... 26
6.1 Fees and Expenses.................................................................................. 26
6.2 Entire Agreement; Amendments....................................................................... 26
6.3 Notices............................................................................................ 27
6.4 Amendments; Waivers................................................................................ 28
6.5 Headings........................................................................................... 28
6.6 Successors and Assigns............................................................................. 28
6.7 No Third-Party Beneficiaries....................................................................... 28
6.8 Governing Law...................................................................................... 28
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6.9 Survival........................................................................................... 28
6.10 Execution.......................................................................................... 29
6.11 Publicity.......................................................................................... 29
6.12 Severability....................................................................................... 29
Exhibit A - Series C Terms
Exhibit B - Registration Rights Agreement
Exhibit C - Conversion Procedures
Exhibit D - Form of Legal Opinion
Exhibit E(1) - Form of Series C Infinity Warrant
Exhibit E(2) - Form of Brown Simpson Warrant
Exhibit E(3) - Form of Alpine Warrant
Exhibit E(4) - Form of Series D Infinity Warrant
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CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of October 24, 1996, between Infinity Investors, Ltd., a corporation
organized and existing under the laws of Nevis, West Indies ("Infinity"),
Seacrest Capital Limited, a corporation organized and existing under the laws of
Nevis, West Indies ("Seacrest") (Infinity and Seacrest are each a "Purchaser"
and are collectively, the "Purchasers"), and Compression Labs, Incorporated, a
corporation organized and existing under the laws of the State of Delaware (the
"Company").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire shares of the Company's Series C Convertible
Preferred Stock, par value $.001 per share (the "Series C Preferred"), the
Company's Series D Convertible Preferred Stock, par value $.001 per share (the
"Series D Preferred"), and the Company's Series E Convertible Preferred Stock,
par value $.001 per share (the "Series E Preferred") (the Series C Preferred,
Series D Preferred and Series E Preferred are collectively referred to as the
"Preferred Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase and Sale. (a) Subject to the terms and conditions set
forth herein, the Company shall issue and sell and the Purchasers shall purchase
the Preferred Stock as follows: (a) Infinity shall purchase 275,000 shares of
Series C Preferred (the "Infinity C Preferred") and Seacrest shall purchase
75,000 shares of Series C Preferred (the "Seacrest C Preferred") (the Infinity C
Preferred and the Seacrest C Preferred are collectively, the "Series C Shares");
(b) Infinity or an eligible affiliate thereof specified by Infinity (an
"Infinity Affiliate") shall purchase between 50,000 and 350,000 shares of Series
D Preferred (the "Series D Shares"); and (c) Infinity or an Infinity Affiliate
shall purchase between 50,000 and 350,000 shares of Series E Preferred (the
"Series E Shares").
(b) The Series C Preferred shall have the respective rights,
preferences and privileges set forth in Exhibit A attached hereto (the "Series C
Terms"), which shall be incorporated into a Certificate of Designation to be
approved by the Purchasers and filed on or prior to the Series C Closing (as
defined below) by the Company with the Secretary of State of Delaware (the
"Series C Designation"). The Series D Preferred and Series E Preferred shall
have respective rights, preferences and privileges identical to the Series C
Terms as set forth in Exhibit A, mutatis mutandis, and shall rank pari passu
with the Series C Preferred with regard to dividends, liquidation, voting rights
and any other preferential rights designated therein, except that the Conversion
Price for conversion of said Shares (as hereinafter defined) shall be determined
by reference to the following table:
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Market Capitalization Applicable Discount
- --------------------- -------------------
<S> <C>
Less than $80,000,000 22.5%
$80,000,000 - $115,000,000 20%
Greater than $115,000,000 17.5%
</TABLE>
The Series D Shares and Series E Shares shall be authorized pursuant to
certificates of designation to be prepared by the Company, subject to the
approval of each Purchaser, and filed at or prior to the Series D Closing Date
(as defined below) or Series E Closing Date (as defined below), as applicable,
by the Company with the Secretary of State of Delaware (such certificates of
designation, together with the Series C Designation, are referred to as the
"Certificates of Designation").
For purposes of this Agreement, "Conversion Price," "Original Issue
Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall have
the meanings set forth in the Series C Terms; and "Market Price" as at any date
shall mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date. In addition the Company's "Market
Capitalization" shall be determined as of the close of business on the date
prior to the date of delivery of the Subsequent Financing Notice and shall be
the product of the Per Share Market Value multiplied by the number of
outstanding shares of the Company's Common Stock determined in accordance with
generally accepted accounting principles applicable to income statements on a
fully diluted basis.
1.2 Purchase Price. The purchase price per Share shall be $20.
1.3 The Closings.
(a) The Series C Closing. (i) The closing of the purchase and
sale of the Series C Shares (the "Series C Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree,
but not prior to the date that the conditions set forth in Section 4.1 have been
satisfied or waived by the appropriate party and provided, that the Series C
Closing may not occur later than November 15, 1996 (the "Series C Closing
Expiration Date"). The date of the Series C Closing is hereinafter referred to
as the "Series C Closing Date." At the Series C Closing, the Company shall sell
and issue to the Purchasers, and the Purchasers shall purchase, the Series C
Shares, for an aggregate purchase price of $7,000,000.
(ii) At the Series C Closing, (a) the Company shall
deliver (1) to Infinity (A) one or more stock certificates representing the
Infinity C Preferred, registered in the name of Infinity, (B) the Series C
Infinity Warrant (as defined in Section 3.19), and (C) all other documents,
instruments and writings required to have been delivered at or prior to the
Series C Closing by the Company pursuant to this Agreement and the Registration
Rights
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Agreement, dated the date hereof, by and between the Company and the Purchasers,
in the form of Exhibit B (the "Registration Rights Agreement"), (2) to Seacrest
(A) one or more certificates representing the Seacrest C Preferred, registered
in the name of Seacrest and (B) all other documents, instruments and writings
required to have been delivered at or prior to the Series C Closing by the
Company pursuant to this Agreement and the Registration Rights Agreement (3) to
Brown Simpson, LLC, ("Brown Simpson"), the Brown Simpson Warrant (as defined in
Section 3.19) and (4) to Alpine Capital Partners, Inc. ("Alpine") the Alpine
Warrant (as defined in Section 3.19); and (b) (1) Infinity shall deliver to the
Company $5,500,000 and Seacrest shall deliver to the Company $1,500,000, less
the fees and disbursements of the legal counsel contemplated in Section 6.1, in
United States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company prior to the Series C Closing Date,
and (2) the Purchasers shall deliver all documents, instruments and writings
required to have been delivered at or prior to the Series C Closing by each
Purchaser pursuant to this Agreement and the Registration Rights Agreement.
(b) The Series D Closing. (i) The closing of the purchase and
sale of the shares of Series D Preferred to be issued and sold at such closing
in accordance herewith (the "Series D Shares", and such closing the "Series D
Closing") shall take place at the offices of Robinson Silverman on such date
(which may not be prior to the tenth day after receipt of the notice described
hereafter in this paragraph (b)) as the Company may designate in a written
notice to Infinity (a "Subsequent Financing Notice") relating to the Series D
Shares which the Company may deliver no earlier than 180 days after the date
hereof and no later than 210 days after the date hereof (such 210th day, the
"Series D Closing Expiration Date"), which Subsequent Financing Notice shall set
forth the number of Series D Shares (which may not be less than 50,000 nor in
excess of (i) 250,000 shares, if the Company's Market Capitalization (not
inclusive of the proceeds from the Series D Closing) is less than $80,000,000 on
the Series D Closing Date, (ii) 300,000 shares, if the Company's Market
Capitalization (not inclusive of the proceeds from the Series D Closing) is
between $80,000,000 and $115,000,000 on the Series D Closing Date or (iii)
350,000 shares, if the Company's Market Capitalization (not inclusive of the
proceeds from the Series D Closing) is greater than $115,000,000 on the Series D
Closing Date) that the Company intends to sell to Infinity (or an eligible
affiliate thereof specified by Infinity (an "Infinity Affiliate") provided,
however, that in no case shall the Series D Closing take place unless and until
the conditions listed in Section 4.2 have been satisfied or waived by the
appropriate party. The date of the Series D Closing is hereinafter referred to
as the "Series D Closing Date."
(ii) At the Series D Closing, (a) the Company shall
deliver (1) to Infinity (and/or an Infinity Affiliate, as the case may be) one
or more stock certificates representing the Series D Shares registered in the
name of Infinity and/or such Infinity Affiliate (2) to Infinity the Series D
Infinity Warrant and (3) to Infinity (and/or such Infinity Affiliate) all
documents, instruments and writings required to have been delivered at or prior
to the Series D Closing by the Company pursuant to this Agreement and the
Registration Rights Agreement and (b) Infinity (and/or such Infinity Affiliate)
shall deliver to the Company (1) the purchase price for the Series D Shares
being purchased as determined pursuant to this Article I in immediately
available funds by wire transfer to an account designated in writing by
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the Company and delivered to Infinity (and/or such Infinity Affiliate) prior to
the Series D Closing Date and (2) all documents, instruments and writings
required to have been delivered at or prior to the Series D Closing by Infinity
(and/or such Infinity Affiliate) pursuant to this Agreement and the Registration
Rights Agreement.
(c) The Series E Closing. (i) The closing of the purchase and
sale of the shares of Series E Preferred to be issued and sold at such closing
in accordance herewith (the "Series E Shares," and such closing the "Series E
Closing") shall take place at the offices of Robinson Silverman on such date
(which may not be prior to the tenth day after receipt of the Subsequent
Financing Notice relating to the Series E Shares) as the Company shall designate
in the Subsequent Financing Notice relating to the Series E Shares, which the
Company may deliver no earlier than 180 days after the Series D Closing Date and
no later than 210 days after the Series D Closing Date (the "Series E Closing
Expiration Date"), which Subsequent Financing Notice shall set forth the number
of Series E Shares (which may not be less than 50,000 nor in excess of (i)
250,000 shares, if the Company's Market Capitalization (not inclusive of the
proceeds from the Series E Closing) is less than $80,000,000 on the Series E
Closing Date, (ii) 300,000 shares, if the Company's Market Capitalization (not
inclusive of the proceeds from the Series E Closing) is between $80,000,000 and
$115,000,000 on the Series E Closing Date or (iii) 350,000 shares, if the
Company's Market Capitalization (not inclusive of the proceeds from the Series E
Closing) is greater than $115,000,000 on the Series E Closing Date; provided,
that in no event shall the aggregate number of Shares (as defined below) to be
issued and sold under this Agreement exceed 1,000,000) that the Company intends
to sell thereunder, provided, however, that in no case shall the Series E
Closing take place unless and until the conditions listed in Section 4.2 have
been satisfied or waived by the appropriate party. The date of the Series E
Closing is referred to as the "Series E Closing Date." The Series C Closing
Date, the Series D Closing Date or the Series E Closing Date, are sometimes
referred to herein as a "Closing Date." The Series C Shares, Series D Shares and
Series E Shares are collectively referred to herein as the "Shares".
(ii) At the Series E Closing, (a) the Company shall
deliver to Infinity (and/or an Infinity Affiliate, as the case may be) (1) one
or more stock certificates representing the Series E Shares being sold at such
Closing, registered in the name of Infinity (and/or such Infinity Affiliate),
and (2) all documents, instruments and writings required to have been delivered
at or prior to the Series E Closing by the Company pursuant to this Agreement
and the Registration Rights Agreement, and (b) Infinity (and/or such Infinity
Affiliate) shall deliver to the Company (1) the purchase price for the Series E
Shares being purchased, as determined pursuant to this Article I, in immediately
available funds by wire transfer to an account designated in writing by the
Company and delivered to each Purchaser prior to the Series E Closing Date, and
(2) all documents, instruments and writings required to have been delivered at
or prior to the Series E Closing by Infinity (and/or such Infinity Affiliate)
pursuant to this Agreement and the Registration Rights Agreement.
ARTICLE II
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REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
the Schedule 2.1(a) attached hereto (collectively, the "Subsidiaries"). Each of
the Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with the
full corporate power and authority to own and use its properties and assets and
to carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
would not, individually or in the aggregate, have a material adverse effect on
the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Warrants (as defined below), the Certificate of
Designation, the Registration Rights Agreement, and otherwise to carry out its
obligations hereunder and thereunder. This Agreement, the Registration Rights
Agreement and the Warrants are collectively referred to as the "Transaction
Documents". The execution and delivery of each of this Agreement, each
Certificate of Designation and each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby has been
duly authorized by all necessary action on the part of the Company. Each of this
Agreement, each Certificate of Designation and each of the Transaction Documents
has been duly executed by the Company and when delivered in accordance with the
terms hereof will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of this Agreement. Except
as disclosed in Schedule 2.1(c), there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the Shares and
Warrants
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<PAGE> 11
hereunder, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective Certificate of Incorporation, bylaws
or other charter documents.
(d) Issuance of Shares. The Shares and the Warrants are duly
authorized, and when issued and paid for in accordance with the terms hereof,
shall be validly issued, fully paid and nonassessable. The Company, as at the
Series C Closing Date, Series D Closing Date and Series E Closing Date, as the
case may be, has and at all times while the Shares and any Warrants are
outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its obligations under this Agreement, the
Warrants and the Certificates of Designation with respect to the number of
Shares and Warrants issued and outstanding at such Closing Date and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) two times the number of shares of Common Stock which would
be issuable upon conversion of the Shares issued pursuant to the terms hereof
(the "Underlying Shares") with respect to the number of Shares and Warrants
issued and outstanding at such Closing Date were such conversion effected on the
Original Issue Date for such Shares and (ii) the number of shares of Common
Stock which would be issuable upon exercise in full of the Warrants (the
"Warrant Shares"). When issued in accordance with the terms hereof and the
Certificates of Designation, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable; and when issued upon exercise of
the Warrants in accordance with their respective terms, the Warrant Shares will
be duly authorized, validly issued, fully paid and nonassessable.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents and the Certificates of Designation by the Company and
the consummation by the Company of the transactions contemplated thereby do not
and will not (i) conflict with or violate any provision of its Certificate of
Incorporation or bylaws (each as amended through the date hereof) or (ii)
subject to obtaining the consents referred to in Section 2.1(f), conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) to the knowledge of the
Company result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the Company is bound
or affected, except in the case of clause (ii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
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(f) Consents and Approvals. Except as specifically set forth
in Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other person in connection with the execution,
delivery and performance by the Company of the Transaction Documents and the
Certificates of Designation, except for (i) the filings of the Certificates of
Designation with respect to the Shares with the Secretary of State of Delaware,
which filings shall be effected prior to the Series C Closing Date, the Series D
Closing Date and the Series E Closing Date, as appropriate, (ii) the filing of
the registration statements contemplated by the Registration Rights Agreement
(the "Underlying Securities Registration Statement(s)") with the Securities and
Exchange Commission (the "Commission"), which shall be filed in the time periods
set forth in the Registration Rights Agreement (iii) the applications for the
listing of the Underlying Shares and the Warrant Shares with the Nasdaq National
Market (and with any other national securities exchange or market on which the
Common Stock is then listed), and (iv) other than, in all other cases, where the
failure to obtain such consent, waiver, authorization or order, or to give or
make such notice or filing, would not materially impair or delay the ability of
the Company to effect the Series C Closing, the Series D Closing or the Series E
Closing and to deliver to the Purchasers the Shares (and, upon conversion of the
Shares thereunder, the Underlying Shares) or to the appropriate party, the
Warrants (and, upon exercise of the Warrants, the Warrant Shares) in the manner
contemplated hereby and by the Registration Rights Agreement free and clear of
all liens and encumbrances of any nature whatsoever (together with the consents,
waivers, authorizations, orders, notices and filings referred to in Schedule
2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined) or in Schedule 2.1(g),
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the best knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
relates to or challenges the legality, validity or enforceability of any of the
Transaction Documents or any of the Certificates of Designation or the Shares
(ii) could, individually or in the aggregate, have a Material Adverse Effect or
(iii) could, individually or in the aggregate, materially impair the ability of
the Company to perform fully on a timely basis its obligations under the
Transaction Documents or the Certificates of Designation.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, (ii) is in violation of any order
of any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as could, in
any such case (individually or in the aggregate), not (x) adversely affect the
legality, validity or enforceability of any of the Transaction Documents or any
of the Certificates of Designation, (y) have a Material Adverse Effect or (z)
adversely impair the Company's ability
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or obligation to perform fully on a timely basis its obligations under any of
the Transaction Documents or any of the Certificates of Designation.
(i) Schedules. The Schedules to this Agreement furnished by or
on behalf of the Company do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(j) Private Offering. Assuming (without any independent
investigation or verification by or on behalf of the Company) the accuracy of
the representations and warranties of the Purchasers set forth in Section 2.2,
the offer and sale of the Shares, the Warrants, the Underlying Shares and the
Warrant Shares are exempt from registration under Section 5 of the Securities
Act of 1933, as amended (the "Securities Act"). Neither the Company nor any
person acting on its behalf has taken or will take any action which might
subject the offering, issuance or sale of such Shares, the Warrants, the
Underlying Shares or the Warrant Shares to the registration requirements of
Section 5 of the Securities Act.
(k) SEC Documents. The Company has filed all reports required
to be filed by it under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with the
Schedules to this Agreement furnished by or on behalf of the Company, the
"Disclosure Materials") on a timely basis, or has received a valid extension of
such time of filing. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when 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. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved, except as may be
otherwise indicated in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company as
of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments. Except as disclosed in Schedule 2.1(g) and in the
audited and unaudited balance sheets of the Company included in the SEC
Documents, there are no material liabilities, contingent or otherwise, as to
which the Company or its Subsidiaries, or any of their respective assets is or
may become bound. Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-Q or last filed Annual Report
on Form 10-K, whichever has been most recently filed with the Commission, there
has been no event, occurrence or development that has had a Material Adverse
Effect which is not specifically disclosed in any of the Disclosure Materials.
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(l) Seniority. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation, dissolution
or otherwise.
(m) Investment Company. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(n) Certain Fees. No fees or commissions will be payable by
the Company to any broker, financial advisor, finder, investment banker, or bank
with respect to the transactions contemplated by this Agreement.
(o) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Shares, the Warrants, the Underlying Shares or the Warrant Shares other than
the Disclosure Materials and any amendments and supplements thereto prepared in
compliance herewith or (ii) solicited any offer to buy or sell the Shares, the
Warrants, the Underlying Shares or the Warrant Shares by means of any form of
general solicitation or advertising.
2.2 Representations and Warranties of the Purchasers.
(a) Infinity hereby represents and warrants to the Company as follows:
(1) Organization; Authority. Infinity is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase by Infinity of the Shares
(other than the Seacrest C Preferred; such Shares, the "Infinity Shares") and
the Infinity Warrants hereunder has been duly authorized by all necessary action
on the part of Infinity. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by Infinity or on its behalf and
constitutes the valid and legally binding obligation of Infinity, enforceable
against Infinity in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity.
(2) Investment Intent. Infinity is acquiring the Infinity
Shares, the Infinity Warrants, the Underlying Shares relating to the Infinity
Shares and the Warrant Shares relating to the Infinity Warrants for its own
account for investment purposes only and not with a view to or for distributing
or reselling such Infinity Shares, Infinity Warrants, Underlying Shares or
Warrant Shares or any part thereof or interest therein, without prejudice,
however, to Infinity's right, subject to the provisions of this Agreement and
the Registration Rights Agreement, at all times to sell or otherwise dispose of
all or any part of such Infinity Shares, Underlying Shares, Infinity Warrants or
Warrant Shares pursuant to an effective registration
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<PAGE> 15
statement under the Securities Act and in compliance with applicable State
securities laws or under an exemption from such registration.
(3) Purchaser Status. At the time Infinity was offered the
Infinity Shares and the Infinity Warrants, it was, and at the date hereof, it
is, and at each Closing Date and each exercise date under the Infinity Warrants,
it will be, an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
(4) Experience of Purchaser. Infinity, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Infinity Shares, the
Infinity Warrants, the Underlying Shares relating to the Infinity Shares and the
Warrant Shares, and has so evaluated the merits and risks of such investment.
(5) Ability of Purchaser to Bear Risk of Investment. Infinity
is able to bear the economic risk of an investment in the Infinity Shares, the
Infinity Warrants, the Underlying Shares relating to the Infinity Shares and the
Warrant Shares, relating to the Infinity Warrants and, at the present time, is
able to afford a complete loss of such investment.
(6) Prohibited Transactions. The Infinity Shares and the
Infinity Warrants are not being acquired, directly or indirectly, with the
assets of any "employee benefit plan," within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(7) Access to Information. Infinity acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Infinity Shares and the Infinity Warrants, and
the merits and risks of investing in the Infinity Shares and the Infinity
Warrants; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials.
(8) Reliance. Infinity understands and acknowledges that (i)
the Infinity Shares and the Infinity Warrants are being offered and sold to
Infinity without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act under
Regulation D promulgated thereunder and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and Infinity hereby consents to such reliance.
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<PAGE> 16
The Company acknowledges and agrees that Infinity makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2(a).
(b) Seacrest hereby represents and warrants to the Company as follows:
(1) Organization; Authority. Seacrest is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase by Seacrest of the Seacrest C
Preferred hereunder has been duly authorized by all necessary action on the part
of Seacrest. Each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered by Seacrest or on its behalf and constitutes
the valid and legally binding obligation of Seacrest, enforceable against
Seacrest in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(2) Investment Intent. Seacrest is acquiring the Seacrest C
Preferred and the Underlying Shares relating to the Seacrest C Preferred for its
own account for investment purposes only and not with a view to or for
distributing or reselling such Seacrest C Preferred or Underlying Shares or any
part thereof or interest therein, without prejudice, however, to Seacrest's
right, subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of such
Seacrest C Preferred or Underlying Shares pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(3) Purchaser Status. At the time Infinity was offered the
Seacrest C Preferred it was, and at the date hereof, it is, and at each Closing
Date and each exercise date under the Infinity Warrants, it will be, an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
(4) Experience of Purchaser. Seacrest, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Seacrest C Preferred
and the Underlying Shares relating to the Seacrest C Preferred and has so
evaluated the merits and risks of such investment.
(5) Ability of Purchaser to Bear Risk of Investment. Seacrest
is able to bear the economic risk of an investment in the Seacrest C Preferred
and the Underlying Shares relating to the Seacrest C Preferred and, at the
present time, is able to afford a complete loss of such investment.
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<PAGE> 17
(6) Prohibited Transactions. The Seacrest C Preferred is not
being acquired, directly or indirectly, with the assets of any "employee benefit
plan," within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended.
(7) Access to Information. Seacrest acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Seacrest C Preferred and the merits and risks
of investing therein; (ii) access to information about the Company and the
Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials.
(8) Reliance. Seacrest understands and acknowledges that (i)
the Seacrest C Preferred is being offered and sold to Seacrest without
registration under the Securities Act in a private placement that is exempt from
the registration provisions of the Securities Act under Regulation D promulgated
thereunder and (ii) the availability of such exemption, depends in part on, and
the Company will rely upon the accuracy and truthfulness of, the foregoing
representations and Seacrest hereby consents to such reliance.
The Company acknowledges and agrees that Seacrest makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2(b).
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) If any Purchaser should decide to
dispose of any of the Shares or any portion of Infinity Warrants to be purchased
by it hereunder (and upon conversion or exercise thereof, of any Underlying
Shares or Warrant Shares, as applicable), each Purchaser understands and agrees
that it may do so only (i) pursuant to an effective registration statement under
the Securities Act, (ii) to the Company or (iii) pursuant to an available
exemption or exclusion from the registration requirements of the Securities Act.
In connection with any transfer of any Shares, Infinity Warrants, Underlying
Shares or Warrant Shares other than pursuant to an effective registration
statement or to the Company, the Company may require that the transferor provide
to the Company an opinion of counsel experienced in the area of United States
securities laws selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that
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<PAGE> 18
such transfer does not require registration of such Shares, Infinity Warrants,
Underlying Shares or Warrant Shares, as the case may be, under the Securities
Act.
(b) The Purchasers agree to the imprinting, so long as
appropriate, of the following legend on certificates representing the Shares,
Underlying Shares, Infinity Warrants and Warrant Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE
REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS.
The legend set forth above shall be removed in connection with any
resale of Underlying Shares or Warrant Shares, pursuant to an effective
registration statement under the Securities Act or sooner if, in the opinion of
counsel to the Company experienced in the area of United States securities laws,
such legend is no longer required under applicable requirements of the
Securities Act (including judicial interpretation and pronouncements issued by
the staff of the Commission). The certificates representing the Shares, Infinity
Warrants, Underlying Shares and Warrant Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends may be
removed when, in the opinion of counsel to the Company experienced in the
applicable securities laws, such legends are no longer required under the
applicable requirements of such securities laws. The Company agrees that it will
provide each Purchaser, upon request, with a substitute certificate or
certificates, free from such legend at such time as such legend is no longer
applicable. Each Purchaser agrees that, in connection with any transfer of
Underlying Shares or Warrant Shares by it pursuant to an effective registration
statement under the Securities Act, such Purchaser will comply with all
applicable prospectus delivery requirements of the Securities Act. The Company
makes no representation, warranty or agreement as to the availability of any
exemption from registration under the Securities Act with respect to any resale
of Shares, Underlying Shares, Infinity Warrants or Warrant Shares.
3.2 Stop Transfer Instruction. Each Purchaser agrees that the Company
shall be entitled to make a notation on its records and give instructions to any
transfer agent of the Company in order to implement the restrictions on transfer
set forth in Section 3.1.
3.3 Furnishing of Information. As long as a Purchaser owns Shares,
Underlying Shares, Infinity Warrants or Warrant Shares, the Company covenants to
timely file (or obtain extensions in respect thereof) all reports required to be
filed by the Company after the date
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<PAGE> 19
hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly
furnish each Purchaser with true and complete copies of all such filings. If the
Company is not at the time required to file reports pursuant to such sections,
it will prepare and furnish to each Purchaser annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act in the time period that such filings would have been required to
have been made under the Exchange Act.
3.4 Notice of Certain Events. The Company shall (i) advise each
Purchaser promptly after obtaining knowledge thereof, and, if requested by
either Purchaser, confirm such advice in writing, of the issuance by any state
securities commission of any stop order suspending the qualification or
exemption from qualification of the Shares or the Common Stock for offering or
sale in any jurisdiction, or the initiation of any proceeding for such purpose
by any state securities commission or other regulatory authority, or (ii) use
its best efforts to prevent the issuance of any stop order or order suspending
the qualification or exemption from qualification of the Shares, Warrant Shares
or the Underlying Shares under any state securities or Blue Sky laws, and (iii)
if at any time any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Shares, Warrant Shares or the Underlying Shares under any
such laws, use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
3.5 Copies and Use of Disclosure Materials. The Company shall furnish
each Purchaser, without charge, as many copies of the Disclosure Materials, and
any amendments or supplements thereto, as such Purchaser may reasonably request.
The Company consents to the use of the Disclosure Materials, and any amendments
and supplements thereto, by a Purchaser in connection with resales of the
Shares, the Underlying Shares or the Warrant Shares.
3.6 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as any
Purchaser may request and shall continue such qualification at all times through
the third anniversary of the last Closing Date; provided, however, that neither
the Company nor its Subsidiaries shall be required in connection therewith to
qualify as a foreign corporation where they are not now so qualified or to take
any action that would subject the Company to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
3.7 Integration. The Company shall not and shall use its best efforts
to ensure that no person controlling, controlled by or under common control with
the Company (an "Affiliate") shall sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Shares, the Warrants, the Underlying Shares relating to the Shares or the
Warrant Shares in a manner that would require the registration under the
Securities Act of the
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sale of the Shares, the Warrants, the Underlying Shares or the Warrant Shares to
any Purchaser.
3.8 Certain Agreements. From the date hereof through the final Closing
Date, the Company shall not and shall cause the Subsidiaries not to, without the
consent of each Purchaser, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of a Purchaser;
(ii) declare, authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock except as permitted under the Certificates of
Designation and as would not adversely affect the rights of a Purchaser
hereunder or under the Certificates of Designation; (iii) repay, repurchase or
offer to repay, repurchase or otherwise acquire shares of its Common Stock in
any manner which adversely affects the rights of a Purchaser hereunder or under
the Certificates of Designation; or (iv) enter into any agreement with respect
to any of the foregoing.
3.9 Purchaser Ownership of Common Stock. (a) Infinity may not use its
ability to convert Shares hereunder or under the terms of the Certificates of
Designation or to use its ability to acquire shares of Common Stock upon
exercise of the Infinity Warrants and (b) Seacrest may not use its ability to
convert the Seacrest C Preferred hereunder or under the terms of the
Certificates of Designation, in each case of (a) and (b) above, to the extent
that such conversion or exercise would result in such Purchaser beneficially
owning (for purposes of Rule 13d-3 under the Exchange Act) more than 4.9% of the
outstanding shares of the Common Stock. The Company shall, promptly upon its
receipt of a Holder Conversion Notice tendered by a Purchaser (or its sole
designee) under the Certificates of Designation, and upon its receipt of a
notice of exercise under the terms of the Infinity Warrants, notify such
Purchaser by telephone and by facsimile of the number of shares of Common Stock
outstanding on such date and the number of Underlying Shares and Warrant Shares
which would be issuable to such Purchaser (or its sole designee, as the case may
be) if the conversion requested in such Conversion Notice or exercise requested
in such exercise notice were effected in full, whereupon, notwithstanding
anything to the contrary set forth in the Certificates of Designation or the
Infinity Warrants, such Purchaser may within one Trading Day of its receipt of
the Company notice required by this Section by telephone or by facsimile revoke
such conversion or exercise to the extent (in whole or in part) that it
determines that such conversion or exercise would result in such Purchaser
beneficially owning (for purposes of Rule 13d-3 under the Exchange Act) in
excess of 4.9% of such outstanding shares of Common Stock.
3.10 Listing of Underlying Shares. The Company shall take all steps
necessary to cause the Underlying Shares and Warrant Shares to be approved for
listing in the Nasdaq National Market (as well as on any other national
securities exchange or market on which the Common Stock is then listed) no later
than the first day after which Shares may be converted by any Purchaser into
Common Stock, and shall provide to such Purchasers evidence of such listing, and
shall maintain the listing of its Common Stock on such exchange.
3.11 Conversion Procedures. Exhibit C attached hereto sets forth the
procedures with respect to the conversion of the Preferred Stock, including the
forms of conversion notice
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<PAGE> 21
to be provided upon conversion, instructions as to the procedures for
conversion, the form of legal opinion, if necessary, that shall be rendered to
the Company's transfer agent and such other information and instructions as may
be reasonably necessary to enable the Purchasers to exercise their right of
conversion smoothly and expeditiously.
3.12 Purchaser's Rights if Trading in Common Stock is Suspended. In the
event that at any time within the three-year period after the last Closing Date
trading in the shares of the Common Stock is suspended on the Nasdaq National
Market (other than as a result of the suspension of trading in securities on
such market generally or temporary suspensions pending the release of material
information and other than a suspension of trading on the Nasdaq National Market
if the Common Stock is listed for trading, and not suspended, on the Nasdaq
SmallCap Market within one business day after such suspension), at a Purchaser's
option exercisable by written notice to the Company, the Company shall redeem
all Shares owned by such Purchaser (and, to the extent converted into Underlying
Shares, such Underlying Shares) and all Underlying Shares then held by such
Purchaser, at an aggregate purchase price equal to (A) the product of the per
Share Market Value as of the Trading Day immediately preceding the day of such
notice multiplied by the number of shares of Common Stock into which the Shares
and the Warrants to be purchased are then convertible (or in the case of
Underlying Shares, the number of Underlying Shares to be purchased), plus (B)
interest on such amount accruing from the 7th day after such notice until paid
at the rate of 15% per annum.
3.13 No Violation of Applicable Law. Notwithstanding any provision of
this Agreement to the contrary, if the redemption of shares otherwise required
under this Agreement or the Registration Rights Agreement would be prohibited by
the relevant provisions of the Delaware General Corporation Law, such redemption
shall be effected as soon as it is permitted under such law; provided, however,
that interest payable by the Company with respect to any such redemption shall
continue to accrue in accordance with Section 3.12.
3.14 Redemption Restrictions. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of shares otherwise required under
this Agreement or the Registration Rights Agreement would be prohibited in the
absence of consent from any lender of the Company or any of the Subsidiaries, or
by the holders of any class of securities of the Company, the Company shall use
its best efforts to obtain such consent as promptly as practicable after the
redemption is required. Interest payable by the Company with respect to any such
redemption shall continue to accrue until such consent is obtained. Nothing
contained in this Section 3.14 shall be construed as a waiver by the Purchaser
of any rights it may have by virtue of any breach of any representation or
warranty of the Company herein as to the absence of any requirement to obtain
any such consent.
3.15 Piggyback Registration Rights. During the period commencing the
date hereof and ending on the earlier to occur of (i) the one year anniversary
of the last Closing and (ii) the date the last Underlying Securities
Registration Statement required to be filed by the Company in accordance with
the Registration Rights Agreement is declared effective under the Securities Act
by the Commission, the Company may not file any registration statement that
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<PAGE> 22
provides for the registration of shares of Common Stock to be sold by other
shareholders of the Company unless the Company provides each Purchaser with not
less than seven (7) Trading Days' notice of its intention to file such
registration statement and provides each Purchaser the option to include any or
all of the Underlying Shares and Warrant Shares then owned by it therein as to
which there is not at that time an effective Underlying Securities Registration
Statement. Such registration rights shall not apply to registration statements
relating solely to (i) employee benefit plans notwithstanding the inclusion of a
resale prospectus for securities received under such employee benefit plan, or
(ii) business combinations unless the registration statement relates to
securities to be received by the holders of the Common Stock of the Company.
3.16 Notice of Breaches. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement or in the Registration
Rights Agreement, as well as any events or occurrences arising after the date
hereof and prior to, with respect to the Series C Closing, the Series C Closing
Date, with respect to the Series D Closing, the Series D Closing Date and with
respect to the Series E Closing, the Series E Closing Date which would
reasonably be likely to cause any representation or warranty or other agreement
of such party, as the case may be, contained herein to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to this
Section 3.16 shall be deemed to cure any breach of any representation, warranty
or other agreement contained herein or in the Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify each Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Shares a copy of any written statement in support of or
relating to such claim or notice.
3.17 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver Underlying Shares in accordance with the terms and
conditions and time period set forth in the respective Certificates of
Designation, and to deliver Warrant Shares in accordance with the terms and
conditions and time periods set forth in the Warrants.
3.18 Right of First Refusal. For a period of one year commencing as of
the date hereof, the Company may not enter into any transaction with a person
other than Infinity to sell or otherwise dispose of securities in any
transaction intended not to be subject to the registration requirements of the
Securities Act (a "Private Placement") unless the Company provides a written
notice to Infinity describing the terms of such Private Placement (the "Private
Placement Notice") and attaches to such notice any written term sheet or other
similar writing with respect thereto. Infinity shall have the right, exercisable
within five (5) business days of its receipt of such notice, to elect, by
written notice to the Company to inform the Company of its intention to provide
(or cause an Infinity Affiliate to provide) the financing
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described in the Private Placement Notice on terms no less favorable to the
Company than as set forth in the Private Placement Notice. If Infinity fails to
elect to exercise such right, the Company may enter into the Private Placement,
but only if the Private Placement is on the terms set forth in the notice
provided to Infinity in accordance with this paragraph and provided such Private
Placement is consummated within thirty (30) days after the Company's receipt of
such notice. If such Private Placement does not occur within such period, then
the Company shall not consummate such Private Placement without again providing
Infinity with the right of first refusal set forth in this Section.
3.19 The Warrants. (a) In connection with the Series C Closing, the
Company shall issue (i) to Infinity or as otherwise directed by Infinity, a
common stock purchase Warrant, in the form of Exhibit E(1) (the "Series C
Infinity Warrant"), pursuant to which Infinity shall have the right at any time
thereafter through the fifth anniversary of the date of issuance thereof, to
acquire 275,000 shares of Common Stock at an exercise price per share equal to
135% of the lesser of (1) the average Per Share Market Value for the five (5)
Trading Days immediately preceding the date hereof or (2) the average Per Share
Market Value for the five (5) Trading Days immediately following the
announcement by the Company of its earnings for the quarter ended September 30,
1996 (the lesser such average, the "Applicable Market Price"), (ii) to Brown
Simpson a common stock purchase warrant, in the form of Exhibit E(2) (the "Brown
Simpson Warrant"), pursuant to which Brown Simpson shall have the right at any
time thereafter through the fifth anniversary of the date of issuance thereof,
to acquire 50,000 shares of Common Stock at an exercise price per share equal to
135% of the Applicable Market Price and (iii) to Alpine, a common stock purchase
Warrant, in the form of Exhibit E(3) (the "Alpine Warrant"), pursuant to which
Alpine shall have the right at any time thereafter through the fifth anniversary
of the date of the issuance thereof, to acquire 50,000 shares of Common Stock at
an exercise price per share equal to 135% of the Applicable Market Price.
(b) In connection with the Series D Closing, the Company shall
issue to Infinity or as otherwise directed by Infinity, a common stock purchase
Warrant, in the form of Exhibit E(4) (the "Series D Infinity Warrant"), pursuant
to which Infinity shall have the right at any time thereafter through the fourth
anniversary of the date of issuance thereof, to acquire 75,000 shares of Common
Stock at an exercise price per share equal to 125% of the Market Price
immediately preceding the Series D Closing Date. The Series C Infinity Warrant
and Series D Infinity Warrant are collectively, the "Infinity Warrants" and the
Infinity Warrants, Brown Simpson Warrant and Alpine Warrant are collectively,
the "Warrants."
3.20 Break-up Fee. If the Company fails to issue and sell the Series C
Shares to the Purchasers in accordance with the terms hereof prior to the Series
C Closing Expiration Date for any reason other than the breach of this Agreement
by the Purchasers, the Company shall promptly, and in any event prior to the
10th day thereafter pay to Infinity $100,000, which sum shall be treated as
liquidated damages and not as a penalty. The payment due under this Section
shall be increased by $2,000 for each day that such payment has not been paid
when due, and such daily amount (which shall be treated as additional liquidated
damages and not as a penalty) shall continue to be assessed until the amount
then due is paid in full.
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NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE
COMPANY'S OBLIGATIONS UNDER THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS
AGREEMENT.
3.21 Book Entry Arrangements. No later than the close of business on
the seventh business day after the Series C Closing Date, the Company shall
enter into a book-entry agreement substantially on terms and conditions mutually
satisfactory to each of the Company and the Purchasers, which such book-entry
agreement shall provide for customary paying agency arrangements and book-entry
transfers, conversions and issuance procedures in connection with the Underlying
Shares and the Warrant Shares.
ARTICLE IV
CONDITIONS
4.1(a) Conditions Precedent to the Obligation of the Company to Sell
the Series C Shares. The obligation of the Company to sell the Series C Shares
hereunder is subject to the satisfaction or waiver by the Company, at or before
the Series C Closing, of each of the following conditions:
(i) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Series C Closing Date, as though made on and as of such date;
(ii) Performance by the Purchaser. Each Purchaser
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by each Purchaser at or prior to the Series C
Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement; and
(iv) Required Approvals. All Required Approvals
shall have been obtained other than those relating solely to the Series D Shares
or Series E Shares.
(b) Conditions Precedent to the Obligation of the Purchaser to
Purchase the Series C Shares. The obligation of each Purchaser hereunder to
acquire and pay for the Series C Shares is subject to the satisfaction or waiver
by each Purchaser, at or before the Series C Closing, of each of the following
conditions:
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(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set forth herein
and in the Registration Rights Agreement (except as such representations and
warranties relate to the Brown Simpson Warrant and the Alpine Warrant) shall be
true and correct in all material respects as of the date when made and as of the
Series C Closing Date as though made on and as of such date;
(ii) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Series C Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement;
(iv) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event which in the judgment of the Purchaser had a
Material Adverse Effect and no material adverse change in the financial
condition or prospects of the Company shall have occurred which is not disclosed
in the Disclosure Materials (for purposes hereof changes in the market price of
the Common stock may be considered in determining whether there has occurred an
event which has had a Material Adverse Effect or whether a material adverse
change has occurred);
(v) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by the Commission or
on the Nasdaq National Market (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding the
Company and other than a suspension of trading on the Nasdaq National Market if
the Common Stock is listed for trading, and not suspended, on the Nasdaq
SmallCap Market within one business day after such suspension);
(vi) Listing of Common Stock. The Common Stock shall
have at all times between the date hereof and the Series C Closing Date been,
and on the Series C Closing Date be, listed for trading on the Nasdaq National
Market or on the Nasdaq SmallCap Market;
(vii) Legal Opinion. The Company shall have
delivered to the Purchaser the opinion of Cooley Godward LLP, counsel to the
Company ("Cooley Godward"), in substantially the form attached hereto as Exhibit
D and an opinion of Cooley Godward as required by the Company's transfer agent
to ensure that the Underlying Shares and Warrant Shares are issued free of
restrictive legends upon resale pursuant to an effective registration statement
under the Securities Act;
(viii) Required Approvals. All Required Approvals
shall have been obtained other than those relating solely to the Series D Shares
or the Series E Shares;
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(ix) Shares of Common Stock. On or prior to the
Series C Closing Date, the Company shall have duly reserved for issuance upon
conversion of Series C Shares and exercise of the Warrants 2,424,242 Underlying
Shares and 375,000 Warrant Shares;
(x) Delivery of Stock Certificates. The Company
shall have delivered to each Purchaser or such Purchaser's designee the stock
certificate(s) representing the Series C Shares, registered in the name of such
Purchaser, each in form satisfactory to each Purchaser;
(xi) Registration Rights Agreement. The Company
shall have executed and delivered the Registration Rights Agreement;
(xii) Warrants. The Company shall have executed and
delivered the Warrants (other than the Series D Infinity Warrant) in accordance
with the terms of the Agreement;
(xiii) Certificate of Designation. The Series C
Designation shall have been duly filed with the Secretary of State of Delaware,
and the Company shall have delivered a copy thereof to each Purchaser certified
as filed by the office of the Secretary of State of Delaware;
(xiv) Company Certificates. Each Purchaser shall
have received a certificate, dated the Series C Closing Date, signed by the
Secretary or an Assistant Secretary of the Company and certifying (i) that
attached thereto is a true, correct and complete copy of (A) the Company's
Restated Articles of Organization, as amended to the date thereof, (B) the
Company's By-Laws, as amended to the date thereof, and (C) resolutions duly
adopted by the Board of Directors of the Company authorizing the execution,
delivery and (where appropriate) filing of the Transaction Documents and the
Certificates of Designation and the issuance and sale of the Series C Shares,
the Warrants, the Underlying Shares and the Warrant Shares and (ii) the
incumbency of the officers executing the Transactions Documents, the Series C
Certificate of Designation and the Warrants; and
(xv) Change of Control. No Change of Control (as
hereafter defined) shall have occurred between the date hereof and the Series C
Closing Date.
4.2 Conditions Precedent to the Obligation of each Purchaser to
Purchase the Series D Shares and the Series E Shares. The obligation of each
Purchaser hereunder to acquire and pay for the Series D Shares and the Series E
Shares is subject to the satisfaction or waiver by each such Purchaser, at or
before the Series D Closing and the Series E Closing, as applicable of each of
the following conditions:
(i) Series C Closing. The Series C Closing shall
have occurred.
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(ii) Series D Infinity Warrant. With respect to the
Series E Closing, the Company shall have executed and delivered the Series D
Infinity Warrant in accordance with the terms of this Agreement.
(iii) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained herein
and in the Registration Rights Agreement (except as such representations and
warranties relate to the Brown Simpson Warrant and the Alpine Warrant) shall be
true and correct in all material respects as of the date when made and as of the
Series D Closing Date and the Series E Closing Date, as applicable, as though
made on and as of such date;
(iv) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company at or prior to the Series D Closing Date or the Series E Closing Date,
as applicable;
(v) Underlying Securities Registration Statements.
With respect to the Series D Closing, the Underlying Securities Registration
Statement with respect to the Underlying Shares issuable on conversion of all
outstanding Series C Shares and with respect to the Warrant Shares issuable upon
exercise of the Warrants (other than the Series D Infinity Warrant) shall have
been declared effective under the Securities Act by the Commission; and with
respect to the Series E Closing, the Underlying Securities Registration
Statement with respect to the Underlying Shares issuable on conversion of all
outstanding Series D Shares and with respect to the Warrant Shares issued upon
exercise of the Series D Infinity Warrant shall have been declared effective
under the Securities Act by the Commission; and in each such case such
Underlying Registration Statement shall have remained effective and shall not be
subject to any stop order and no stop order shall be pending or threatened as at
such Closing Date;
(vi) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any of the Shares or exercise of any of the
Warrants;
(vii) Adverse Changes. Since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last filed
prior to the date of this Agreement, no event which in the judgment of the
Purchaser had a Material Adverse Effect which has not specifically been
disclosed on Schedule 2.1(g) hereto prior to the date of this Agreement shall
have occurred, nor shall there have occurred in the judgment of the Purchaser a
material adverse change in the financial conditions or prospects of the Company,
which is not disclosed in the Disclosure Materials (for purposes hereof, changes
in the market price of the Common
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<PAGE> 28
stock may be considered in determining whether there has occurred an event which
has had a Material Adverse Event or whether a material adverse change has
occurred);
(viii) Litigation. No material litigation shall have
been instituted or threatened against the Company which has not specifically
been disclosed on Schedule 2.1(g) hereto prior to the Series C Closing ;
(ix) Management. L. Gary Trimm shall remain in his
current management position without a material diminution of his management
responsibilities as at the date hereof;
(x) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by the Commission or
on the Nasdaq National Market (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding the
Company and except if, at the time there is any suspension on the Nasdaq
National Market, the Common Stock is then listed and approved for trading on the
Nasdaq SmallCap Market within one (1) trading day thereof);
(xi) Listing of Common Stock. The Common Stock shall
have been at all times between the Series C Closing Date, the Series D Closing
Date and the Series E Closing Date, as applicable, and on such applicable
Closing Date be, listed for trading on the Nasdaq National Market or Nasdaq
SmallCap Market.
(xii) Change of Control. No Change of Control in the
Company shall have occurred. "Change of Control" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity of in
excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
(xiii) Legal Opinion. The Company shall have
delivered to each Purchaser an opinion of outside legal counsel to the Company
in substantially the form attached hereto as Exhibit D and dated the applicable
Closing Date;
(xiv) Required Approvals. All Required Approvals
shall have been obtained;
(xv) Shares of Common Stock. On each of the Series D
Closing Date and Series E Closing Date, as applicable, the Company shall have
reserved for issuance to each Purchaser two times the number of Underlying
Shares which would be issuable upon
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conversion in full of the Series D Shares or Series E Shares, as applicable,
assuming such conversion occurred on the Original Issue Date for such Shares;
(xvi) Delivery of Stock Certificates. The Company
shall have delivered to each Purchaser or such Purchaser's designee the stock
certificate(s) representing the Shares, being purchased at such Closing,
registered in the name of such Purchaser, each in form satisfactory to each
Purchaser; and
(xvii) Performance of Conversion/Exercise
Obligations. Through the Series D Closing Date or Series E Closing Date, as
applicable, the Company shall have (a) delivered Underlying Shares upon
conversion of Shares and otherwise performed its obligations in accordance with
the terms, conditions and timing requirements of each Certificate of Designation
and (b) shall have delivered Warrant Shares upon exercise of the Warrants and
otherwise performed its obligations in accordance with the terms of the
Warrants.
ARTICLE V
TERMINATION
5.1 Termination by Mutual Consent. (a) This Agreement may be terminated
with respect to the transactions contemplated herein relating to both the Shares
and the Underlying Shares at any time prior to the Series C Closing by the
mutual consent of the Company and each Purchaser.
(b) This Agreement may be terminated with respect to the
transactions contemplated herein relating solely to the Series D Shares at any
time prior to the Series D Closing by the mutual written consent of the Company
and each Purchaser.
(c) This Agreement may be terminated with respect to the
transactions contemplated herein relating solely to the Series E Shares at any
time prior to the Series E Closing by the mutual written consent of the Company
and each Purchaser.
5.2 Termination by the Company. (a) This Agreement may be terminated
with respect to the transactions contemplated herein relating to both the Shares
and the Underlying Shares prior to the Series C Closing by the Company, by
giving notice of such termination to each Purchaser, if any Purchaser has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement and such breach is not cured within five business
days following receipt by such Purchaser of notice of such breach.
(b) This Agreement may be terminated with respect to the
transactions contemplated herein relating solely to the Series D Shares prior to
the Series D Closing by the Company, by giving notice of such termination to
each Purchaser.
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<PAGE> 30
(c) This Agreement may be terminated with respect to the
transactions contemplated herein relating solely to the Series E Shares prior to
the Series E Closing by the Company, by giving notice of such termination to
each Purchaser.
5.3 Termination by the Purchasers. (a) This Agreement may be terminated
prior to the Series C Closing with respect to the transactions contemplated
herein relating to both the Shares and the Underlying Shares by any Purchaser,
by giving notice of such termination to the Company, if:
(i) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement and such
breach is not cured within five business days following receipt by the
Company of notice of such breach;
(ii) there has occurred an event since the date of
the financial statements included in the Company's Quarterly Report on
Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last
filed prior to the date of this Agreement which has in the judgment of
any Purchaser had a Material Adverse Effect and which is not disclosed
in the SEC Documents or if there has occurred in such Purchaser's
judgment since such date a material adverse change in the financial
condition or prospects of the Company (for each such purpose, each
Purchaser may consider changes in stock price);
(iii) trading in the Company's Common Stock has been
suspended by the Commission or the Nasdaq (other than a suspension of
trading on the Nasdaq National Market if the Common Stock is listed for
trading, and not suspended, on the Nasdaq SmallCap Market within one
business day after such suspension);
(iv) the Company's Common Stock shall have failed to
be listed for trading on the Nasdaq National Market or Nasdaq SmallCap
Market and a Purchaser shall have exercised its termination right
herein provided within 10 business days of obtaining knowledge of such
delisting;
(v) a Change of Control shall have occurred; or
(vi) the Series C Closing shall not have occurred by
the Series C Closing Expiration Date.
(b) This Agreement may be terminated by a Purchaser prior to
the Series D Closing with respect to the transactions contemplated herein
relating solely to the Series D Shares, or prior to the Series E Closing with
respect to the transactions contemplated herein relating solely to the Series E
Shares, by giving notice of such termination to the Company, if:
(i) after the Series C Closing Date, the Company has
breached any representation, warranty, covenant or agreement contained
in this Agreement, the Registration Rights Agreement, any Warrant or
any Certificate of Designation and such
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<PAGE> 31
breach is not cured within five business days following receipt by the
Company of notice of such breach;
(ii) there has occurred an event since the date of
the financial statements included in the Company's Quarterly Report on
Form 10-Q or Annual Report on Form 10-K, whichever is later, last filed
prior to the date of this Agreement which in the judgment of the
Purchaser could have a Material Adverse Effect and which is not
disclosed in the SEC Documents or if there has occurred in a
Purchaser's judgment since such date a material adverse change (for
each such purpose, each Purchaser may consider changes in stock price);
(iii) trading in the Company's Common Stock has been
suspended by the Commission or the Nasdaq (except for any suspension of
trading of limited duration solely to permit dissemination of material
information regarding the Company or other than a suspension of trading
on the Nasdaq National Market if the Common Stock is listed for
trading, and not suspended, on the Nasdaq SmallCap Market within one
business day after such suspension);
(iv) the Company's Common Stock shall have failed to
be listed for trading on either the Nasdaq National Market or Nasdaq
SmallCap Market at any time after the Series C Closing Date and a
Purchaser shall have exercised its termination right herein provided
within 10 Trading Days of obtaining knowledge of any delisting;
(v) the Underlying Securities Registration Statement
with respect to (1) the Underlying Shares into which the Series C
Shares may be converted and (2) the Warrant Shares issuable upon
conversion of the Warrants is not declared effective under the
Securities Act by the Commission prior to the 90th day after the Series
C Closing Date or shall not be effective on such subsequent Closing
Date; the Underlying Securities Registration Statement with respect to
the Underlying Shares into which the Series D Shares may be converted
has not been declared effective under the Securities Act by the
Commission prior to the 90th day after the Series D Closing Date or
shall not be effective on such subsequent Closing Date; or the
Underlying Securities Registration Statement with respect to the
Underlying Shares into which the Series E Shares may be converted in
respect to the Series E Shares has not been declared effective under
the Securities Act by the Commission prior to the 90th day after the
Series E Closing Date; or
(vi) a Change of Control in the Company shall have
occurred.
ARTICLE VI
MISCELLANEOUS
6.1 Fees and Expenses. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by
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such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, except as set forth in the Registration Rights
Agreement and except that the Company shall reimburse the Purchaser at the
Series C Closing, for its legal fees and disbursements of $12,500. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of the Shares pursuant hereto. Each Purchaser shall be responsible for
such Purchaser's own tax liability that may arise as a result of the investment
hereunder or the transactions contemplated by this Agreement.
6.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificates of Designation (each when filed) and the Warrants contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
6.3 Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered on a business day after
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company:
COMPRESSION LABS, INCORPORATED
350 East Plumaria Drive
San Jose, California 95134
Attn: Corporate Secretary
Tel: (408) 435-3000
Fax: (408) 922-5574
With copies to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Deborah Cleveland
Tel: (415) 843-5000
Fax: (415) 857-0663
If to either Purchaser:
27 Wellington Road
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<PAGE> 33
Cork, Ireland
Attn: J. A. Loughran
Fax: 011-44-171-355-4975
With copies to Mr. Stuart Chasanoff
c/o HW Finance
160 Elm Street, Suite 4000
Dallas, Texas 75201
Fax: (214) 720-1662
Brown Simpson, LLC
Carnegie Hall Tower
152 West 57th Street, 40th Floor
New York, NY 10019
Attn: James R. Simpson
Fax: (212) 243-1329
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
6.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
6.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor any Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person, except that the representations, warranties and other
agreements contained herein of the Company are intended for the benefit of and
may be relied upon and enforced by each of Brown Simpson
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and Alpine to the extent such representations, warranties and agreements relate
to the Warrants.
6.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
6.9 Survival. The agreements and covenants contained in Article III and
this Article VI shall survive the delivery and conversion of the Shares pursuant
to this Agreement. and the representations and warranties of the Company and the
Purchasers contained in Article II shall survive until a date that is three
years after the last Closing date.
6.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
6.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement.
6.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
Company:
COMPRESSION LABS, INCORPORATED
By: /s/ Michael E. Seifert
----------------------------------
Name: Michael E. Seifert
Title: Vice President, Finance and
Chief Accouning Officer
Purchasers:
INFINITY INVESTORS, LTD.
By: /s/ James A. Loughran
----------------------------------
Name: James A. Loughran
Title: Director
SEACREST CAPITAL LIMITED
By: /s/ James E. Martin
----------------------------------
Name: James E. Martin
Title: President
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), is made and
entered into as of October 24, 1996, by and among Infinity Investors, Ltd., a
corporation organized and existing under the laws of Nevis, West Indies
("Infinity"), Seacrest Capital Limited, a corporation organized and existing
under the laws of Nevis, West Indies ("Seacrest") (Infinity and Seacrest are
each a "Purchaser" and collectively are the "Purchasers") and Compression Labs,
Incorporated, a Delaware corporation (the "Company").
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated October 24, 1996, by and among the Purchasers and the
Company (the "Purchase Agreement"). The execution of this Agreement is a
condition to the closing of the transactions contemplated by the Purchase
Agreement.
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 4.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" shall mean the Series C Closing Date, the Series D
Closing Date or the Series E Closing Date, as applicable, as further defined in
the Purchase Agreement.
<PAGE> 2
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, $.001 par value per
share.
"Effectiveness Date" means, with respect to a Registration Statement,
the 90th day following the applicable Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 6.
"Event Date" shall have the meaning set forth in Section 6.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means, with respect to a Registration Statement, the 30th
day following the applicable Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 8(c).
"Indemnifying Party" shall have the meaning set forth in Section 8(c).
"Losses" shall have the meaning set forth in Section 8(a).
"New York Courts" shall have the meaning set forth in Section 10(i).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Shares" means the Series C Shares, Series D Shares and
Series E Shares.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A
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<PAGE> 3
promulgated under to the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Securities" means, (a) with respect to the Registration
Statement to be filed after the Series C Closing Date, the Warrant Shares
issuable upon exercise of the Warrants to be delivered in connection with the
closing for the Series C Shares and the shares of Common Stock issuable upon
conversion of the shares of Series C Preferred issued and sold at the closing
for the Series C Shares; and (b) with respect to the Registration Statement to
be filed after the Series D Closing Date, the Warrant Shares issuable upon
exercise of the Warrants to be delivered in connection with the closing for the
Series D Shares and the shares of Common Stock issuable upon conversion of the
shares of Series D Preferred issued and sold at the closing for the Series D
Preferred; and (c) with respect to the Registration Statement to be filed after
the Series E Closing Date, the shares of Common Stock issuable upon conversion
of the shares of Series E Preferred issued and sold at the closing for the
Series E Preferred; provided, however, that in order to account for adjustments
in the conversion ratios, in the case of each of (a), (b) and (c), Registrable
Securities shall include a number of shares of Common Stock equal to no less
than two times the number of shares of Common Stock into which the particular
series of Preferred Stock are convertible assuming conversion in full on the
based the particular Closing Date for such series of Preferred Shares, together
with, in the case of (a) and (b) above, such number of Warrant Shares issuable
upon exercise of the Warrants issued on the particular Closing Date, or such
other number of shares of Common Stock as agreed to by the parties to the
Purchase Agreement. Notwithstanding anything herein contained to the contrary,
if the number of shares of Common Stock into which Preferred Shares are
convertible exceeds twice the number of shares of Common Stock into which the
particular series of Preferred Shares is convertible based upon a computation as
at a particular Closing Date, then the term "Registrable Securities" shall be
deemed to include such additional shares and the Company shall promptly file
appropriate amendments to such Registration Statements to evidence such increase
in the time contemplated herein for filing of appropriate amendments in
accordance with the terms hereof.
"Registration Statement" means the registration statement, contemplated
by Section 2(a), including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
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<PAGE> 4
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Series C Shares" means the shares of the Company's Series C
Convertible Preferred Stock, par value $.001 per share, to be issued and sold
pursuant to the Purchase Agreement.
"Series D Shares" means the shares of the Company's Series D
Convertible Preferred Stock, par value $.001 per share, to be issued and sold
pursuant to the Purchase Agreement.
"Series E Shares" means the shares of the Company's Series E
Convertible Preferred Stock, par value $.001 per share, to be issued and sold
pursuant to the Purchase Agreement.
"Special Counsel" means any special counsel to the Holders, for which
the Holders will be reimbursed by the Company pursuant to Section 7.
"Underwritten Registration" or "Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the Common Stock purchase warrants issued in
accordance with the terms of the Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-1 or another appropriate form
permitting registration of Registrable Securities for resale by the Holders in
the manner or manners designated by them (including, without limitation, public
or private sales and one or more Underwritten Offerings). The Company shall (i)
not permit any securities other than the Registrable Securities to be included
in the Registration Statement and
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<PAGE> 5
(ii) use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until the
date which is three years after the date of this Agreement or such earlier date
when all Registrable Securities covered by such Registration Statement have been
sold or may be sold pursuant to Rule 144 as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to the Holders, to such
effect (the "Effectiveness Period"); provided, however, that the Company shall
not be deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such offering exceeds the amount of Registrable Securities which can
be sold in such offering, there shall be included in such Underwritten Offering
the amount of such Registrable Securities which in the opinion of such managing
underwriters can be sold, and such amount shall be allocated pro rata among the
Holders proposing to sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering and the
Company shall be advised in advance of the identity of any underwriter and the
general terms of the proposed offering. No Holder may participate in any
Underwritten Offering hereunder unless such Person (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
arrangements.
3. Hold-Back Agreements
(a) Restrictions on Public Sale by the Holders. Subject to paragraph
(b) of this Section 3, each Purchaser hereby understands and agrees that its
registration rights pursuant to this Agreement and its ability to offer and sell
Registrable Securities pursuant to the Registration Statement are limited by the
provisions of the immediately following sentence. If the Company determines in
its good faith judgment that the filing of a Registration Statement in
accordance with Section 2 or the use of any Prospectus would require the
disclosure of material information relating to a significant merger or
acquisition to which the Company is a party and to which the
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<PAGE> 6
Company has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to consummate such
significant transaction, upon written notice of such determination by the
Company, the rights of each Purchaser to offer, sell or distribute any
Registrable Securities pursuant to a Registration Statement or to require the
Company to take action with respect to the registration or sale of any
Registrable Securities pursuant to a Registration Statement (including any
action contemplated by Section 4) will, for up to 60 days in respect of a single
such notice or event or series of related events in any 12-month period, be
suspended until the date upon which the Company notifies the Holders in writing
that suspension of such rights for the grounds set forth in this Section 3(a) is
no longer necessary.
(b) Limitation on Blackouts. Notwithstanding anything contained herein
to the contrary, the aggregate number of days (whether or not consecutive)
during which the Company may delay the effectiveness of a Registration Statement
or prevent offerings, sales or distributions by a Purchaser pursuant to
paragraph (a) above or the last paragraph of Section 4 (collectively, a
"Blackout") shall in no event exceed 60 days during any 12-month period, and no
Blackout may continue in consecutive 12 month periods.
4. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission within the time period set
forth in Section 2 a Registration Statement on Form S-1 or another appropriate
form permitting registration of Registrable Securities for resale by the Holders
in accordance with the method or methods of distribution thereof as specified by
the Holders, and cause the Registration Statement to become effective and remain
effective as provided herein; provided, however, that not less than 5 Business
Days prior to the filing of the Registration Statement or any related Prospectus
or any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the
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<PAGE> 7
Registration Statement continuously effective for the applicable time period;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto; and (iv) comply with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than 5 days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective; amendment to the Registration Statement is proposed to be filed;
and (B) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree
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<PAGE> 8
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section 4(e)
that would, in the opinion of counsel for the Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one complete copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing underwriters
or Holders may request at least two Business Days prior to any sale of
Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 4(c)(vi),
as promptly as practicable, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other
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<PAGE> 9
required document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the Nasdaq National Market and
any other securities exchange, market or over-the-counter bulletin board, if
any, on which similar securities issued by the Company are then listed.
(l) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(ii) obtain and deliver copies thereof to each Holder and the managing
underwriters, if any, of opinions of counsel to the Company and updates thereof
addressed to each selling Holder and each such underwriter, in form, scope and
substance reasonably satisfactory to any such managing underwriters and Special
Counsel to the selling Holders covering the matters customarily covered in
opinions requested in Underwritten Offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) immediately
prior to the effectiveness of the Registration Statement, and, in the case of an
Underwritten Offering, at the time of delivery of any Registrable Securities
sold pursuant thereto, obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each selling Holder and each of the underwriters, if
any, in form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 8
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 4(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any
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attorney or accountant retained by such selling Holders or underwriters, at the
offices where normally kept, during reasonable business hours, all financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case requested by
any such Holder, representative, underwriter, attorney or accountant in
connection with the Registration Statement; provided, however, that any
information that is determined in good faith by the Company in writing to be of
a confidential nature at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) disclosure of such information, in the
opinion of counsel to such Person, is required by law; (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source is
not known by such Person to be bound by a confidentiality agreement with the
Company.
(n) Comply with all applicable rules and regulations of the Commission
and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
not later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm commitment or best efforts Underwritten Offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date of the
Registration Statement, which statement shall cover said 12-month period, or end
shorter periods as is consistent with the requirements of Rule 158.
(o) Use its best efforts to cause its legal counsel to render an
opinion at the time the Registration Statement is declared effective by the
Commission, which opinion shall set forth that such legal counsel has
participated in the preparation of the Registration Statement or prospectus
thereunder, as the case may be, and to the knowledge of such legal counsel there
is no reason to believe that the Registration Statement or prospectus
thereunder, as the case may be, contains any untrue statement of material fact
required to be stated therein or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
(except, in the case of the Registration Statement or prospectus thereunder, for
the financial statements, notes thereto and other financial information and
schedules contained therein).
(p) Provide a CUSIP number for all Registrable Securities, not later
than the effective date of the Registration Statement.
The Company may require each selling Holder to furnish to the Company
such information regarding the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement and the Company
may exclude from such registration the
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Registrable Securities of any such Holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (i) the inclusion therein of language, in form and substance
reasonably satisfactory to such Holder, to the effect that the ownership by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such ownership does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) if such reference to such
Holder by name or otherwise is not required by the Securities Act or any similar
federal statute then in force, the deletion of the reference to such Holder in
any amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Purchaser covenants and agrees that (i) it will not offer or sell
any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 4(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 4(c) and (ii) each Purchaser and its officers, directors
or Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to them in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 4(c)(ii), 4(c)(iii), 4(c)(iv), 4(c)(v) or
4(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 4(j),
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration Statement.
5. Required Registrations. If at any time after the date which is three
years from the date of this Agreement, a holder or holders of (in the aggregate)
at least 30% of the Warrant Shares (including holders of Warrants who have not
exercised their right to receive Warrant Shares under such Warrants) shall
notify the Company in writing that it or they desire to offer or cause to be
offered for public sale Warrant Shares having a minimum market value of not less
than $100,000, the Company will so notify all holders of Warrants and
outstanding Warrant Shares. Upon written request of any holder given within 15
days after the receipt by such holder from the Company of such notification, the
Company will use its best efforts to cause such of the Warrant Shares as may be
requested by any holder thereof (including the holder or holders giving the
initial notice of intent to offer) to be registered under the Securities Act as
expeditiously as possible and to keep such registration continuously effective
under the Securities Act until the
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<PAGE> 12
date which is five years from the date of this Agreement. The Company shall not
be required to effect more than two registrations pursuant to this Section 5.
6. Liquidated Damages. The Company acknowledges and agrees that the
Holders will suffer damages, and that it would not be feasible to ascertain the
extent of such damages with precision, if the Company fails to fulfill its
obligations hereunder and (a) a Registration Statement is not filed with the
Commission on or prior to the Filing Date, or (b) a Registration Statement is
not declared effective by the Commission on or prior to the Effectiveness Date
or (c) a Registration Statement is filed and declared effective but thereafter
ceases to be effective at any time during the Effectiveness Period without being
succeeded within 10 Business Days by a subsequent Registration Statement filed
with and declared effective by the Commission (any such failure being
hereinafter referred to as an "Event", and for purposes of clauses (a) and (b)
the date on which such Event occurs, or for purposes of clause (c) the date on
which such 10-day limit is exceeded, being hereinafter referred to as an "Event
Date").
Upon the occurrence of an Event specified in (a) or (b) above, the
Company shall pay to each Holder of Preferred Shares for each month after each
Event Date, two percent (2%) of the aggregate Stated Value of the Preferred
Shares held by each such Holder. Such two percent (2%) monthly payment shall be
paid in advance to each Holder in cash on the monthly anniversary of such Event
Date (commencing the Event Date itself) as liquidated damages, and not as a
penalty. Upon the occurrence of an Event specified in (a) above, the Company
will pay liquidated damages as set forth in the Series C Terms; provided, that
such liquidated damages will, in each case, cease to accrue (subject to the
occurrence of another Event) on the date in which the applicable Registration
Statement is no longer subject to an order suspending the effectiveness thereof
or Proceedings relating thereto or a subsequent Shelf Registration is declared
effective.
The Company shall notify each Holder within five (5) days of each Event
and Event Date. The Company shall pay the liquidated damages due on the
Registrable Securities to each Holder of record as at the Event Date on the
first Business Day of each month in which such liquidated damages shall accrue
by check delivered to the address for notice of such Holder set forth herein.
7. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company whether or not
the Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
National Association of Securities Dealers, Inc. and (B) in compliance with
state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the underwriters or Holders in connection with Blue
Sky qualifications of the Registrable Securities and determination
-12-
<PAGE> 13
of the eligibility of the Registrable Securities for investment under the laws
of such jurisdictions as the managing underwriters, if any, or Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders
(subject to the provisions of Section 7(b)), (v) fees and disbursements of all
independent certified public accountants referred to in Section 4(a)(ii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company so desires such insurance, and (vii)
fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities issued by the Company are then listed.
(b) In connection with the Registration Statement, the Company shall
reimburse the Holders for the reasonable fees and disbursements of one firm of
attorneys chosen by the Holders of a majority of the Registrable Securities.
8. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding
termination of this Agreement and without limitation as to time, indemnify and
hold harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer or sale of
Registrable Securities), brokers, investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's pro-
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<PAGE> 14
posed method of distribution of Registrable Securities and was reviewed and
expressly approved by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. In connection with the Registration
Statement, each Holder shall furnish to the Company in writing such information
as the Company reasonably requests for use in connection with the Registration
Statement or any Prospectus and agrees, severally and not jointly, to indemnify
and hold harmless the Company, their directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of or based solely upon any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
prospectus. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has
-14-
<PAGE> 15
agreed to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section ) shall be paid to the Indemnified Party, as incurred, within 10
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 8(a) or
8(b) is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section would
apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates
to information supplied by, such Indemnifying Party or Indemnified Party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in Section 8(c), any attorneys' or other
fees or expenses incurred by such party in connection with any Proceeding to
the extent such party would have been indemnified for such fees or expenses if
the indemnification provided for in this Section was available to such party.
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<PAGE> 16
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
9. Rule 144
The Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act in a timely manner and, if at any time the
Company is not required to file such reports, they will, upon the request of any
Holder, make publicly available other information so long as necessary to permit
sales of its securities pursuant to Rule 144. The Company further covenants that
it will take such further action as any Holder may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144. Upon the request of any Holder, the
Company shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
10. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the Company nor any of its
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any of its subsidiaries has previously entered into
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<PAGE> 17
any agreement granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Common Stock to be issued under the Purchase Agreement, and the Company shall
not enter into any agreement providing any such right to any of its security
holders.
(d) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of at least a majority of the then outstanding Registrable Securities;
provided, however, that, for the purposes of this sentence, Registrable
Securities that are owned, directly or indirectly, by the Company, or an
Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(e) Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: Compression Labs, Incorporated
350 E. Plumaria Drive
San Jose, California 95134
Attn: Corporate Secretary
Tel: (408) 435-3000
Fax: (408) 922-5574
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<PAGE> 18
With copies to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Deborah Cleveland
Tel: (415) 843-5000
Fax: (415) 857-0663
If to the Purchasers: Infinity Investors, Ltd.
27 Wellington Road
Cork, Ireland
Attn: J. A. Loughran
Fax: 011-44-171-355-4975
-and-
Seacrest Capital Limited
27 Wellington Road
Cork, Ireland
Attn: J. A. Loughran
Fax: 011-44-171-355-4975
With copies to Mr. Stuart Chasanoff
c/o HW Finance
160 Elm Street, Suite 4000
Dallas, Texas 75201
Fax: (214) 720-1662
Brown Simpson, LLC
Carnegie Hall Tower
152 West 57th Street, 40th Floor
New York, NY 10019
Attn: James R. Simpson
Fax: (212) 243-1329
-and-
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Kenneth L. Henderson, Esq.
and Eric L. Cohen Esq.
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<PAGE> 19
Fax: (212) 541-4630
If to any other Person who is
then the registered Holder:
To the address of such Holder as it appears in the stock transfer books of the
Company or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without regard to principles of conflicts of law. The
Company hereby irrevocably submits to the jurisdiction of any New York state
court sitting in the Borough of Manhattan in the City of New York or any federal
court sitting in the Borough of Manhattan in the City of New York (collectively,
the "New York Courts") in respect of any Proceeding arising out of or relating
to this Agreement, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the New York Courts.
The Company irrevocably waives to the fullest extent it may effectively do so
under applicable law any objection that it may now or hereafter have to the
laying of the venue of any such Proceeding brought in any New York Court and any
claim that any such Proceeding brought in any New York Court has been brought in
an inconvenient forum. Nothing herein shall affect the right of any Holder to
serve process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against the company in any other jurisdiction.
(i) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(j) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
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<PAGE> 20
It is hereby stipulated and declared to be the intention of the parties
that they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(l) Shares Held by The Company and its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than a Purchaser or transferees or successors or assigns thereof if such
Persons are deemed to be Affiliates solely by reason of their holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPRESSION LABS, INCORPORATED
By: /s/ Michael E. Seifert
----------------------------------
Name: Michael E. Seifert
Title: Vice President, Finance and
Chief Accouning Officer
Purchasers:
INFINITY INVESTORS, LTD.
By: /s/ James A. Loughran
----------------------------------
Name: James A. Loughran
Title: Director
SEACREST CAPITAL LIMITED
By: /s/ James E. Martin
----------------------------------
Name: James E. Martin
Title: President
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATION
OF
CONVERTIBLE SERIES C PREFERRED STOCK
OF
COMPRESSION LABS, INCORPORATED
(Pursuant to Section 151 of the
Delaware General Corporation Law)
COMPRESSION LABS, INCORPORATED, a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Company"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on October 24, 1996:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Company in accordance with the
provisions of its Certificate of Incorporation, the Board of Directors
hereby creates a series of Preferred Stock, par value $.001 per share,
of the Company and hereby states the designation and number of shares,
and fixes the relative designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions of the
Convertible Series C Preferred Stock (in addition to the provisions set
forth in the Certificate of Incorporation of the Company, which are
applicable to the Preferred Stock of all classes and series), as set
forth on Exhibit A hereto:
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
October 24, 1996.
COMPRESSION LABS, INCORPORATED
/s/ MICHAEL E. SEIFERT
---------------------------------------
MICHAEL E. SEIFERT
Vice President, Finance
1.
<PAGE> 2
EXHIBIT A
TERMS OF
CERTIFICATE OF DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
COMPRESSION LABS, INCORPORATED
Section 1. Designation, Amount and Par Value. The series of Preferred
Stock shall be designated as the Series C Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 350,000. The
par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $20 per share (the "Stated Value").
The Preferred Stock shall rank, with respect to dividends, voting rights,
distributions upon Liquidation (as defined in Section 4) or otherwise, pari
passu with each other series of preferred stock of the Company (each, a
"Subsequent Holder Series") that is authorized and issued to the original holder
of the Preferred Stock pursuant to the Convertible Stock Purchase Agreement,
dated October 24, 1996, between the Company and such original holder (the
"Purchase Agreement").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor,
and the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 4% per annum, in cash or (at
the option of the Company) shares of Common Stock, payable quarterly commencing
three (3) months from the Original Issue Date (as defined in Section 7);
provided, that upon the occurrence and during the continuation of an Event (as
defined in Section 5(d)(i)), the dividend herein provided shall automatically
increase to 6% per annum. Any arrears in payment of dividends hereunder shall be
payable on the Conversion Date (as defined in Section 5(b)) or earlier if so
determined by the Company. Dividends on the Preferred Stock shall accrue daily
commencing on the Original Issue Date, shall be calculated based on the actual
number of days in such quarterly period in a 360 day year and shall be deemed to
accrue on such date whether or not earned or declared and whether or not there
are profits, surplus or other funds of the Company legally available for the
payment of dividends. The party that holds the Preferred Stock on an applicable
record date for any dividend payment will be entitled to receive such dividend
payment and any other accrued and unpaid dividends which accrued prior to such
dividend payment date, without regard to any sale or disposition of such
Preferred Stock subsequent to the applicable record date but prior to the
applicable dividend payment date. Except as otherwise provided herein, if at any
time the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably among
the holders of Preferred Stock.
<PAGE> 3
(b) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 7),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities, unless in each
case all dividends on the Preferred Stock for all past dividend periods shall
have been paid.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise provided by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of the
shares of the Preferred Stock then outstanding, (i) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or (ii) authorize
or create any class of stock ranking as to dividends or distribution of assets
upon a Liquidation senior to, prior to or, except as to any Subsequent Holder
Series, pari passu with the Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the holders
of shares of Preferred Stock shall be entitled to have their Shares redeemed by
the Company. Payment for such redemption shall be from proceeds received out of
the assets of the Company, whether such assets are capital or surplus, for each
share of Preferred Stock an amount equal to the Stated Value, plus an amount
equal to accrued but unpaid dividends per share, whether declared or not,
without interest, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to redeem the Shares in full, then the entire assets of the Company
to be distributed shall be distributed among the holders of Preferred Stock
ratably in accordance with the respective amounts that would be payable on such
shares if such shares were redeemed in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 60 days prior to the payment date stated therein, to each record
holder of Preferred Stock.
Section 5. Conversion.
(a) (i) Each share of Preferred Stock shall be convertible into shares
of Common Stock at the Conversion Ratio (subject to reduction under Section
5(a)(ii) and Section 5(a)(iii)), at the option of the holder in whole or in part
at any time after the expiration of the earlier to occur of (i) 90 days after
the Original Issue Date and (ii) the date the Securities and Exchange Commission
(the "Commission") declares effective under the Securities Act of 1933, as
amended (the
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"Securities Act"), the registration statement contemplated by the Registration
Rights Agreement, dated the Original Issue Date (the "Registration Rights
Agreement"), by and between the Company and the original holder of Preferred
Stock, under which the Company is to register the resale of the shares of Common
Stock issuable upon conversion of the Preferred Stock and related warrants (the
"Underlying Shares Registration Statement"). The holder of the Preferred Stock
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with the form of conversion notice attached hereto as Exhibit A (the
"Holder Conversion Notice") in the manner set forth in Section 5(j). Each Holder
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted (which may not be less than 2,500) and the date on which such
conversion is to be effected, which date will be the date the holder of
Preferred Stock delivers such Notice by facsimile (the "Holder Conversion
Date"). Subject to Section 5(c) and, as to the original holder of the Preferred
Stock (or its sole designee), subject to Section 3.09 of the Purchase Agreement
(as defined in Section 7), each Holder Conversion Notice, once given, shall be
irrevocable.
(ii) If on the Conversion Date applicable to any conversion
under Section 5(a) or 5(b), (A) the Common Stock is then listed for trading on
the Nasdaq National Market, (B) the Conversion Price (as defined below) then in
effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion of all outstanding shares of Preferred Stock,
together with any shares of Common Stock previously issued upon conversion of
Preferred Stock, would exceed 19.9% of the then outstanding shares of Common
Stock (the "Issuable Maximum"), and (C) the Company has not previously obtained
Shareholder Approval (as defined below), then the Company shall issue to the
converting holder of Preferred Stock the Issuable Maximum and, with respect to
any shares of Common Stock that would be issuable to such holder, in respect of
the Conversion Notice at issue in excess of the Issuable Maximum, the Company
shall have the option to either (x) as promptly as possible, but in no event
later than 60 days after such Conversion Date, convene a meeting of the holders
of the Common Stock and obtain the Shareholder Approval or (y) redeem the
balance of the Preferred Stock subject to such Conversion Notice for a
redemption price equal to the product of (A) the Per Share Market Value and (B)
the Conversion Ratio (as defined in Section 7) (the "Redemption Price"), each as
calculated on the Conversion Date; provided, however, that if the Company elects
to obtain the Shareholder Approval under paragraph (x) above and the Company
fails for any reason to obtain such Shareholder Approval within the time period
set forth in (x) above, the Company shall be obligated to redeem the Preferred
Stock not converted as a result of the provisions of this Section in accordance
with the provisions of paragraph (y) above, and in such case the interest
contemplated by the immediately succeeding sentence shall be deemed to accrue
from the Conversion Date. If the Company shall have elected to redeem shares of
Preferred Stock pursuant to this Section and fails for any reason to pay the
Redemption Price under (ii) above within seven days after the Conversion Date,
the Company will pay interest on the Redemption Price at a rate of 15% per
annum, in cash to the converting holder of Preferred Stock, accruing from the
Conversion Date until the Redemption Price and any accrued interest thereon is
paid in full. "Shareholder Approval" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting of the
shareholders of the Company held in accordance
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<PAGE> 5
with the Company's Certificate of Incorporation and by-laws, of the issuance by
the Company of shares of Common Stock exceeding the Issuable Maximum as and to
the amount required by the rules of the Nasdaq Stock Market.
(iii) If on any Conversion Date applicable to a conversion
under Section 5(a) or Section 5(b) the average Per Share Market Value for the
five (5) Trading Days immediately preceding such Conversion Date exceeds the
Initial Conversion Price (defined in Section 5(d)(i) below) by more than 50%,
the number of shares issuable upon conversion of the Preferred Stock subject to
the Conversion Notice triggering such conversion shall be reduced by a number of
shares equal to 50% of (A) the amount by which the average Per Share Market
Value for the five (5) Trading Days immediately preceding such Conversion Date
exceeds the Initial Conversion Price, divided by (B) the average Per Share
Market Value for the five (5) Trading Days immediately preceding such Conversion
Date, times (C) the number of shares of Common Stock which would otherwise be
issuable upon such conversion, but for the reduction provided for in this
Section 5(a)(iii). For example, if the Initial Conversion Price is equal to $6
per share, the average Per Share Market Value for the five (5) Trading Days
immediately preceding the Conversion Date is $12 and the holder tenders for
conversion 100,000 shares of Preferred Stock, then the 333,333 shares of Common
Stock otherwise issuable upon such conversion shall be reduced by 83,333, which
equal 50% of (A) 12-6 divided by (B) 12, multiplied by 333,333. Therefore, the
Company will deliver 250,000 shares of Common Stock upon such conversion.
(b) Provided that ten (10) Trading Days shall have elapsed from the
date the Commission has declared the Underlying Securities Registration
Statement effective under the Securities Act, each share of the Preferred Stock
shall be convertible into shares of Common Stock at the Conversion Ratio
(subject to reduction under Section 5(a)(ii) and Section 5(a)(iii)) at the
option of the Company in whole or in part at any time on or after the expiration
one year after the Original Issue Date; provided, however, that the Company is
not permitted to deliver a Company Conversion Notice (as defined below) within
ten (10) days after issuing any press release or other public statement relating
to such conversion or if the Underlying Securities Registration Statement is not
then effective (or if the use of any prospectus thereunder is suspended) or
during the continuance of any Event (as defined in Section 5(d)(i)); and
provided, further, that the Company shall have no right to deliver a Company
Conversion Notice and effect the conversion of shares of Preferred Stock under
this Section 5(b) unless either (i) all of such shares may be converted into
shares of Common Stock in accordance with Section 5(a)(ii); or (ii) all of such
shares may be redeemed and the entire Redemption Price paid in full in
accordance with such Section without violating the Delaware General Corporation
Law or any agreement binding upon the Company or a combination of (i) or (ii)
above. The Company shall effect such conversion by delivering to the holders of
such shares of Preferred Stock to be converted a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the number of shares of Preferred Stock to be converted and
the date on which such conversion is to be effected, which date will be at least
one (1) Trading Day after the date the Company delivers such Notice by facsimile
to
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<PAGE> 6
the holder (the "Company Conversion Date"). The Company shall give such Company
Conversion Notice in accordance with Section 5(j) below at least one (1) Trading
Day before the Company Conversion Date. Any such conversion shall be effected on
a pro rata basis among the holders of Preferred Stock. Upon the conversion of
shares of Preferred Stock pursuant to a Company Conversion Notice, the holders
of the Preferred Stock shall surrender the certificates representing such shares
at the office of the Company or of any transfer agent for the Preferred Stock or
Common Stock not later than three (3) Trading Days after the Company Conversion
Date. Each of a Holder Conversion Notice and a Company Conversion Notice is
sometimes referred to herein as a "Conversion Notice," and each of a "Holder
Conversion Date" and a "Company Conversion Date" is sometimes referred to herein
as a "Conversion Date."
(c) Not later than three (3) Trading Days after the Conversion Date,
the Company will deliver to the holder of Preferred Stock (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those then required by law), representing the number of shares of
Common Stock being acquired upon the conversion of shares of Preferred Stock
(subject to any reduction required pursuant to Section 5(a)(ii) or Section
5(a)(iii)), and (ii) one or more certificates representing the number of shares
of Preferred Stock not converted; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any shares of Preferred Stock (or with respect to
shares subject to redemption pursuant to Section 5(a)(ii), to pay the Redemption
Price under such Section) until certificates evidencing such shares of Preferred
Stock are either delivered for conversion to the Company or any transfer agent
for the Preferred Stock or Common Stock, or the holder of Preferred Stock
notifies the Company that such certificates have been lost, stolen or destroyed
and provides a bond (or other adequate security reasonably acceptable to the
Company) reasonably satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. The Company shall, upon request
of the holder of Preferred Stock, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 5(c) electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. In the case of a
conversion pursuant to a Holder Conversion Notice, if such certificate or
certificates are not delivered by the date required under this Section 5(c), the
holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
If the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section prior to the fifth (5th) Trading Day after the
Conversion Date, the Company shall pay to such holder, in cash, as liquidated
damages, $1,500 for each day after such fifth (5th) Trading Day until such
certificates are delivered.
(d) (i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
(1) the average Per Share Market Value for the five (5) Trading Days immediately
preceding the date of the Purchase Agreement or (2) the average Per Share Market
Value of the five (5) Trading Days immediately
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<PAGE> 7
following the announcement by the Company of its earnings results for the
quarter ended September 30, 1996, whichever is lower ((1) or (2) being the
"Initial Conversion Price") and (b) 80% of the average Per Share Market Value
for the five (5) Trading Days immediately preceding the Conversion Date;
provided that, if an Underlying Securities Registration Statement is filed with
and declared effective by the Commission but thereafter ceases to be effective
at any time prior to the "Effectiveness Period" (as such term as defined in the
Registration Rights Agreement), without being succeeded within 10 Business Days
by a subsequent registration statement filed with and declared effective by the
Commission (any such failure being referred to as an "Event" other than a
failure due to the circumstances described in Section 3 of the Registration
Rights Agreement between the Company and the Purchasers whenever such Section 3
is applicable, and the date on which such 10 Business Day limit is exceeded
being referred to as an "Event Date"), the Conversion Price shall be decreased
by 1% each month (i.e. 79% for the first month commencing the day after such
Event Date and 78% for the second month commencing the day after such Event
Date) until such time as a subsequent registration statement is declared
effective by the Commission. The provisions of this Section are not exclusive
and shall in no way limit the Company's obligations under the Registration
Rights Agreement.(1)
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make any
distributions on shares of its Junior Securities payable in shares of its
capital stock (whether payable in shares of its Common Stock or of capital stock
of any class), (b) subdivide outstanding shares of Common Stock into a larger
number of shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the Initial Conversion Price designated
in Section 5(d)(i) shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock of the Company outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
5(d)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such
- -----------------
(1) For each of the certificates of designation for the Series D and
Series E Preferred Stock the following paragraph (i) shall be substituted for
paragraph (i) in Section 5(d) of the Series C Designation:
(i) The conversion price for each share of Preferred Stock (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (a)(1) in the
case of any conversion pursuant to a Company Conversion Notice, the average Per
Share Market Value for the five (5) Trading Days immediately preceding the
Original Issue Date or (2) in the case of any conversion pursuant to a Holder
Conversion Notice, 101% of the average Per Share Market Value for the ten (10)
Trading Days immediately preceding the Original Issue Date (in either such case,
the "Initial Conversion Price") and (b) [ ]% of the average Per Share Market
Value for the five (5) Trading Days immediately preceding the Conversion Date.
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<PAGE> 8
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Initial Conversion Price designated in
Section 5(d)(i) shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Initial Conversion Price
designated in Section 5(d)(i) pursuant to this Section 5(d)(iii), if any such
right or warrant shall expire and shall not have been exercised, the Initial
Conversion Price designated in Section 5(d)(i) shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those referred
to in Section 5(d)(iii) above), then in each such case the Initial Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
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<PAGE> 9
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted
pursuant to Section 5(d)(ii),(iii), (iv) or (v), the Company shall promptly mail
to the holders of Preferred Stock, a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the holders of Preferred Stock then
outstanding shall have the right thereafter to convert such shares only into the
shares of stock and other securities and property receivable upon or deemed to
be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of
Preferred Stock shall be entitled upon such event to receive such amount of
securities or property as the shares of the Common Stock into which such shares
of Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange would
have been entitled. The terms of any such consolidation, merger, sale, transfer
or share exchange shall include such terms so as to continue to give to the
holder of Preferred Stock the right to receive the securities or property set
forth in this Section 5(d)(vii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
(A) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(B) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
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<PAGE> 10
(C) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
(D) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company (other than a subdivision or
combination of the outstanding shares of
Common Stock), any consolidation or merger
to which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, or any compulsory
share exchange whereby the Common Stock is
converted into other securities, cash or
property; or
(E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding-up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last respective addresses as they shall
appear upon the stock books of the Company, at least 30 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(e) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall, at
least 30 calendar days prior to the effective date of such action, mail a
written notice to each holder of Preferred Stock briefly describing the action
contemplated and the material adverse effects of such action on the rights of
such holders and an Appraiser selected by the holders of majority in interest of
the Preferred Stock shall give its
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<PAGE> 11
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 5), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which shares of Preferred
Stock may thereafter be convertible) and any distribution which is or would be
required to preserve without diluting the rights of the holders of shares of
Preferred Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of Directors shall
make the adjustment recommended forthwith upon the receipt of such opinion or
opinions or the taking of any such action contemplated, as the case may be;
provided, however, that no such adjustment of the Conversion Price shall be made
which in the opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
(f) The Company (i) represents and warrants that as of the Original
Issue Date, it has duly reserved solely for issuance upon conversion of
Preferred Stock, as herein provided, out of its authorized and unissued Common
Stock free from preemptive rights or any other actual or contingent purchase
rights of persons other than holder of Preferred Stock, twice the number of
shares of Common Stock as would be issuable upon conversion of the Preferred
Stock if such conversion had occurred on the Original Issue Date and (ii)
covenants that it will at all times reserve and keep available out of its
authorized and unissued Common Stock solely for the purpose of issuance upon
conversion of Preferred Stock as herein provided, free from preemptive rights or
any other actual or contingent purchase rights of persons other than the holders
of Preferred Stock, such number of shares of Common Stock as shall be issuable
(taking into account the adjustments and restrictions of Section 5(d) hereof)
upon the conversion of the aggregate of all outstanding shares of Preferred
Stock. The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and fully
paid and nonassessable.
(g) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not to, or is unable to, make such a cash payment, the holder of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(h) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
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<PAGE> 12
(i) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
(j) Each Holder Conversion Notice shall be given by facsimile and by
mail, postage prepaid, addressed to the attention of the Chief Financial Officer
of the Company at the facsimile telephone number and address of the principal
place of business of the Company. Each Company Conversion Notice shall be given
by facsimile and by mail, postage prepaid, addressed to each holder of Preferred
Stock at the facsimile telephone number and address of such holder appearing on
the books of the Company or provided to the Company by such holder for the
purpose of such Company Conversion Notice, or if no such facsimile telephone
number or address appears or is so provided, at the principal place of business
of the holder. Any such notice shall be deemed given and effective upon the
earliest to occur of (i)(a) if such Conversion Notice is delivered via facsimile
at the facsimile telephone number specified in this Section 5(j) prior to 4:30
p.m. (Eastern Standard Time) on any date, such date (or, in the case of a
Company Conversion Notice, the next Trading Day) or such later date as is
specified in the Conversion Notice, and (b) if such Conversion Notice is
delivered via facsimile at the facsimile telephone number specified in this
Section 5(j) after 11:59 p.m. (Eastern Standard Time) on any date, the next date
(or, in the case of a Company Conversion Notice, the next Trading Day after such
next day) or such later date as is specified in the Conversion Notice, (ii) five
days after deposit in the United States mails or (iii) upon actual receipt by
the party to whom such notice is required to be given.
Section 6. Company Redemption Options.
(a) The Company shall have the right, exercisable at any time upon 10
Trading Days notice to the Purchaser given at any time on or after the first
anniversary of the Original Issue Date in the manner set forth in Section 5(j)
(the "Optional Redemption Notice"), to redeem, from funds legally available
therefor at the time of such redemption, all or any portion of the shares of
Preferred Stock which have not previously been converted or redeemed at a price
per share (the "Optional Redemption Price") equal to the product of 125%
multiplied by (A) the average Per Share Market Value for the five Trading Days
immediately preceding (1) the date of the Optional Redemption Notice or (2) the
date of payment in full by the Company of the Optional Redemption Price,
whichever is greater, multiplied by (B) the Conversion Ratio (using for such
calculation the formula of Conversion Price for a Company Conversion Notice)
calculated on (1) the date of the Optional Redemption Notice or (2) the date of
payment by the Company of the Optional Redemption Price, whichever date yields a
lower Conversion Price denominator for the determination of the Conversion
Ratio. The entire Optional Redemption Price shall be paid in cash.
(b) Up to and including the 45th day after the Original Issue Date, the
Company shall have the right, exercisable at any time upon 1 Business Day notice
to the Purchaser given at any time up to and including such 45th day in the
manner set forth in Section 5(j) (the "Early Redemption Notice"), to redeem,
from funds legally available therefor at the time of such redemption, all or any
portion of the shares of Preferred Stock which have not previously been
converted or redeemed at
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<PAGE> 13
a price per share (the "Early Redemption Price") equal to (i) if such Early
Redemption Notice is delivered on or prior to the 15th day after the Original
Issue Date the product of 115% or (ii) if such Early Redemption Notice is
delivered between the 16th and 45th day after the Original Issue Date the
product of 120%, multiplied by, in either case, the Initial Conversion Price.
The entire Early Redemption Price shall be paid in cash.(2)
(c) If the entire Optional Redemption Price or Early Redemption Price,
as the case may be, shall not be paid within three (3) Business Days of (i) in
the case of a redemption pursuant to paragraph (a) above, the 10th Business Day
after the date of the Optional Redemption Notice or (ii) in the case of a
redemption pursuant to paragraph (b) above, the 10th Business Day after the date
of the Early Redemption Notice, as the case may be, then the Company shall pay
as liquidated damages and not as a penalty the sum of $2,000 per day in cash
until such Optional Redemption Price or Early Redemption Price, as the case may
be, together with all such liquidated damages, is paid in full. In addition, if
the Company shall have failed to pay any portion of the Optional Redemption
Price or Early Redemption Price, as the case may be, within such three (3)
Business Day period, then any holder of Preferred Stock may at any time
thereafter demand that the Company (i) convert in accordance with the formula
and time frame thereafter set forth in Section 5 for a conversion at the option
of the holder all or any portion of its shares of Preferred Stock for which the
Optional Redemption Price or Early Redemption Price, as the case may be, shall
not have been paid (the "Unredeemed Shares") at a Conversion Price per share
calculated as at the date the Company provided the Optional Redemption Notice or
Early Redemption Notice, as the case may be, or the date of such conversion,
whichever is lower, or (ii) promptly return all of the Unredeemed Shares to the
holders of the Preferred Stock.
(iii) Nothing contained in this Section 6 shall affect the
holder's right to convert shares of Preferred Stock for the 10 days from the
date it receives the Optional Redemption Notice or Early Redemption Notice.
Section 7. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Business Day" means any day of the year on which commercial banks are
not required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
- -------------
(2) Section 6(b) shall only be included in the Series C Certificate of
Designation.
-12-
<PAGE> 14
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is the Stated Value plus accrued but unpaid dividends, and of which
the denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock, and all other classes of
equity securities of the Company, except for the Subsequent Holder Series.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq National
Market or other stock exchange on which the Common Stock has been listed or if
there is no such price on such date, then the closing bid price on such exchange
on the date nearest preceding such date, or (b) if the Common Stock is not
listed on The Nasdaq National Market or any stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the Nasdaq Stock Market at the close of business on such date, or (c) if the
Common Stock is not quoted on the Nasdaq Stock Market, the closing bid price for
a share of Common Stock in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), or (d) if the Common Stock is
not reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the holder, or (e) if the Common Stock is not
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser (as defined in Section 5(d)(iv) above) selected in good faith by
the holders of a majority in interest of the shares of the Preferred Stock;
provided, however, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser, in which
case, the fair market value shall be equal to the average of the determinations
by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq National Market or principal stock exchange on which the Common Stock
has been listed, or (b) if the Common Stock is not listed on The Nasdaq National
Market or any stock exchange, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the Nasdaq Stock Market, or (c) if the
Common Stock is not quoted on the Nasdaq Market, a day on which the Common Stock
is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices).
-13-
<PAGE> 15
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder to Convert shares of Series C Preferred
Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series C Convertible Preferred Stock indicated below into shares of Common
Stock, par value $.001 per share (the "Common Stock"), of Compression Labs,
Incorporated (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
____________________________________________________________
Date to Effect Conversion
____________________________________________________________
Number of shares of Series C Preferred Stock to be Converted
____________________________________________________________
Applicable Conversion Price
____________________________________________________________
Number of shares of Common Stock to Issue
____________________________________________________________
Signature
____________________________________________________________
Name:
____________________________________________________________
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile and telephone of the number of shares
of Common Stock outstanding on such date and the number of shares of Common
Stock which would be issuable to the holder if the conversion requested in this
conversion notice were effected in full, whereupon, the holder may, within one
day of the notice from the Company, revoke the conversion requested hereby in
whole or in part if determines that such conversion would result in it owning in
excess of 4.9% of the outstanding shares of Common Stock on such date, and the
Company shall issue to the holder one or more certificates representing shares
of Series C Preferred Stock which have not been converted as a result of this
provision. If the holder waives the applicability of this limitation by notice
to the Company delivered upon its receipt of the Company's notice regarding the
number of outstanding shares of Common Stock or if the holder fails to respond
to the Company's notice within one day thereafter, the Company shall effect in
full the conversion requested in this notice.
<PAGE> 16
EXHIBIT B
COMPRESSION LABS, INCORPORATED
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Compression Labs, Incorporated (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert [ ] shares of its Series C Convertible
Preferred Stock held by the Holder into shares of Common Stock, par value $.001
per share (the "Common Stock") of the Company according to the terms hereof, as
of the date written below. No fee will be charged to the Holder for any
conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person other
than the person to whom this notice is addressed.
Conversion calculations:
________________________________________________________________
Date to Effect Conversion
________________________________________________________________
Number of Shares of Series C Preferred Stock to be Converted
________________________________________________________________
Applicable Conversion Price
________________________________________________________________
Number of Shares of Common Stock outstanding at close of trading
on Conversion Date
________________________________________________________________
Number of shares of Common Stock to Issue
________________________________________________________________
Signature
________________________________________________________________
Name:
________________________________________________________________
Address:
<PAGE> 1
Exhibit 99.1
CLI ANNOUNCES THIRD QUARTER RESULTS AND $20 MILLION FINANCING COMMITMENT
October 24, 1996, 4:44 PM EDT
SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 24, 1996--Compression Labs Inc. (CLI)
(NASDAQ:CLIX) announced today that it has entered into an agreement with an
institutional investor to privately issue up to $20 million of convertible
preferred stock.
The company also announced third quarter results.
FINANCING COMMITMENT
The direct investment was completed with investment funds advised by Brown
Simpson LLC, a New York-based fund advisory firm engaged by CLI. Under the
financing terms, the company will complete an initial placement of $7 million
and has the option to fund the remaining amount in two separate installments.
The shares are convertible into CLI common stock commencing in the first quarter
of 1997.
Gary Trimm, president and chief executive officer of CLI, said: "The funding
will strengthen our balance sheet and allow us to confidently continue our
turnaround strategy. This long-term relationship with Brown Simpson and the
investor gives us the flexibility to pursue the optimum course of action to
further CLI shareholders' interests."
"We are extremely excited to enter into a financial relationship with
Compression Labs. The company's technology and management team create tremendous
long-term growth potential, making this a particularly appealing investment
opportunity," said Michael Fein, an associate with Brown Simpson, LLC.
Third Quarter Results
CLI reported revenues from continuing operations of $20.6 million and a net loss
of $1.6 million, or $0.10 per share, for the third quarter ended Sept. 30, 1996,
compared to revenues from continuing operations of $28.4 million and a net loss
from continuing operations of $109,000, or $0.01 per share for the same quarter
last year.
For the nine months ended Sept. 30, 1996, revenues from continuing operations
were $65.6 million, and the net loss was $7.5 million, compared to revenues from
continuing operations of $86.2 million and a net loss from continuing operations
of $3.6 million for the same period last year.
"Our bookings rate was comparable with last quarter's approximately $25 million;
however, timing and terms of key orders late in the quarter contributed to a
revenue shortfall. We only shipped $1.2 million of the $4.7 million order from
the Gansu Province of the People's Republic of China. In addition, our quarter
ended a few days ahead of the Federal government's year-end cutoff," continued
Trimm.
1.
<PAGE> 2
"While the timing issue in the third quarter caused disappointing results, I am
still pleased by the overall progress in the turnaround of the company. Gross
margin percentages improved significantly, increasing to 47% in the third
quarter of this year compared to 43% for the same period a year ago. This
improvement was driven by favorable product mix and manufacturing efficiencies.
"The increase in selling, general and administrative expenses from the prior
quarter was impacted by activities associated with consolidating two divisions
into one, including relocating all CLI employees into a single corporate
headquarters building. However, operating expenses decreased to $11.0 million in
the third quarter of 1996 from $12.0 million for the same period in 1995,
reflecting progress in our turnaround efforts.
"We continue to focus on manufacturing productivity and our newly obtained
financing gives us the flexibility to design products with more market appeal
and stronger margins. Our investment in research and development is steady and
is key to returning top line sales growth," concluded Trimm.
CLI strengthened its high performance videoconferencing position by adding
increased functionality and audio and video quality improvements to its product
lines. Earlier in the quarter CLI announced the first of a new suite of audio
products to enhance the overall audio experience in videoconferencing for
eclipse and Radiance.
The eclipse gold, with increased bandwidth to 768 kbps and new A+ audio, raised
the bar on mid-range videoconferencing quality at a more competitive price. CLI
is currently the only videoconferencing vendor with T.120 gateways across its
entire product line with the recent introduction of T.120 on the
high-performance Radiance system.
CLI added a number of new customers in the third quarter, including the State of
Ohio, which has developed a significant distance education network and the
Province of Gansu in China which ordered 85 Radiance systems. CLI continued to
strengthen its presence in the federal government and added the U.S. Army
Medical Command, Office of Naval Intelligence, the Los Angeles Air Force Base,
and the Army National Guard to its installed base. In addition, Boeing
supplemented their installed network with additional Rembrandt II/VP codecs.
Statements in this press release which are not historical facts may be
considered "forward-looking statements" regarding CLI's business. CLI's
operating results are subject to a variety of risks and actual results may
differ significantly. For a discussion of such risks as well as further
information about CLI's operating results, please see CLI's Annual report on
Form 10-K for the year ended Dec. 31, 1995 and on the Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996, filed with the Securities and Exchange
Commission.
CLI, based in San Jose, Calif., is a leading provider of high performance
videoconferencing solutions for business, government, education and healthcare
organizations. Founded in 1976, CLI has sales offices across the United States,
with international offices in Asia and Europe, and distributors serving more
than 50 countries worldwide.
2.
<PAGE> 3
COMPRESSION LABS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
Sept. 30, 1996 Sept. 30, 1995 June 30, 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 20,577 $ 28,444 $ 25,014
Cost of Revenues 10,954 16,295 14,171
Gross Margin 9,623 12,149 10,843
Operating Expenses:
Selling, general and administrative 7,933 9,665 7,396
Research and Development 3,040 2,377 2,982
-------- -------- --------
10,973 12,042 10,378
Income (loss) from operations:
(1,350) 107 465
Interest, net (260) (216) (190)
Net Income (loss) from continuing
operations (1,610) (109) 275
Net loss from discontinued
operations -- (82) --
Net income (loss) $ (1,610) $ (191) $ 275
Net income (loss) per share:
Net income (loss) from continuing
operations $ (0.10) $ (0.01) $ 0.02
Net loss from discontinued
operations -- -- --
Net incomes (loss) per share $ (0.10) $ (0.01) $ 0.02
Weighted average common shares
outstanding 15,774 15,265 15,806
</TABLE>
4.
<PAGE> 4
COMPRESSION LABS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
Sept. 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues $ 65,612 $ 86,224
Cost of Revenues 36,232 51,987
Gross Margin 29,380 34,237
Operating Expenses:
Selling, general and
administrative 26,786 29,199
Research and development 9,472 6,934
Settlement of Litigation -- 897
-------- --------
36,258 37,030
Net Loss from operations: $ (6,878) $ (2,793)
Interest, net (662) (762)
Net Loss from continuing
operations $ (7,540) $ (3,555)
Net Income from discontinued
operations -- 1,374
Net Loss $ (7,540) $ (2,181)
Net income (loss) per share:
Net loss from continuing
operations $ (0.48) $ (0.23)
Net income from discontinued
operations -- 0.09
Net loss per share $ (0.48) $ (0.14)
Weighted average common shares
outstanding 15,616 15,191
</TABLE>
5.
<PAGE> 5
COMPRESSION LABS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Sept. 30, June 30, Dec. 31,
1996 1996 1995
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
Current Assets $ 5,761 $ 5,177 $ 12,638
Cash and cash equivalents
Accounts receivable, less allowance for
doubtful accounts of $6,848 in September
1996, $7,703 in June 1996, and $10,028 in
1995 31,565 38,863 46,798
Inventories 12,640 11,393 22,821
Other current assets 749 753 1,096
Total Current Assets 50,715 56,176 83,353
Property and Equipment
Furniture and fixtures 8,242 9,256 9,551
Machinery and equipment 22,835 20,888 25,802
Equipment under capital leases -- -- 2,090
31,077 30,144 37,443
Accumulated depreciation and amortization (19,911) (18,262) (20,171)
11,166 11,882 17,272
Capitalized software, net 3,560 3,561 3,828
Other Assets 290 290 300
Total Assets $ 65,726 $ 71,909 104,753
</TABLE>
6.
<PAGE> 6
LIABILITIES AND STOCKHOLDERS'
EQUITY
<TABLE>
<S> <C> <C> <C>
Current Liabilities
Short-term debt $ 12,408 $ 12,482 $ 13,452
Current portion of capital lease obligations -- 506 506
Accounts payable 11,394 14,381 26,169
Accrued liabilities 7,951 8,311 21,689
Deferred revenue 4,748 6,460 6,278
--------- --------- ---------
Total current liabilities 36,501 41,634 68,094
Long-term debt and capital lease obligations -- -- 985
Stockholders' Equity
Preferred Stock -
Undesignated Preferred Stock, $.001 par
value; 4,000,000 shares authorized, none
issued and outstanding -- -- --
Common Stock -
$.001 par value; 25,153,658 shares
authorized; shares issued and outstanding
15,863,788 in September 1996, 15,631,048
in June 1996, and 15,491,475 in 1995 16 16 16
Additional paid-in capital 121,786 121,226 120,696
Accumulated deficit (92,577) (90,967) (85,037)
Total stockholders' equity 29,225 30,275 35,674
Total Liabilities and Stockholders' Equity $ 65,726 $ 71,909 $ 104,753
</TABLE>
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