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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) August 7, 1998
ALPHA MICROSYSTEMS
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 0-10558 95-3108178
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification incorporation) No.)
2722 SOUTH FAIRVIEW STREET, SANTA ANA, CALIFORNIA 92704
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code) (714) 957-8500
NOT APPLICABLE
(Former Name or Former Address, If Changed Since Last Report.)
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ITEM 5. OTHER EVENTS.
On August 7, 1998 Alpha Microsystems (the "Company") and ING
Equity Partners II, L.P. ("ING") signed a Securities Purchase Agreement (the
"Purchase Agreement") whereby ING agreed, subject to certain conditions, to
invest up to $20 million in redeemable exchangeable preferred stock (the
"Redeemable Preferred Stock") of the Company. The Purchase Agreement provides
for the purchase of Redeemable Preferred Stock, Voting Preferred Stock, and
Warrants by ING in three tranches of $8 million, $7 million, and up to $5
million. The terms and conditions of ING's investments are subject to the
certain conditions, including the Company's completion of the acquisition of
Delta CompuTec Inc. on or before the closing (the "First Closing") of the first
tranche, which must occur on or before September 4, 1998. The second and third
tranches of $7 million and up to $5 million, respectively, are also subject to
approval of the Company's shareholders.
Dividends will be payable on the Redeemable Preferred Stock to
be purchased by ING at an initial 9% cumulative annual dividend rate, which
increases to 11% on July 1, 2000 and thereafter increases an additional 1%
annually. The Redeemable Preferred Stock is subject to mandatory redemption upon
the earlier of (i) June 30, 2000 (extended to June 30, 2005 upon the closing of
the second tranche), (ii) a change in control of the Company, or (iii) a
material default in the Company's obligations under the ING transaction
documents or the terms of any indebtedness for borrowed money in excess of
$1,000,000. In addition, ING has the option to require the Company to exchange
the Redeemable Preferred Stock for subordinated debentures with interest,
maturities, and other terms substantially similar to the Redeemable Preferred
Stock at any time after October 30, 1998 (December 31, 1999 if the second
tranche is closed).
In connection with ING's initial $8 million investment in
Redeemable Preferred Stock, ING will be granted warrants (the "Initial
Warrants") to purchase 2,181,448 shares, or approximately 19.9% of the currently
outstanding shares of common stock of the Company, for an initial price $1.50
per share. In the event shareholder approval is obtained and the closing (the
"Second Closing") of the second tranche of $7 million occurs, the price at which
ING will be permitted to purchase such stock will be increased to $2.50 per
share, and ING will be granted warrants (the "Second Closing Warrants") to
purchase for $2.50 per share additional shares of common stock which, together
with the shares purchasable pursuant to the Initial Warrants, will total
5,833,188 shares, or approximately 33% percent of the outstanding shares of the
common stock of the Company on a fully diluted, post-issuance basis. The Second
Closing must occur on or before October 30, 1998. If the Company elects to close
(the "Third Closing") the third tranche, subject to certain conditions ING will
invest up to an additional $5 million, the proceeds from which must be used for
certain acquisitions. In such event, ING will be granted warrants (the "Third
Closing Warrants") to purchase for $2.50 per share additional shares of common
stock which, together with the shares purchasable pursuant to the Initial
Warrants and the Second Closing Warrants will total up to 8,753,626 shares, or
approximately 42% of the outstanding shares of common stock of the Company on a
fully diluted, post-issuance basis. The Third Closing must occur, if at all, on
or before June 30, 1999. If the Company elects to redeem the Redeemable
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Preferred Stock prior to June 30, 2000, the shares purchasable pursuant to the
Warrants will be reduced by approximately 600,000 shares, assuming all three
tranches are closed.
The Warrants expire on August 6, 2008 and contain certain
provisions, including provisions providing for an optional cashless exercise and
anti-dilution provisions in the event of certain future dilutive issuances of
common stock or convertible securities. These adjustments vary depending on the
type of action taken by the Company.
In general, except as required by law or as set forth in the
Certificate of Determination, holders of Redeemable Preferred Stock will not be
entitled to vote. However, the holders of the Redeemable Preferred Stock have
the right to approve certain significant corporate actions, including the
issuance of securities, acquisitions, dispositions, and other material
transactions other than in the ordinary course of business and consistent with
past practice. In addition, the holders of the Voting Preferred Stock are
entitled to vote together with the holders of the common stock on all matters
submitted to the shareholders for consideration, vote or approval, and to cast
the number of same number of votes as a holder of the shares of common stock
issuable upon exercise of the then unexercised portion of the Warrants held by
such holder of Voting Preferred Stock would be entitled to cast. The Voting
Preferred Stock is not entitled to dividends, and in the event of a liquidation
of the Company, is entitled to be paid the original cost of the Voting Preferred
Stock before payment is made upon any shares of any other class of capital stock
of the Company other than the Redeemable Preferred Stock.
Pursuant to the Purchase Agreement, the Company has agreed to
expand its board of directors to six members as of the First Closing, and elect
two members designated by ING to the Company's board of directors at the First
Closing. At the Second Closing, the number of members of the Company's board of
directors will be increased to seven and ING will have the right to designate a
total of three nominees to serve on the board of directors. In addition, the
Purchase Agreement grants ING certain rights to purchase its pro rata share of
certain issuances of new securities offered by the Company.
There is no assurance that any of the three tranches of the
ING Transaction will be consummated.
A copy of the Securities Purchase Agreement, the Certificate
of Determination of Rights and Preferences of Class A Cumulative, Redeemable and
Exchangeable Preferred Stock, Class B Cumulative, Redeemable and Exchangeable
Preferred Stock, Class C Cumulative, Redeemable and Exchangeable Preferred Stock
and Voting Preferred Stock, and the Form of Warrant Certificate are attached to
this Form 8-K as exhibits and are incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Item Exhibit No.
Certificate of Determination of Rights and Preferences of 4
Class A Cumulative, Redeemable and Exchangeable Preferred
Stock, Class B Cumulative, Redeemable and Exchangeable
Preferred Stock, Class C Cumulative, Redeemable and
Exchangeable Preferred Stock, and Voting Preferred Stock
Securities Purchase Agreement 10.1
Form of Warrant Certificate 10.2
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.
Date: August 10, 1998 ALPHA MICROSYSTEMS
By: /s/ Douglas J. Tullio
Douglas J. Tullio
President and Chief Executive
Officer
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EXHIBIT 4
CERTIFICATE OF
DETERMINATION OF RIGHTS AND PREFERENCES
OF
CLASS A CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS B CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK,
CLASS C CUMULATIVE, REDEEMABLE AND EXCHANGEABLE PREFERRED STOCK
AND
VOTING PREFERRED STOCK
OF
ALPHA MICROSYSTEMS, a California corporation
PURSUANT TO THE PROVISIONS OF SECTION 401
OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA
Douglas J. Tullio and John F. Glade hereby certify that:
FIRST: They are the President and Secretary, respectively, of Alpha
Microsystems, a California corporation (the "Company").
SECOND: That the Board of Directors of the Company, pursuant to the
authority so vested in it by the Articles of Incorporation of the Company and in
accordance with the provisions of Section 401 of the General Corporation Law of
the State of California (the "California Corporation Law"), duly adopted the
following resolutions creating the following classes of Preferred Stock
designated as (i) Class A Cumulative, Redeemable and Exchangeable Preferred
Stock (the "Class A Preferred Stock"), (ii) Class B Cumulative, Redeemable and
Exchangeable Preferred Stock (the "Class B Preferred Stock"), (iii) Class C
Cumulative, Redeemable and Exchangeable Preferred Stock (the "Class C Preferred
Stock") and (iv) Voting Preferred Stock (the "Voting Preferred Stock").
THIRD: That the following resolutions designate (i) 8,000 shares of Class A
Preferred Stock, (ii) 7,000 shares of Class B Preferred Stock, (iii) 5,000
shares of Class C Preferred Stock, and (iv) 100 shares of Voting Preferred
Stock, and that as of the date hereof, no shares of Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock or Voting Preferred Stock have
been issued.
FOURTH: The resolutions duly adopted by the Board of Directors of the
Company are as follows:
WHEREAS the Articles of Incorporation of the Company authorize Preferred
Stock consisting of 5,000,000 shares, no par value per share, issuable from time
to time in one or more series; and
WHEREAS the Board of Directors of the Company is authorized, subject to
limitations prescribed by law and by the provisions of Article FOURTH of the
Company's Articles of Incorporation, as amended, to establish and fix the number
of shares to be included in any class of Preferred Stock and the designation of
rights, preferences, privileges and restrictions of the shares of such class;
and
WHEREAS it is the desire of the Board of Directors to establish and fix the
number of shares to be included in new classes of Preferred Stock and the
designation of rights, preferences privileges and restrictions of the shares of
such new classes;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article FOURTH of the
Company's Articles of Incorporation, as amended, there is hereby established the
following new classes of Preferred Stock with such designations and authorized
number of shares as set forth herein: (i) 8,000 shares of Class A Cumulative,
Redeemable and Exchangeable Preferred Stock (the "Class A Preferred Stock"),
(ii) 7,000 shares of Class B Cumulative, Redeemable and Exchangeable Preferred
Stock (the "Class B
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Preferred Stock"), (iii) 5,000 shares of Class C Cumulative, Redeemable and
Exchangeable Preferred Stock (the "Class C Preferred Stock") and (iv) 100 shares
of Voting Preferred Stock (the "Voting Preferred Stock"). Each share of such
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and
Voting Preferred Stock shall have the rights, preferences, privileges and
restrictions set forth in the following Determination of Rights, Preferences,
Privileges and Restrictions of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Voting Preferred Stock (the "Determination of
Preferred Stock"):
A. Class A Preferred Stock.
1. Definitions. As used in this subsection A of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the
Company as amended and restated and in effect at the time in question.
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Company of any class, and any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Exchange Triggering Date" means October 30, 1998; provided, that in the
event the Second Closing is consummated in full, the Exchange Triggering Date
shall be deemed to be December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(c) of this
subsection A, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection A.
"Maturity Date" means, with respect to any Class A Preferred Stock or
Notes issued in exchange for Class A Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2000 (the
"Calendar Maturity Date"); provided, that the Calendar Maturity Date shall be
deemed to be June 30, 2005, in the event the transactions contemplated by the
Second Closing Date are consummated in full.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection A.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class A Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred A Holders" means holders of Class A Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis
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points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Event" has the meaning ascribed to it in Section A.5(a) of
this Determination of Preferred Stock.
"Redemption Price" has the meaning ascribed to it in Section A.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred A Holders" means the holders representing a
majority of the then outstanding shares of Class A Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A Preferred Stock, Class B Preferred
Stock and Class C Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred A Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum and for the periods set forth below:
<TABLE>
<CAPTION>
RATE PER
PERIOD ANNUM
------ --------
<S> <C>
Until June 30, 2000......................................... 9.0%
July 1, 2000 to June 30, 2001............................... 11.0%
July 1, 2001 to June 30, 2002............................... 12.0%
July 1, 2002 to June 30, 2003............................... 13.0%
July 1, 2003 to June 30, 2004............................... 14.0%
July 1, 2004 to June 30, 2005............................... 15.0%
</TABLE>
(subject to appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) per
share per annum, and no more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Class A Preferred Stock, Class B Preferred Stock and
Class C Preferred Stock (which shall rank on a par with the Class A Preferred
Stock) or other class or series of stock ranking on a par with, or senior to the
Class A Preferred Stock in respect of dividends (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board.
(b) Such dividends shall accrue with respect to each share of Class A
Preferred Stock from the date on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if such
dividends on the Class A Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or set apart
for any Junior Stock and before any purchase or acquisition of any Junior Stock
is made by the Company, except the repurchase of Junior Stock from employees of
the Company upon termination of employment or as otherwise approved by the
Requisite Preferred A Holders.
(c) Dividends shall be payable in cash, quarterly in arrears. To the extent
dividends are not paid on each September 30, December 31, March 31 and June 30,
(each a "Dividend Reference Date") all dividends which have accrued on each
share of Class A Preferred Stock during the three-month period (or shorter
period in the case of the first or last period) ending on each Dividend
Reference Date will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid in full in cash. Each
dividend
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paid in cash shall be mailed to the holders of record of the Class A Preferred
Stock as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend payment
date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred A Holders
shall be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any other class or
series of stock of the Company ranking on liquidation prior and in preference to
the Class A Preferred Stock (collectively referred to as "Senior Preferred
Stock"), but before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to the Liquidation Value per
share of Class A Preferred Stock. If upon any such Liquidation of the Company
the remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Class A
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Class A Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Class A Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) The merger or consolidation of the Company into or with another
corporation which results in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or caused to be issued or
paid by such other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50 percent of the
voting securities of the Company), or the sale of all or substantially all the
assets of the Company, shall be deemed to be a Liquidation of the Company for
purposes of this Section 3 of this subsection A, unless a majority of the
Preferred A Holders vote otherwise. The amount deemed distributed to the holders
of Class A Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights and/or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b), (c) and (d)
below, the Preferred A Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred A Holders:
(i) in any manner authorize, issue or sell any shares of Class A
Preferred Stock other than as contemplated by the Purchase Agreement or this
Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change the
designations, preferences, privileges or relative, optional or other special
rights, or the qualifications, limitations or restrictions thereof, of the Class
A Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection A of this
Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the Articles of
Incorporation or By-laws in a manner that would adversely affect the
preferences, privileges or rights of the Preferred A Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred A Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite Preferred A Holders
specifying the names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of
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members of the Board that the Investor is then entitled to designate but whose
seats on the Board are at the time vacant.
(ii) The Company will give each Observer reasonable prior notice (it
being agreed that the same prior notice given to the Board shall be deemed
reasonable prior notice) in any manner permitted in the Company's By-laws for
notices to directors of the time and place of any proposed meeting of the Board,
such notice in all cases to include true and complete copies of all documents
furnished to any director in connection with such meeting. Each such Observer
will be entitled to be present in person as an observer at any such meeting or,
if a meeting is held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all papers
which may be distributed from time to time to the directors of the Company at
such time as such papers are so distributed to them, including copies of any
written consent.
(d) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material agreement
or material transaction, other than in the ordinary course of business and
consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise agree to any
joint venture, licensing arrangement with, any other person.
(iii) enter into any arrangement which would reasonably be expected to
result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, or spinoff or splitoff any material assets,
properties or Securities except sales of inventory and used, obsolete, worn out
or unnecessary equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise dispose of any
significant portion of its Intellectual Property Rights;
(vi) except in the ordinary course of business and consistent with past
practice, waive, release or cancel any material claims against third parties or
material debts owing to it, or any material rights which have any material
value;
(vii) make any material changes in its accounting systems, policies,
principles or practices except in the ordinary course of business and consistent
with past practice;
(viii) enter into, authorize, or permit any transaction with Affiliates,
or modify in any material respect the employment, compensation or other
arrangements with the executive officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants or exchangeable Securities, commitments, subscriptions, rights to
purchase or otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any such capital
stock or other Securities;
(x) split, combine, or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than dividends on the Preferred
Stock) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem or otherwise
acquire any capital stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and consistent with past
practice, make any borrowings, incur any Indebtedness, or assume, guarantee,
endorse or otherwise become liable (whether directly, contingently or otherwise)
for the obligations of any other Person;
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(xii) except in the ordinary course of business and consistent with past
practice, make any loans, advances or capital contributions to, or investments
in, any other Person.
(xiii) exercise the Company's option to require exchange of the
Preferred Stock pursuant to Section 7(a) of this subsection A.
5. Redemption.
(a) Subject to the Company having funds legally available for such purpose,
the Company shall redeem all of the shares of the Class A Preferred Stock then
outstanding, on the Maturity Date (a "Redemption Event"). The per share
redemption price at which shares of Class A Preferred Stock are to be redeemed
pursuant to this Section 5(a) of this subsection A shall be equal to the
Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds of such offering
toward the redemption of shares of Preferred Stock (other than Voting Preferred
Stock), on a pro rata basis (determined on the basis of the number of shares of
Preferred Stock (other than Voting Preferred Stock), held by such holder over
the total number of shares of Preferred Stock (other than Voting Preferred
Stock) outstanding) from the Holders of Preferred Stock at the Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as set
forth in Sections 5(a) and (b) of this subsection A, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class A Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection A (unless default shall be made by
the Company in the payment of the Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of the Class A Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
(e) Any communication or notice relating to redemption given pursuant to
this Section 5 of this subsection A shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred A Holders, at their
respective addresses as the same shall appear on the books of the Company, or to
the Company at the address of its principal, or registered office, as the case
may be.
(f) At any time on or after the Redemption Date, the Preferred A Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Company or its agents of the certificates representing the shares of the Class A
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection A shall be paid in cash.
(h) Any shares of Class A Preferred Stock which are redeemed, or otherwise
acquired by the Company shall be canceled and shall not be reissued (as treasury
shares), sold or transferred as Class A Preferred but such shares shall become
unclassified Preferred Stock of the Company.
(i) Notwithstanding the foregoing provisions of this Section 5 of this
subsection A, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Series A
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Series A Preferred Stock.
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6. Maturity Default.
(a) The occurrence of any of the following events of default shall, at the
option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with any of
its obligations under any of the Transaction Documents or the Fundamental
Documents;
(ii) a material default occurs under any mortgage, indenture or other
instrument under which there may be secured or evidenced any indebtedness
for money borrowed by the Company if the principal amount of such
indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity Default
until the Company does not cure the default within 30 days of the Company having
Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may waive an
existing default or Maturity Default and its consequences. When a default or
Maturity Default is waived, it ceases.
7. Exchange.
(a) Subject to the requirements of Section 500 of the California
Corporation Law, the Requisite Preferred A Holders and the Company shall have
the option at any time and from time to time following the Exchange Triggering
Date to exchange all or any portion of the shares of Class A Preferred Stock
outstanding into the Company's Subordinated Debentures (the "Notes") to be
issued substantially in the form attached as Exhibit D to the Purchase Agreement
in the amount of $1,000 principal amount of Notes for each $1,000 of Liquidation
Value of Class A Preferred Stock; provided, however, that no such exchange may
be consummated unless full cumulative dividends (including, without duplication,
full cumulative dividends pro rata for the elapsed portion of the current
dividend period) on the Class A Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of $1,000 at
the time of exchange. If any additional amounts ("Fractional Principal Amounts")
would otherwise be issuable to any holders of Preferred Stock, then the Company
shall, in lieu of issuing a Fractional Principal Amount therefor, pay in full
payment of the Company's obligation with respect to such Fractional Principal
Amounts, to each Preferred A Holder an amount in cash equal to such Fractional
Principal Amount.
(b) Any exchange pursuant to this Section 7 shall be made upon not less
than 30 days' notice prior to the date fixed for exchange (the "Exchange Date").
The notice given shall state that, upon surrender of their certificate or
certificates to the Company, the holders of Class A Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection A above and
that, at the close of business on the Exchange Date, all rights of the holders
with respect to such shares so called for exchange shall cease, except the right
to receive the Notes in the amount set forth in Section 7(a) of this subsection
A. Except as may be otherwise required by applicable law, the form of the Notes
may only be amended or supplemented before the first Exchange Date which occurs
with the affirmative vote or consent of the Requisite Preferred A Holders. On or
after such first Exchange Date, the Notes may only be amended or supplemented as
provided in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the rate
and on the dates specified in Notes from and after the relevant Exchange Date.
(c) Notwithstanding the foregoing provisions of this Section 7 of this
subsection A, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Series A Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Series A Preferred Stock.
A-7
<PAGE> 8
B. Class B Preferred Stock.
1. Definitions. As used in subsection B of this Determination of Preferred
Stock, capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Purchase Agreement. In addition, the following
capitalized terms have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the
Company as amended and restated and in effect at the time in question.
"By-laws" means the By-laws of the Company, as amended and in effect from
time to time.
"Board" means the Board of Directors of the Company.
"Common Stock" means, collectively, all of the Common Stock, no par value,
of the Company of any class, and any other class of capital stock of the Company
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(c) of this
subsection B, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection B.
"Maturity Date" means, with respect to any Class B Preferred Stock or Notes
issued in exchange for Class B Preferred Stock, the earliest to occur of (i) a
Maturity Default, (ii) a Change of Control or (iii) June 30, 2005; provided,
that the Maturity Date shall be December 31, 2000 with respect to Class B
Preferred Stock which is issued in connection with a Spinoff Transaction.
"Maturity Default" shall have the meaning set forth in Section 6(a) of this
subsection B.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class B Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation an
individual, a partnership, a corporation, an association, a joint stock company,
a limited liability company, a trust, a joint venture, an unincorporated
organization and a Governmental Authority.
"Preferred B Holders" means holders of Class B Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the basis
of a 360-day year; provided, that in the event dividends are not paid in full in
cash on any applicable Dividend Reference Date or upon any Redemption Date, the
Rate per Annum for the applicable period shall be increased by 500 basis points
(e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per Annum) until
such dividends are paid in full in cash.
"Redemption Event" has the meaning ascribed to it in Section B.5(a) of this
Determination of Preferred Stock.
"Redemption Price" has the meaning ascribed to it in Section B.5(a) of this
Determination of Preferred Stock.
"Requisite Preferred B Holders" means the holders of a majority of the then
outstanding shares of Class B Preferred Stock.
A-8
<PAGE> 9
"Requisite Preferred Holders" means the holders representing a majority of
the then outstanding shares of Class A Preferred Stock, Class B Preferred Stock
and Class C Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred B Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum and for the periods set forth below:
<TABLE>
<CAPTION>
RATE PER
PERIOD ANNUM
------ --------
<S> <C>
Until June 30, 2000......................................... 9.0%
July 1, 2000 to June 30, 2001............................... 11.0%
July 1, 2001 to June 30, 2002............................... 12.0%
July 1, 2002 to June 30, 2003............................... 13.0%
July 1, 2003 to June 30, 2004............................... 14.0%
July 1, 2004 to June 30, 2005............................... 15.0%
</TABLE>
(subject to appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) per
share per annum, and no more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Class A Preferred Stock, Class B Preferred Stock and
Class C Preferred Stock (which shall rank on a par with the Class B Preferred
Stock) or other class or series of stock ranking on a par with, or senior to the
Class B Preferred Stock in respect of dividends (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board.
(b) Such dividends shall accrue with respect to each share of Class B
Preferred Stock from the date on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if such
dividends on the Class B Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or set apart
for any Junior Stock and before any purchase or acquisition of any Junior Stock
is made by the Company, except the repurchase of Junior Stock from employees of
the Company upon termination of employment or as otherwise approved by the
Requisite Preferred B Holders.
(c) Dividends shall be payable in cash, quarterly in arrears. To the extent
dividends are not paid on each September 30, December 31, March 31 and June 30,
(each a "Dividend Reference Date") all dividends which have accrued on each
share of Class B Preferred Stock during the three-month period (or shorter
period in the case of the first or last period) ending on each Dividend
Reference Date will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid in full in cash. Each
dividend paid in cash shall be mailed to the holders of record of the Class B
Preferred Stock as their names and addresses appear on the share register of the
Company or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred B Holders
shall be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any other class or
series of stock of the Company ranking on liquidation prior and in preference to
the Class B Preferred Stock (collectively referred to as "Senior Preferred
Stock"), but before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to the Liquidation Value per
share of Class B Preferred
A-9
<PAGE> 10
Stock. If upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be insufficient to
pay the holders of shares of Class B Preferred Stock the full amount to which
they shall be entitled, the holders of shares of Class B Preferred Stock and any
class or series of stock ranking on liquidation on a parity with the Class B
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Company in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) The merger or consolidation of the Company into or with another
corporation which results in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or caused to be issued or
paid by such other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50 percent of the
voting securities of the Company), or the sale of all or substantially all the
assets of the Company, shall be deemed to be a Liquidation of the Company for
purposes of this Section 3 of this subsection B, unless a majority of the
Preferred B Holders vote otherwise. The amount deemed distributed to the holders
of Class B Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights and/or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b), (c) and (d)
below, the Preferred B Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred B Holders:
(i) in any manner authorize, issue or sell any shares of Class B
Preferred Stock other than as contemplated by the Purchase Agreement or
this Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change the
designations, preferences, privileges or relative, optional or other
special rights, or the qualifications, limitations or restrictions thereof,
of the Class B Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection B of
this Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the Articles of
Incorporation or By-laws in a manner that would adversely affect the
preferences, privileges or rights of the Preferred B Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred B Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite Preferred B Holders
specifying the names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of members of the Board that
the Investor is then entitled to designate but whose seats on the Board are at
the time vacant.
(ii) The Company will give each Observer reasonable prior notice (it
being agreed that the same prior notice given to the Board shall be deemed
reasonable prior notice) in any manner permitted in the Company's By-laws
for notices to directors of the time and place of any proposed meeting of
the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting.
Each such Observer will be entitled to be present in person as an observer
at any such meeting or, if a meeting is held by telephone conference, to
participate therein for the purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all papers
which may be distributed from time to time to the directors of the Company
at such time as such papers are so distributed to them, including copies of
any written consent.
A-10
<PAGE> 11
(d) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material agreement
or material transaction, other than in the ordinary course of business and
consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise agree to
any joint venture, licensing arrangement with, any other person.
(iii) enter into any arrangement which would reasonably be expected to
result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, or spinoff or splitoff any material assets,
properties or Securities except sales of inventory and used, obsolete, worn
out or unnecessary equipment or fixtures in the ordinary course of business
and consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise dispose of
any significant portion of its Intellectual Property Rights;
(vi) except in the ordinary course of business and consistent with
past practice, waive, release or cancel any material claims against third
parties or material debts owing to it, or any material rights which have
any material value;
(vii) make any material changes in its accounting systems, policies,
principles or practices except in the ordinary course of business and
consistent with past practice;
(viii) enter into, authorize, or permit any transaction with
Affiliates, or modify in any material respect the employment, compensation
or other arrangements with the executive officers of the Company or any
Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants or exchangeable Securities, commitments, subscriptions,
rights to purchase or otherwise) any shares of capital stock or any other
Securities of the Company or any Subsidiary, or amend any of the terms of
any such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than dividends on the
Preferred Stock) or other distribution (whether in cash, stock or property
or any combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any capital stock or other Securities of the Company or
any Subsidiary;
(xi) except in the ordinary course of business and consistent with
past practice, make any borrowings, incur any Indebtedness, or assume,
guarantee, endorse or otherwise become liable (whether directly,
contingently or otherwise) for the obligations of any other Person;
(xii) except in the ordinary course of business and consistent with
past practice, make any loans, advances or capital contributions to, or
investments in, any other Person.
(xiii) exercise the Company's option to require exchange of the
Preferred Stock pursuant to Section 7(a) of this subsection B.
5. Redemption.
(a) Subject to the Company having funds legally available for such purpose,
the Company shall redeem all of the shares of the Class B Preferred Stock then
outstanding, on the Maturity Date (a "Redemption Event"). The per share
redemption price at which shares of Class B Preferred Stock are to be redeemed
pursuant to this Section 5(a) of this subsection B shall be equal to the
Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds
A-11
<PAGE> 12
of such offering toward the redemption of shares of Preferred Stock (other than
Voting Preferred Stock), on a pro rata basis (determined on the basis of the
number of shares of Preferred Stock (other than Voting Preferred Stock), held by
such holder over the total number of shares of Preferred Stock (other than
Voting Preferred Stock) outstanding) from the Holders of Preferred Stock at the
Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as set
forth in Sections 5(a) and (b) of this subsection B, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class B Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection B (unless default shall be made by
the Company in the payment of the Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of the Class B Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
(e) Any communication or notice relating to redemption given pursuant to
this Section 5 of this subsection B shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred B Holders, at their
respective addresses as the same shall appear on the books of the Company, or to
the Company at the address of its principal, or registered office, as the case
may be.
(f) At any time on or after the Redemption Date, the Preferred B Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Company or its agents of the certificates representing the shares of the Class B
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection B shall be paid in cash.
(h) Any shares of Class B Preferred Stock which are redeemed, or otherwise
acquired by the Company shall be canceled and shall not be reissued (as treasury
shares), sold or transferred as Class B Preferred but such shares shall become
unclassified Preferred Stock of the Company.
(i) Notwithstanding the foregoing provisions of this Section 5 of this
subsection B, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Series B
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Series B Preferred Stock.
6. Maturity Default.
(a) The occurrence of any of the following events of default shall, at the
option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with any of
its obligations under any of the Transaction Documents or the Fundamental
Documents;
(ii) a material default occurs under any mortgage, indenture or other
instrument under which there may be secured or evidenced any indebtedness
for money borrowed by the Company if the principal amount of such
indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity Default
until the Company does not cure the default within 30 days of the Company having
Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may waive an
existing default or Maturity Default and its consequences. When a default or
Maturity Default is waived, it ceases.
A-12
<PAGE> 13
7. Exchange.
(a) Subject to the provisions of Section 500 of the California Corporation
Law, the Requisite Preferred B Holders and the Company shall have the option at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class B Preferred Stock outstanding
into the Company's Subordinated Debentures (the "Notes") to be issued
substantially in the form of Exhibit D of the Purchase Agreement in the amount
of $1,000 principal amount of Notes for each $1,000 of Liquidation Value of
Class B Preferred Stock; provided, however, that no such exchange may be
consummated unless full cumulative dividends (including, without duplication,
full cumulative dividends pro rata for the elapsed portion of the current
dividend period) on the Class B Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of $1,000 at
the time of exchange. If any additional amounts ("Fractional Principal Amounts")
would otherwise be issuable to any holders of Preferred Stock, then the Company
shall, in lieu of issuing a Fractional Principal Amount therefor, pay in full
payment of the Company's obligation with respect to such Fractional Principal
Amount, to each Preferred B Holder an amount in cash equal to such Fractional
Principal Amount.
(b) Any exchange pursuant to this Section 7 shall be made upon not less
than 30 days' notice prior to the date fixed for exchange (the "Exchange Date").
The notice given shall state that, upon surrender of their certificate or
certificates to the Company, the holders of Class B Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection B and that, at
the close of business on the Exchange Date, all rights of the holders with
respect to such shares so called for exchange shall cease, except the right to
receive the Notes in the amount set forth in Section 7(a) of this subsection B.
Except as may be otherwise required by applicable law, the form of the Notes may
only be amended or supplemented before the first Exchange Date which occurs with
the affirmative vote or consent of the Requisite Preferred B Holders. On or
after such first Exchange Date, the Notes may only be amended or supplemented as
provided in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the rate
and on the dates specified in the Notes from and after the relevant Exchange
Date.
(c) Notwithstanding the foregoing provisions of this Section 7 of this
subsection B, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Series B Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Series B Preferred Stock.
C. Class C Preferred Stock.
1. Definitions. As used in this subsection C of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Articles of Incorporation" means the Articles of Incorporation of the
Company as amended and restated and in effect at the time in question.
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Company of any class, and any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(c) of this
subsection C, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
A-13
<PAGE> 14
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection C.
"Maturity Date" means, with respect to any Class C Preferred Stock or
Notes issued in exchange for Class C Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection C.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class C Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred C Holders" means holders of Class C Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement dated as of
August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Event" has the meaning ascribed to it in Section C.5(a) of
this Determination of Preferred Stock.
"Redemption Price" has the meaning ascribed to it in Section C.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred C Holders" means the holders of a majority of the
then outstanding shares of Class C Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A Preferred Stock, Class B Preferred
Stock and Class C Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred C Holders shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on the Liquidation Value at the
Rate per Annum and for the periods set forth below:
<TABLE>
<CAPTION>
RATE PER
PERIOD ANNUM
------ --------
<S> <C>
Until June 30, 2000......................................... 9.0%
July 1, 2000 to June 30, 2001............................... 11.0%
July 1, 2001 to June 30, 2002............................... 12.0%
July 1, 2002 to June 30, 2003............................... 13.0%
July 1, 2003 to June 30, 2004............................... 14.0%
July 1, 2004 to June 30, 2005............................... 15.0%
</TABLE>
A-14
<PAGE> 15
(subject to appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) per
share per annum, and no more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other shares of capital stock of the
Company other than the Class C Preferred Stock, Class A Preferred Stock and
Class B Preferred Stock (which shall rank on a par with the Class B Preferred
Stock) or other class or series of stock ranking on a par with, or senior to the
Class C Preferred Stock in respect of dividends (such Common Stock and other
inferior stock being collectively referred to as "Junior Stock"), when and as
declared by the Board.
(b) Such dividends shall accrue with respect to each share of Class C
Preferred Stock from the date on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if such
dividends on the Class C Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or set apart
for any Junior Stock and before any purchase or acquisition of any Junior Stock
is made by the Company, except the repurchase of Junior Stock from employees of
the Company upon termination of employment, except as otherwise approved by the
Requisite Preferred C Holders.
(c) Dividends shall be payable in cash, quarterly in arrears. To the extent
dividends are not paid on each September 30, December 31, March 31 and June 30,
(each a "Dividend Reference Date") all dividends which have accrued on each
share of Class C Preferred Stock during the three-month period (or shorter
period in the case of the first or last period) ending on each Dividend
Reference Date will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid in full in cash. Each
dividend paid in cash shall be mailed to the holders of record of the Class C
Preferred Stock as their names and addresses appear on the share register of the
Company or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the Preferred C Holders
shall be entitled to be paid out of the assets of the Company legally available
for distribution to its stockholders, after and subject to the payment in full
of all amounts required to be distributed to the holders of any other class or
series of stock of the Company ranking on liquidation prior and in preference to
the Class C Preferred Stock (collectively referred to as "Senior Preferred
Stock"), but before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to the Liquidation Value per
share of Class C Preferred Stock. If upon any such Liquidation of the Company
the remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Class C
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Class C Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Class C Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) The merger or consolidation of the Company into or with another
corporation which results in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or caused to be issued or
paid by such other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50 percent of the
voting securities of the Company), or the sale of all or substantially all the
assets of the Company, shall be deemed to be a Liquidation of the Company for
purposes of this Section 3 of this subsection C, unless a majority of the
Preferred C Holders vote otherwise. The amount deemed distributed to the holders
of Class C Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights and/or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board.
4. Voting Rights.
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<PAGE> 16
(a) Except as required by law and pursuant to paragraphs (b), (c) and (d)
below, the Preferred C Holders shall not be entitled to vote.
(b) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred C Holders:
(i) in any manner authorize, issue or sell any shares of Class C
Preferred Stock other than as contemplated by the Purchase Agreement or
this Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change the
designations, privileges or relative, optional or other special rights, or
the qualifications, limitations or restrictions thereof, of the Class C
Preferred Stock;
(iii) amend, repeal or modify any provision of this subsection C of
this Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the Articles of
Incorporation or By-laws in a manner that would adversely affect the
preferences, privileges or rights of the Preferred C Holders.
(c)(i) The Company hereby covenants that the Requisite Preferred C Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite Preferred C Holders
specifying the names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of members of the Board that
the Investor is then entitled to designate but whose seats on the Board are at
the time vacant.
(ii) The Company will give each Observer reasonable prior notice (it
being agreed that the same prior notice given to the Board shall be deemed
reasonable prior notice) in any manner permitted in the Company's By-laws
for notices to directors of the time and place of any proposed meeting of
the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting.
Each such Observer will be entitled to be present in person as an observer
at any such meeting or, if a meeting is held by telephone conference, to
participate therein for the purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of all papers
which may be distributed from time to time to the directors of the Company
at such time as such papers are so distributed to them, including copies of
any written consent.
(d) The Company shall not, without the affirmative consent or approval of
the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any material agreement
or material transaction, other than in the ordinary course of business and
consistent with past practice;
(ii) agree to acquire the stock or assets of, or otherwise agree to
any joint venture, licensing arrangement with, any other person.
(iii) enter into any arrangement which would reasonably be expected to
result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, or spinoff or splitoff any material assets,
properties or Securities except sales of inventory and used, obsolete, worn
out or unnecessary equipment or fixtures in the ordinary course of business
and consistent with past practice;
(v) sell, transfer, convey, assign, license or otherwise dispose of
any significant portion of its Intellectual Property Rights;
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<PAGE> 17
(vi) except in the ordinary course of business and consistent with
past practice, waive, release or cancel any material claims against third
parties or material debts owing to it, or any material rights which have
any material value;
(vii) make any material changes in its accounting systems, policies,
principles or practices except in the ordinary course of business and
consistent with past practice;
(viii) enter into, authorize, or permit any transaction with
Affiliates, or modify in any material respect the employment, compensation
or other arrangements with the executive officers of the Company or any
Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants or exchangeable Securities, commitments, subscriptions,
rights to purchase or otherwise) any shares of capital stock or any other
Securities of the Company or any Subsidiary, or amend any of the terms of
any such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than dividends on the
Preferred Stock) or other distribution (whether in cash, stock or property
or any combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any capital stock or other Securities of the Company or
any Subsidiary;
(xi) except in the ordinary course of business and consistent with
past practice, make any borrowings, incur any Indebtedness, or assume,
guarantee, endorse or otherwise become liable (whether directly,
contingently or otherwise) for the obligations of any other Person;
(xii) except in the ordinary course of business and consistent with
past practice, make any loans, advances or capital contributions to, or
investments in, any other Person.
(xiii) exercise the Company's option to require exchange of the
Preferred Stock pursuant to Section 7(a) of this subsection C.
5. Redemption.
(a) Subject to the Company having funds legally available for such purpose,
the Company shall redeem all of the shares of the Class C Preferred Stock then
outstanding, on the Maturity Date (a "Redemption Event"). The per share
redemption price at which shares of Class C Preferred Stock are to be redeemed
pursuant to this Section 5(a) of this subsection C shall be equal to the
Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds of such offering
toward the redemption of shares of Preferred Stock (other than Voting Preferred
Stock), on a pro rata basis (determined on the basis of the number of shares of
Preferred Stock (other than Voting Preferred Stock), held by such holder over
the total number of shares of Preferred Stock (other than Voting Preferred
Stock) outstanding) from the Holders of Preferred Stock at the Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as set
forth in Sections 5(a) and (b), of this subsection C, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class C Preferred
Stock and integral multiples of $100,000 thereafter at the Liquidation Value
thereof.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection C (unless default shall be made by
the Company in the payment of the Redemption Price, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of the Class C Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
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<PAGE> 18
(e) Any communication or notice relating to redemption given pursuant to
this Section 5 of this subsection C shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Preferred C Holders, at their
respective addresses as the same shall appear on the books of the Company, or to
the Company at the address of its principal, or registered office, as the case
may be.
(f) At any time on or after the Redemption Date, the Preferred C Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Company or its agents of the certificates representing the shares of the Class C
Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5 of
this subsection C shall be paid in cash.
(h) Any shares of Class C Preferred Stock which are redeemed, or otherwise
acquired by the Company shall be canceled and shall not be reissued (as treasury
shares), sold or transferred as Class C Preferred but such shares shall become
unclassified Preferred Stock of the Company.
(i) Notwithstanding the foregoing provisions of this Section 5 of this
subsection C, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to redeem or retire all outstanding shares of Series C
Preferred Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Series C Preferred Stock.
6. Maturity Default.
(a) The occurrence of any of the following events of default shall, at the
option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with any of
its obligations under any of the Transaction Documents or the Fundamental
Documents;
(ii) a material default occurs under any mortgage, indenture or other
instrument under which there may be secured or evidenced any indebtedness
for money borrowed by the Company if the principal amount of such
indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity Default
until the Company does not cure the default within 30 days of the Company having
Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may waive an
existing default or Maturity Default and its consequences. When a default or
Maturity Default is waived, it ceases.
7. Exchange.
(a) Subject to the provisions of Section 500 of California Corporate Law,
the Requisite Preferred C Holders and the Company shall have the option at any
time and from time to time following the Exchange Triggering Date to exchange
all or any portion of the shares of Class C Preferred Stock outstanding into the
Company's Subordinated Debentures (the "Notes") to be issued substantially in
the form attached to the Purchase Agreement as Exhibit D, in the amount of
$1,000 principal amount of Notes for each $1,000 of Liquidation Value of Class C
Preferred Stock; provided, however, that no such exchange may be consummated
unless full cumulative dividends (including, without duplication, full
cumulative dividends pro rata for the elapsed portion of the current dividend
period) on the Class C Preferred Stock to the date of exchange shall have been
paid. Notes shall be issued only in integral multiples of $1,000 at the time of
exchange. If any additional amounts ("Fractional Principal Amounts") would
otherwise be issuable to any holders of Preferred Stock, then the Company shall,
in lieu of issuing a Fractional Principal Amount therefor, pay in full payment
of the Company's obligation with respect to such Fractional Principal Amount, an
amount in cash equal to the Fractional Principal Amount.
A-18
<PAGE> 19
(b) Any exchange pursuant to this Section 7 shall be made upon not less
than 30 days' notice prior to the date fixed for exchange (the "Exchange Date").
The notice given shall state that, upon surrender of their certificate or
certificates to the Company, the holders of Class C Preferred Stock will receive
Notes in the amount set forth in Section 7(a) of this subsection C above and
that, at the close of business on the Exchange Date, all rights of the holders
with respect to such shares so called for exchange shall cease, except the right
to receive the Notes in the amount set forth in Section 7(a) of this subsection
C. Except as may be otherwise required by applicable law, the form of the Notes
may only be amended or supplemented before the first Exchange Date which occurs
with the affirmative vote or consent of the Requisite Preferred C Holders. On or
after such first Exchange Date, the Notes may only be amended or supplemented as
provided in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the rate
and on the dates specified in such Indenture from and after the relevant
Exchange Date.
(c) Notwithstanding the foregoing provisions of this Section 7 of this
subsection C, so long as any Investor remains a Significant Holder, the Company
shall not be permitted to exchange all outstanding shares of Series C Preferred
Stock, but shall instead allow such Significant Holder to remain the holder of
one (1) share of Series C Preferred Stock.
D. Voting Preferred Stock.
1. Definitions. As used in this subsection D of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
August 7, 1998, between the Company and the Investor (as defined therein), as
amended, restated or otherwise modified from time to time.
"Requisite Voting Preferred Holders" means the holders of a majority of the
Common Stock issuable upon the exercise of any then outstanding Warrants.
"Senior Preferred Stock" shall mean the Class A Preferred Stock, the Class
B Preferred Stock and the Class C Preferred Stock.
"Warrantholder" means a holder of Warrants.
2. Voting Rights.
(a) Standard Voting Rights. In addition to the voting rights expressly
required by law or with regard to any amendment to the Company's Articles of
Incorporation or this Determination of Preferred Stock to alter or change,
directly or indirectly, the powers, designations, preferences or special rights
relating to shares of the Voting Preferred Stock, the holder of a share of
Voting Preferred Stock shall be entitled to vote together with the Common Stock
and any other voting stock of the Company on all matters submitted to the
Company's stockholders for consideration, vote or approval and to cast an
aggregate number of votes equal to the number of votes that the shares of Common
Stock issuable upon exercise of the then unexercised portion of the Warrants
held by such holder are entitled to as of the record date designated for any
stockholders' meeting or the date of any written consent of stockholders.
3. Dividends. The holder of the Voting Preferred Stock shall not be
entitled to receive dividend payments at any time.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Company, before any distribution or payment is made upon any shares of any other
class of capital stock of the Company other than the Senior Preferred Stock,
each holder of Voting Preferred Stock will be entitled to be paid an amount
equal to $100 per share, and shall not be entitled to receive any further
distribution or payment. Neither the consolidation nor merger of the Company
into or with any other corporation or corporations, nor the sale or transfer by
the Company of all or any part of its assets, nor the reduction of the capital
stock of the Company,
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<PAGE> 20
shall be deemed to be a liquidation, dissolution or winding-up of the Company
within the meaning of any of the provisions of this subsection D.
5. Mandatory Redemption.
(a) Triggering Event. In the event that all of the outstanding Senior
Preferred Stock is redeemed in full in accordance with its terms, then
simultaneously with such redemption, the Company shall redeem the outstanding
shares of Voting Preferred Stock; provided, that the Voting Preferred Stock
shall not be redeemable so long as any Warrantholder is a Significant Holder..
(b) Redemption Price. On the date of redemption, upon surrender by the
holder at the Company's principal office of the certificate representing the
share of the Voting Preferred Stock, the Company will pay to the holder an
amount in cash equal to $100 per share.
(c) Cancellation of Redeemed Stock. Shares of Voting Preferred Stock
redeemed pursuant to this Section 5 of this subsection D shall be canceled and
shall not under any circumstances be reissued.
6. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Voting Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided that if the holder is an institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the shares of Voting Preferred Stock, dated the date of such lost, stolen,
destroyed or mutilated certificate.
7. Amendment and Waiver. No amendment, modification or any other change,
directly or indirectly, in any manner with respect to any term or provision of
this Determination of Preferred Stock or the Voting Preferred Stock will be
valid without the prior written consent of the Requisite Voting Preferred
Holders.
8. Notices. All notices will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage prepaid and will
be deemed to have been given when so mailed (i) to the Company, at its principal
executive offices and (ii) to the holder of the Voting Preferred Stock, at such
holder's address as it appears in the stock records of the Company (unless
otherwise indicated by any such holder).
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<PAGE> 21
/s/ DOUGLAS J. TULLIO
--------------------------------------
Douglas J. Tullio
President
/s/ JOHN F. GLADE
--------------------------------------
John F. Glade
Secretary
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge. Executed at Santa Ana, California, on , 1998.
/s/ DOUGLAS J. TULLIO
--------------------------------------
Douglas J. Tullio
President
/s/ JOHN F. GLADE
--------------------------------------
John F. Glade
Secretary
A-21
<PAGE> 1
EXHIBIT 10.1
- --------------------------------------------------------------------------------
ALPHA MICROSYSTEMS
SECURITIES PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Dated as of August 7, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1. Purchase and Sale of Preferred Stock.............................. 1
1.1 Defined Terms............................................... 1
1.2 Authorization............................................... 9
1.3 Purchase and Sale of the Preferred Stock.................... 9
1.4 Issuance of Warrants........................................ 9
2. Closings; Use of Proceeds......................................... 9
2.1 The Closings................................................ 9
2.2 Use of Proceeds............................................. 10
3. Representations and Warranties of the Company..................... 10
3.1 Organization, Good Standing and Qualification............... 11
3.2 Capitalization and Voting Rights............................ 11
3.3 Authorization; No Breach.................................... 11
3.4 Governmental and Other Consents............................. 12
3.5 Litigation; Environmental Law............................... 12
3.6 Intellectual Property....................................... 12
3.7 Compliance with Law and Other Instruments................... 12
3.8 Permits..................................................... 13
3.9 Disclosure to Governmental Authorities...................... 13
3.10 Title to Property and Assets................................ 13
3.11 Employees and Labor......................................... 14
3.12 Insurance................................................... 14
3.13 Financial Statements........................................ 14
3.14 Absence of Changes.......................................... 14
3.15 Tax Returns................................................. 14
3.16 Transactions with Affiliates................................ 15
3.17 Brokerage................................................... 15
3.18 Disclosure to Investor...................................... 15
3.19 [Intentionally Omitted.].................................... 15
3.20 Returns and Complaints...................................... 15
3.21 Accounts and Notes Receivable............................... 15
3.22 Year 2000................................................... 15
3.23 Private Sale................................................ 16
3.24 Closing Dates............................................... 16
4. Representations and Warranties of the Investor.................... 16
4.1 Organization and Good Standing.............................. 16
4.2 Authorization............................................... 16
4.3 Investment Representations.................................. 16
4.4 Closing Dates............................................... 17
5. Conditions to the Investor's Obligations at the Effective Date and
the Closing Dates................................................. 17
5.1 Effective Date.............................................. 17
5.2 First Closing............................................... 18
5.3 Second Closing.............................................. 20
5.4 Third Closing............................................... 21
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6. Conditions of the Company's Obligations at Closing................ 22
6.1 Representations and Warranties.............................. 22
6.2 Litigation.................................................. 22
6.3 Purchase Price.............................................. 22
6.4 H-S-R Act Approval.......................................... 22
6.5 Proposed Board Members...................................... 22
6.6 Fairness Opinion............................................ 22
7. Additional Agreements of the Company.............................. 22
7.1 Compliance.................................................. 22
7.2 Affirmative Covenants....................................... 22
7.3 Committees and Subcommittees................................ 24
7.4 Approval and Filing of Certificate.......................... 24
7.5 Financial Reports........................................... 24
7.6 Notice and Supplemental Information......................... 25
8. Miscellaneous..................................................... 25
8.1 Transactional Expenses...................................... 25
8.2 Portfolio Monitoring Expenses............................... 25
8.3 Survival of Representations, Warranties and Covenants....... 25
8.4 Publicity and Non-Disclosure................................ 25
8.5 Successors and Assigns...................................... 25
8.6 Governing Law............................................... 25
8.7 Counterparts................................................ 26
8.8 Titles and Subtitles........................................ 26
8.9 Notices..................................................... 26
8.10 Construction................................................ 26
8.11 Indemnification............................................. 27
8.12 Termination................................................. 27
8.13 Forum Selection and Consent to Jurisdiction................. 28
8.14 Waiver of Jury Trial........................................ 28
8.15 Certificates and Waivers.................................... 28
8.16 Severability................................................ 28
8.17 Entire Agreement............................................ 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
EXHIBITS
Exhibit A -- Form of Certificate of Determination
Exhibit B -- Form of Registration Rights Agreement
Exhibit C -- Form of Warrant Certificate
Exhibit C-1 -- Warrant Schedule
Exhibit D -- Form of Subordinated Debenture
SCHEDULES
Schedule 3.2(a) Capitalization and Voting Rights
Schedule 3.2(b) Outstanding Convertible Securities
Schedule 3.2(c) Preemptive Rights
Schedule 3.2(d) Redemption Obligations
Schedule 3.2(f) Subsidiaries
Schedule 3.3 Authorization; No Breach
Schedule 3.5 Litigation
Schedule 3.6 Intellectual Property Rights
Schedule 3.9(a) SEC Reports
Schedule 3.9(b) NASD Notice
Schedule 3.9(c) Deviations in Financial Statements in SEC Reports
Schedule 3.9(e) Pro Forma Financial Condition
Schedule 3.11 Employees and Labor
Schedule 3.12 Insurance Policies
Schedule 3.14 Absence of Changes
Schedule 3.16 Transactions with Affiliates
Schedule 3.17 Finders Fees
Schedule 3.21 Accounts and Notes Receivable
Schedule 5.1(c) Senior Credit Facility
</TABLE>
iii
<PAGE> 5
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of the 7th
day of August, 1998 (the "Effective Date") by and among Alpha Microsystems, a
California corporation (the "Company"), and ING Equity Partners II, L.P.
("Equity Partners").
WHEREAS, the Company desires to raise up to an aggregate of $20,000,000 for
the purposes set forth in this Agreement; and
WHEREAS, the Investor desires to provide all or a portion of such financing
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the agreements contained herein,
intending to be legally bound, the Company and the Investor hereby agree as
follows:
1. Purchase and Sale of Preferred Stock.
1.1 Defined Terms. Capitalized terms used and not otherwise defined in
this Agreement have the meanings ascribed to them below or in the other
locations of this Agreement specified below:
"Affiliate" means, with respect to any specified Person, (1) any
other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(2) any other Person who is a director, officer or partner or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity Securities, of the specified Person or a Person described in clause
(1)above, (3) any other Person of whom the specified Person is a director,
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity Securities, (4) any other Person in
whom the specified Person has a substantial beneficial interest or as to whom
the specified Person serves as trustee or in a similar capacity, or (5) any
spouse (including any partner with whom such person resides on a permanent
basis) of the specified Person or any of the foregoing Persons described in
clause (1), (2), (3) or (4) above, or any other Person who, directly or
indirectly, is under common ownership or control with, or is owned or controlled
by such spouse. As used in this definition, the term "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Approval" shall mean the stockholder approval following the First
Closing that is necessary to permit the Company to consummate the transactions
contemplated by the Second Closing and the Third Closing as mutually determined
by the Company and the Investor.
"Applicable Law" with respect to any Person, means all provisions of
laws, statutes, ordinances, rules, regulations, permits, certificates or orders
of any Governmental Authority applicable to such Person or any of its assets or
property or to which such Person or any of its assets or property is subject,
and all judgments, injunctions, orders and decrees of all courts and arbitrators
in proceedings or actions in which such Person is a party or by which it or any
of its assets or properties is or may be bound or subject.
"Arbitration Procedure" means the following procedure to determine
the Market Price or Exercise Amount, as the case may be, in the event that the
Significant Holder and the Company cannot resolve any differences they have with
respect to the Market Price or Exercise Amount, as the case may be. The Market
Price or Exercise Amount, as the case may be, shall be determined by an
investment banking firm of national recognition, which firm shall be reasonably
acceptable to the Company and the Significant Holder. If the Company and the
Significant Holder are unable to agree upon an acceptable investment banking
firm within ten (10) days after the date either party proposed that one be
selected, the investment banking firm will be selected by an arbitrator located
in the City of New York, New York selected by the American Arbitration
Association (or if such organization ceases to exist, the arbitrator shall be
chosen by a court of competent jurisdiction). The arbitrator shall select the
investment banking firm (within ten (10) days of his appointment) from a list,
jointly prepared by the Company and the Significant Holder, of not more than six
investment banking firms of national standing in the United States, of which no
more than three may be named by the Company and no more than three may be named
by the Significant Holder. The arbitrator may consider, within the ten-day
period allotted, arguments from the parties regarding which investment banking
<PAGE> 6
firm to choose, but the selection by the arbitrator shall be made in its sole
discretion from the list of six. The Company and the Significant Holder shall
submit to the investment banking firm their respective determinations of the
Market Price or Exercise Amount, as the case may be, and any supporting
arguments and other data as they may desire, within ten (10) days of the
appointment of the investment banking firm, and the investment banking firm
shall as soon as practicable thereafter make its own determination of the Market
Price or Exercise Amount, as the case may be. The final Market Price or Exercise
Amount, as the case may be, for purposes hereof shall be the average of the two
Market Prices or Exercise Amounts, as the case may be, closest together, as
determined by the investment banking firm, from among the Market Prices or
Exercise Amount, as the case may be (i) submitted by the Company, (ii) submitted
by the Significant Holder and (iii) calculated by the investment banking firm.
The determination by such investment banking firm shall be final and binding
upon the parties. The Company and the Significant Holder shall each pay one-half
( 1/2) of the fees and expenses of the investment banking firms and arbitrators
(if any) used to determine the Market Price or Exercise Amount, as the case may
be. If required by any such investment banking firm or arbitrator, the Company
and the Significant Holder shall execute a retainer and engagement letter
containing reasonable terms and conditions, including, without limitations,
customary provisions concerning the rights of indemnification and contribution
by the Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and Affiliates.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or a day
on which all United States securities exchanges on which Securities issued by
the Company are listed, are authorized or required to be closed.
"By-laws" means the by-laws of the Company, as amended and in effect
at the time in question.
"Capital Lease Obligations" means, with respect to any Person on any
date, the Obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which Obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
as of such date computed in accordance with GAAP.
"Certificate" means the Certificate of Determination of the Class A
Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and Voting
Preferred Stock, substantially in the form attached hereto as Exhibit A.
"Certificate of Incorporation" means the Articles of Incorporation of
the Company, as amended and in effect at the time in question.
"Change of Control" means the occurrence of any of the following
events: (i) all or substantially all of the Company's assets, on a consolidated
basis, are sold as an entirety to any Person or related group of Persons or
there shall be consummated any consolidation or merger of the Company (A) in
which the Company is not the continuing or surviving company (other than a
consolidation or merger with a wholly-owned Subsidiary of the Company in which
all shares of Common Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same consideration) or (B)
pursuant to which the Common stock would be converted into cash, Securities or
other property, in any case, other than a consolidation or merger of the Company
in which the holders of the Common Stock immediately prior to the sale of assets
or consolidation or merger have, directly or indirectly, at least a majority of
the Common Stock of the transferee or continuing or surviving company
immediately after such sale of assets or consolidation or merger or (ii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
other than an Investor is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 of the Exchange Act provided that such person shall be deemed to
have "beneficial ownership" of all shares that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 40% of the total voting power of
the outstanding capital stock of the Company; provided, however, that for
purposes of computing the total voting power of the
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outstanding capital stock of the Company such computation shall not include
shares of Common Stock issuable upon conversion of the Warrants.
"Claim" means any claim, demand, assessment, judgment, order, decree,
action, cause of action, litigation, suit, investigation or other proceeding.
"Class A Preferred Stock" means the Class A Cumulative, Redeemable
and Exchangeable Preferred Stock, no par value, of the Company.
"Class B Preferred Stock" means the Class B Cumulative, Redeemable
and Exchangeable Preferred Stock, no par value, of the Company.
"Class C Preferred Stock" means the Class C Cumulative, Redeemable
and Exchangeable Preferred Stock, no par value, of the Company.
"Closing Dates" means, collectively, the First Closing Date, the
Second Closing Date and the Third Closing Date.
"Closings" means, collectively, the First Closing, the Second Closing
and the Third Closing.
"Code" means the Internal Revenue Code of 1986, as amended, or any
similar Federal law then in force, and the rules and regulations promulgated
thereunder, all as the same may from time to time be in effect.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Company of any class, and any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Common Stock Equivalent" means all shares of Common Stock
outstanding and all shares of Common Stock issuable (without regard to any
present restrictions on such issuance) upon the conversion, exchange or exercise
of all Securities of the Company that are convertible, exchangeable or
exercisable for Common Stock and all Common Stock appreciation rights, phantom
Common Stock rights and other rights to acquire, or to receive or be paid
amounts based on the market price (less any exercise, conversion or purchase
price) of, the Common Stock.
"Company" shall mean Alpha Microsystems, a California corporation.
"DCI" shall mean Delta CompuTec Inc., a New York corporation.
"DCI Merger Agreement" shall have the meaning given to it in Section
5.1(b).
"EBITDA" means, for any period of determination thereof, Net Income
of the Company plus (a) Net Interest Expense, (b) any dividends required to be
paid (whether or not paid) to holders of Preferred Stock, (c) income tax
expense, refunds or credits for such periods, and (d) depreciation and
amortization expense of the Company, and minus any extraordinary or nonrecurring
gains, including gains arising from asset sales or the issuance of Securities,
all determined in accordance with GAAP.
"Effective Date" shall have the meaning given to it in the
Introduction on page 1.
"Employee Plans" means any current or previously terminated "employee
benefit plan" (as defined in Section 3(3) of ERISA) as well as any other plan,
program or arrangement involving direct and indirect compensation or benefits,
in each case, under which the Company or any ERISA Affiliate of the Company has
any present or future Obligations or Liability on behalf of its employees or
former employees, contractual employees or their dependents or beneficiaries.
"Encumbrances" shall have the meaning set forth in Section 3.10.
"Environmental and Safety Requirements" means all Legal Requirements,
Orders, contractual Obligations and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including, without limitation, all those relating to the presence,
use,
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<PAGE> 8
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, including but not limited to, the Solid Waste
Disposal Act, as amended 42 U.S.C. sec. 6901, et seq., the Clean Air Act, as
amended, 42 U.S.C. sec. 7401, et seq. the Federal Water Pollution Control Act,
as amended, 33 U.S.C. sec. 1251, et seq. the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. sec. 11001, et seq., the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
sec. 9601, et seq., the Hazardous Materials Transportation Uniform Safety Act,
as amended, 49 U.S.C. sec. 1804, et seq., the Occupational Safety and Health Act
of 1970, and the regulations promulgated thereunder.
"Equity Incentive Plans" means collectively the equity incentive
plans set forth on Schedule 3.11 and any other equity incentive plan adopted by
the Company and approved by the required vote of its shareholders and the Board,
as the case may be.
"Equity Offering" means a public or private offering by the Company
or any of its Subsidiaries for cash of capital stock or other equity interests
and all warrants, options or other rights to acquire capital stock or other
equity interests.
"Equity Partners" means ING Equity Partners II, L.P.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, or any similar Federal law in force, and the rules and regulations
promulgated thereunder, all as the same may be amended.
"ERISA Affiliate" means, with respect to any Persons, any entity that
is a member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
"Exercise Amount" shall have the meaning given to it in Section 2.1
of the Warrant.
"Exercise Date" shall have the meaning given to it in the preamble of
the Warrant.
"Fair Market Value" means (i) with respect to any listed Security,
its Market Price, including as determined pursuant to any Arbitration Procedure
and (ii) with respect to any property or assets other than cash or listed
Securities, the fair value thereof determined in good faith by the Board.
"Financial Statements" shall have the meaning given to it in Section
3.13.
"First Closing" shall have the meaning given to it in Section 2.1(a).
"First Closing Date" shall have the meaning given to it in Section
2.1(a).
"First Closing Warrants" shall mean the Series A Common Stock
Warrants, Series B Common Stock Warrants and Series B-1 Common Stock Warrants to
be issued by the Company at the First Closing, subject to the terms and
conditions herein and subject to any adjustments determined in accordance with
the Warrant Schedule.
"Fully-Diluted Basis" means, when referring to the computation of a
percentage of one or more classes of Securities held by a Person, the percentage
that the number of shares of such class or classes of Securities that would be
held by such Person after giving effect to the full exercise of any options or
warrants and the full conversion of any convertible Securities held by such
Person, whether or not such warrants, options or convertible Securities are then
exercisable or convertible, as the case may be, (without giving effect to the
use of the proceeds received by the issuer from the exercise or conversion of
such Securities to repurchase any outstanding Securities) bears to the aggregate
number of shares that would be outstanding
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<PAGE> 9
after giving effect to the full exercise of all warrants or options and the full
conversion of any convertible Securities held by all Persons, whether or not
such warrants, options or convertible Securities are then exercisable.
"Fundamental Documents" means the documents by which any Person
(other than an individual) establishes its legal existence or which govern its
internal affairs. The Fundamental Documents of the Company are the Certificate
of Incorporation (as modified by the Certificate) and By-laws.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any domestic or foreign government or
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Guaranty" means any obligation, contingent or otherwise, of any
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness or other obligation, (ii) to purchase property, securities or
services for the purposes of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (iii) to purchase or otherwise pay for
merchandise, materials, supplies, services or other property under an
arrangement which provides that payment for such merchandise, materials,
supplies, services or other property shall be made regardless of whether
delivery of such merchandise, materials, supplies, services or other property is
ever made or tendered, or (iv) to maintain the working capital, equity capital
or other financial statement condition of any primary obligor, provided,
however, that the term Guaranty shall not include endorsement of instruments for
deposit and collection in the ordinary course of business.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" of any Person means, without duplication, (a) all
Obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all Obligations of such Person evidenced by (or which
customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement Obligations of such Person with respect to
letters of credit and similar instruments, (d) all Obligations of such Person
under conditional sale or other title retention agreements relating to property
or assets purchased by such Person, (e) all Obligations of such Person incurred,
issued or assumed as the deferred purchase price of property or services other
than accounts payable incurred and paid on terms customary in the business of
such Person (it being understood that the "deferred purchase price" in
connection with any purchase of property or assets shall include only that
portion of the purchase price which shall be deferred beyond the date on which
the purchase is actually consummated), (f) all Obligations secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property owned or acquired by
such Person, whether or not the Obligations secured thereby have been assumed,
(g) all Obligations of such Person under forward sales, futures, options and
other similar hedging arrangements (including interest rate hedging or
protection agreements), (h) all obligations of such Person to purchase or
otherwise pay for merchandise, materials, supplies, services or other property
under an arrangement which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered, (i) all Guaranties by such Person of
obligations of others and (j) all capitalized lease obligations of such Person.
"Insurance Policies" shall have the meaning given to it in Section
3.12.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including, (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuance,
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<PAGE> 10
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all transactions, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Investor" means ING Equity Partners II, L.P., together with its
successors and assigns.
"Knowledge" of any Person means the actual knowledge of such person
(including the actual knowledge of the executive officers and directors of such
Person).
"Legal Requirements" means, as to any Person, all federal, state,
local or foreign laws, statutes, rules, regulations, ordinances, permits,
certificates, requirements, regulations, and restrictions of any Governmental
Authority applicable to such Person or any of its properties or assets.
"Liability" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"Liquidation Value" means the Liquidation Value, as defined in the
Certificate, of any outstanding Preferred Stock.
"Loss" means any loss (including diminution in value of Securities),
Liability, demand, claim, action, cause of action, cost, damage, deficiency, Tax
(including any Taxes imposed with respect to any indemnity payments for any such
Loss), penalty, fine or expense, whether or not arising out of any Claims by or
on behalf of any party to this Agreement or any third party, including interest,
penalties, reasonable attorneys' fees and expenses and all amounts paid in
investigation, defense or settlement of any of the foregoing which any such
party may suffer, sustain or become subject to, as a result of, in connection
with, relating or incidental to or by virtue of any indemnifiable event or
condition.
"Market Price" means, with respect to any listed Security, its market
price as determined in good faith by the Company and communicated in writing to
the Significant Holder, provided, however, that the Significant Holder may,
within five (5) Business Days following its receipt of such written notice,
dispute the Company's determination of the Market Price by providing the Company
with written notice of such disagreement. The Market Price shall be deemed final
and accepted by the Significant Holder unless such notice is given. During a
period of five (5) Business Days following the aforesaid five-day period, the
Company and the Significant Holder shall attempt in good faith to resolve any
differences they have with respect to the Market Price. If at the end of such
5-day period the Company and the Significant Holder shall have failed to reach
agreement with respect to the Market Price, then the Market Price shall be
determined using the Arbitration Procedure.
"Material Adverse Change" means, with respect to the Company and its
Subsidiaries, a change, during the period specified, in the Company's or any of
its Subsidiary's business, condition (financial and otherwise), operations,
results of operations, assets (including levels of working capital and
components thereof), Liabilities or prospects, either individually or in the
aggregate, which has had or could reasonably be expected to have a Material
Adverse Effect on the Company.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, properties, condition (financial and
otherwise), operations, results of operations, assets (including levels of
working capital and components thereof), capitalization, management, litigation,
Liabilities, or prospects of such Person.
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"Multi-employer Plan" means a Plan which is a multi-employer plan as
defined in Section 3(37) of ERISA.
"Net Income" means, for any period, net income determined in
accordance with GAAP.
"Net Interest Expense" means, for any period on a consolidated basis,
the interest (including capitalized interest) and all amortization of debt
discount and expense on any particular Indebtedness (including, without
limitation, payment-in-kind, zero coupon and other like securities and the
interest component of Capital Lease Obligations applicable to such period) of
the Company, less any interest earned by the Company on cash and cash
equivalents.
"New Securities" means any Securities of the Company issued other
than in connection with (i) the acquisition (by stock or asset purchase, merger
or other form of business combination) of another company or business or other
than any such acquisition of or from any Person or Persons that are Affiliates
of the Company immediately prior to such issuance (other than Securities issued
in connection with the financing of such transactions), (ii) any Equity
Incentive Plans adopted by the Board and, in the event the Board includes any
Preferred Directors, agreed to by the Preferred Directors, (iii) for so long as
there is an Investor who is a Significant Holder, in connection with any
dividend or distribution where the approval of such transaction requires the
affirmative consent of the Significant Holder, such approval has been granted
and such transaction is consummated on terms consistent with such approval, (iv)
in connection with an underwritten public offering of shares of Common Stock
registered pursuant to the Securities Act or (v) upon the sale of any Warrants
as set forth in the Warrant Schedule or upon the issuance of Common Stock upon
exercise of such Warrants.
"New Spinoff Entity" shall have the meaning given to it in the
definition of "Spinoff Transaction" in this Section 1.1.
"Notes" means the Subordinated Debentures, if any, issued pursuant to
the Indenture substantially in the form of Exhibit D attached hereto.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including any
liability of such Person on any claim, whether or not the right of any creditor
to payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any proceeding at law or in equity.
"Order" means any judgment, writ, decree, injunction, order,
stipulation, compliance agreement or settlement agreement issued or imposed by,
or entered into with, a Governmental Authority, whether or not having the force
of law.
"Person" shall be construed as broadly as possible and shall include
an individual, a partnership (including a limited liability partnership), a
company, an association, a joint stock company, a limited liability company, a
trust, a joint venture, an unincorporated organization and a Governmental
Authority.
"Preferred Director" shall have the meaning given to it in Section
7.2(g).
"Preferred Redemption Event" shall mean the Company's election, on 30
days' prior written notice to the holders of Preferred Stock, to redeem all or a
portion of such Preferred Stock.
"Preferred Stock" means, collectively, the Class A Preferred Stock,
the Class B Preferred Stock, the Class C Preferred Stock and any Voting
Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement among the Company and the Investors (as defined therein), a form of
which is attached as Exhibit B.
"Requisite Investors" means in the case of any tranche, series or
class of Securities purchased hereunder at any Closing, holders of a majority of
such class outstanding; provided, that (i) with respect to any Securities
exercisable for or convertible into Common Stock Equivalents, the determination
of a majority will be made with respect to such Common Stock Equivalents and
(ii) for so long as Equity Partners is the
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<PAGE> 12
Significant Holder, all determinations which require the consent of the
Requisite Investors shall require the consent of Equity Partners.
"Reserved Common Shares" means the shares of Common Stock issuable
upon conversion of the Warrants, if any.
"Restricted Securities" shall mean the Preferred Stock, the Warrants,
the Notes, the Reserved Common Shares and any shares of capital stock received
in respect of any thereof, in each case which have not then been sold to the
public pursuant to (a) registration under the Securities Act or (b) Rule 144 (or
similar or successor rule) promulgated under the Securities Act.
"Restricted Shares" shall mean the Reserved Common Shares that
constitute Restricted Securities.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" shall have the meaning given to it in Section 3.9.
"Second Closing" shall have the meaning given to it in Section
2.1(b).
"Second Closing Date" shall have the meaning given to it in Section
2.1(b).
"Second Closing Warrants" shall mean the Series C Common Stock
Warrants and Series D Common Stock Warrants to be issued by the Company at the
Second Closing, subject to the terms and conditions herein and subject to any
adjustments determined in accordance with the Warrant Schedule.
"Securities" means, with respect to any Person, such Person's
"securities" as defined in Section 2 (1) of the Securities Act, or any other
debt or equity securities, and includes such Person's capital stock or other
equity interests or any options, warrants or other securities or rights that are
directly or indirectly convertible into, or exercisable or exchangeable for,
such Person's capital stock or other equity interests.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same may from time to time be in effect.
"Significant Holder" means the Investor that holds the largest number
of Common Stock Equivalents representing at least 10% of the Common Stock on a
Fully-Diluted Basis; provided, that, so long as Equity Partners holds at least
10% of the Common Stock Equivalents on a Fully-Diluted Basis, Equity Partners
shall be deemed to be the Significant Holder.
"Spinoff Transaction" shall mean the spinoff or other creation of a
subsidiary or affiliate of the Company (the "New Spinoff Entity") whose assets
consist in whole or in part of a significant component of the Company's
business, as approved by Equity Partners.
"Subsidiary" shall mean, at any time, with respect to any Person (the
"Subject Person"), (i) any Person of which either (x) more than 50% of the
shares of stock or other interests entitled to vote in the election of directors
or comparable Persons performing similar functions (excluding shares or other
interests entitled to vote only upon the failure to pay dividends thereon or
other contingencies) or (y) more than a 50% interest in the profits or capital
of such Person, are at the time owned or controlled directly or indirectly by
the Subject Person or through one or more Subsidiaries of the Subject Person or
by the Subject Person and one or more Subsidiaries of the Subject Person, or
(ii) any Person whose assets, or portions thereof, are consolidated with the net
earnings of the Subject Person and are recorded on the books of the Subject
Person for financial reporting purposes in accordance with GAAP.
"Tax" means any Taxes and the term "Taxes" means, with respect to any
person, (A) all income taxes (including any tax on or based upon net income, or
gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties,
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<PAGE> 13
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) on such Person and (B) any Liability for the payment of any amount
of the type described in the immediately preceding clause (A) as a result of
being a "transferee" (within the meaning of Section 6901 of the Code or any
other applicable Legal Requirement) of another Person or a member of an
affiliated or combined group.
"Third Closing" shall have the meaning given to it in Section 2.1(c).
"Third Closing Date" shall have the meaning given to it in Section
2.1(c).
"Third Closing Warrants" shall mean the Series E Common Stock
Warrants and Series F Common Stock Warrants to be issued by the Company at the
Third Closing, subject to the terms and conditions herein subject to any
adjustments determined in accordance with the Warrant Schedule.
"Total Net Indebtedness" means, in respect to any Person, at the date
of determination, the aggregate principal amount of all Indebtedness, less cash
and cash equivalents, of such Person, determined in accordance with GAAP.
"Transaction Documents" means this Agreement, the Exhibits and
Schedules attached hereto in their final and executed form, as applicable, and
each of the agreements contemplated hereby and thereby.
"Transfer" shall mean any disposition of any shares or other units of
Restricted Securities or any interest therein which would constitute a sale
thereof within the meaning of the Securities Act.
"Voting Preferred Stock" shall mean any Voting Preferred Stock of the
Company then outstanding having the rights set forth in Section D of Article
Fourth of the Certificate.
"Warrants" means Warrants in substantially the form of Exhibit C
attached hereto, issuable on the Closing Dates and exercisable for the
Securities indicated on Exhibit C-1 attached hereto (the "Warrant Schedule"),
subject to the modifications set forth on the face of the Warrant Schedule.
1.2 Authorization. The Board has authorized the filing of the
Certificate of Determination, substantially in the form attached hereto as
Exhibit A (the "Certificate"). The Certificate designates (i) $8,000,000 of
Class A Preferred Stock, (ii) $7,000,000 of Class B Preferred Stock, (iii)
$5,000,000 of Class C Preferred Stock and (iv) Voting Preferred Stock, and sets
forth the terms, Determinations, powers, preferences and relative rights and the
qualifications, limitations and restrictions of the Preferred Stock. The Company
will use its best efforts to cause all closing conditions set forth in this
Agreement to be fulfilled and the Closings (as hereinafter defined) to be
achieved promptly in accordance with this Agreement.
1.3 Purchase and Sale of the Preferred Stock. At the First Closing,
subject to the terms and conditions set forth herein, the Company will sell, and
the Investor will purchase, 8,000 shares of the Class A Preferred Stock at a
price of $1,000 per share and one (1) share of Voting Preferred Stock at a price
of $100 per share. At the Second Closing, subject to the terms and conditions
set forth herein, the Company will sell, and the Investor will purchase, 7,000
shares of the Class B Preferred Stock at a price of $1,000 per share. At the
Third Closing, subject to the terms and conditions set forth herein, the Company
will sell, and the Investor will purchase, up to 5,000 shares of Class C
Preferred Stock at a price of $1,000 per share.
1.4 Issuance of Warrants. At the First Closing, the Company shall issue
the First Closing Warrants; at the Second Closing, the Company shall issue the
Second Closing Warrants; and at the Third Closing, the Company shall issue the
Third Closing Warrants; in each case as reflected on the Warrant Schedule and
subject to the terms and conditions set forth herein.
2. Closings; Use of Proceeds.
2.1 The Closings.
(a) The first closing (the "First Closing") hereunder in respect of the
issuance and sale of the Class A Preferred Stock being purchased by the Investor
at the First Closing and the consummation of the related transactions
contemplated hereby will, subject to the satisfaction or waiver of the
applicable terms and conditions set forth herein, take place at the offices of
Mayer, Brown & Platt in New York, New York at a time and date to be set by the
Investor (the "First Closing Date"), and upon at least three Business Days'
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<PAGE> 14
notice to the Company; provided, that all conditions of the Investor and the
Company to the First Closing have been satisfied or waived, but in any case the
First Closing Date shall be on or before September 4, 1998.
(b) The second closing (the "Second Closing") hereunder in respect of
the issuance and sale of the Class B Preferred Stock being purchased by the
Investor at the Second Closing will, subject to the satisfaction or waiver of
the applicable terms and conditions set forth herein, take place at the offices
of Mayer, Brown & Platt in New York, New York at a time and date to be set by
the Investor (the "Second Closing Date"), and upon at least three Business Days'
notice to the Company; provided, that the Second Closing Date shall be within
five Business Days after all conditions of the Investor and the Company to the
Second Closing have been satisfied or waived, but in any case the Second Closing
Date shall be on or before October 30, 1998.
(c) The third closing (the "Third Closing") hereunder in respect of the
issuance and sale of the Class C Preferred Stock being purchased by the Investor
at the Third Closing will occur at the option of the Company, and subject to the
satisfaction or waiver of the applicable terms and conditions set forth herein,
take place at the offices of Mayer, Brown & Platt in New York, New York at a
time and date to be agreed upon by the Investor and the Company (the "Third
Closing Date"); provided, that the Third Closing Date shall be within five
Business Days after all conditions of the Investor and the Company to the Third
Closing have been satisfied or waived, but in any case the Third Closing Date
shall occur, if at all, on or before June 30, 1999.
(d) At each Closing, the Company will deliver to the Investor a
certificate, registered in the Investor's name or its nominee's name, evidencing
the Preferred Stock purchased by the Investor at such Closing, and Warrant
Certificates to be issued at such Closing against receipt by the Company of the
purchase price for such Preferred Stock and Warrants by wire transfer of
immediately available funds to an account designated by the Company.
2.2 Use of Proceeds.
(a) The proceeds received by the Company from the sale of the Class A
Preferred Stock to the Investor shall be used by the Company solely for (i)
repayment of existing indebtedness, (ii) the payment of fees and expenses
incurred in connection with the consummation of the First Closing, (iii) working
capital needs, (iv) the acquisition of DCI or a similar information technology
service company acceptable to the Investor and (v) general corporate purposes.
(b) The proceeds received by the Company from the sale of the Class B
Preferred Stock to the Investor shall be used by the Company for general
corporate purposes, including the business associated with the Company's
Internet products; provided, that the Company may, upon written notice to and
the consent of the Investor, elect to allocate a portion of the proceeds of the
Second Closing to the consummation of a Spinoff Transaction. The terms,
conditions and structure of any Spinoff Transaction shall be acceptable to the
Significant Holder in its sole discretion, and shall in any event meet the
following requirements: (i) the Company shall fully guarantee the obligations of
the New Spinoff Entity with respect to any class of preferred stock issued by
such entity in whole or in part to the Investor and (ii) subject to the
provisions of Section 5.2(f) of the Warrants, the Investor shall participate in
the ownership of the New Spinoff Entity on a pro rata basis with each of the
Company's stockholders, giving effect, for the purposes of determining the
Investor's pro rata percentage ownership, to the deemed exercise of any
Securities of the Company (including the Warrants) that are convertible,
exchangeable or exercisable for Common Stock then held by the Investor.
(c) The proceeds received by the Company from the sale of the Class C
Preferred Stock to the Investor shall be used by the Company solely for the
Company's acquisition of information technology service companies on terms and
conditions which are reasonably acceptable to the Investor.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that the statements contained in this
Section 3 are correct and complete as of the Effective Date, and, except as
amended pursuant to Section 7.6, will be correct and complete as of the Second
and Third Closing Dates (as though made then and as though the Second and Third
Closing Dates were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the Schedules hereto. Nothing in the
Schedules shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the Schedule identifies the exception
with reasonable particularity. Without limiting the
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generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). An item
disclosed in any Schedule shall be deemed disclosed for purposes of all
Schedules, provided that reasonably particular cross references have been
included. The Company hereby represents and warrants to the Investor that as of
the Effective Date:
3.1 Organization, Good Standing and Qualification. The Company and each
of its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as presently conducted and as presently proposed to be
conducted. The Company and each of its Subsidiaries is duly qualified and in
good standing to transact business in each jurisdiction in which the failure to
so qualify would result in a Material Adverse Effect. The Investor has been
furnished with true, correct and complete copies of the Company's Fundamental
Documents.
3.2 Capitalization and Voting Rights.
(a) The authorized capital stock of the Company shall be as set forth in
Schedule 3.2(a).
(b) Schedule 3.2(b) hereto contains a list of all outstanding warrants,
options, agreements, convertible securities and other commitments pursuant to
which the Company is or may become obligated to issue, sell or otherwise
transfer any Securities (as defined in Section 2(1) of the Securities Act of
1933) of the Company, which list names of all Persons entitled to receive such
Securities, indicates whether or not such Securities are entitled to any
anti-dilution or similar adjustments upon the issuance of additional Securities
of the Company or otherwise, sets forth the shares of capital stock and other
Securities required to be issued thereunder (calculated after giving effect to
all such anti-dilution and other similar adjustments resulting from the issuance
of the Warrants) and the exercise or conversion price thereof, as applicable.
(c) Except as set forth in Schedule 3.2(c), there are no preemptive
rights of first refusal or other similar rights to purchase or otherwise acquire
shares of capital stock or other Securities of the Company pursuant to any Legal
Requirement, any Fundamental Document of the Company or any agreement to which
the Company is a party or may be bound. Except as set forth in Schedule 3.2(c)
or as contemplated by the Transaction Documents and the Fundamental Documents of
the Company, the Company is not a party to any Encumbrance, and to the Knowledge
of the Company, there is no other Encumbrance (such as a right of first refusal,
right of first offer, proxy, voting trust or voting agreement), with respect to
the sale or voting of any Securities of the Company (whether outstanding or
issuable upon the conversion, exchange or exercise of outstanding Securities).
(d) Except as set forth in Schedule 3.2(d), other than as required by
the Certificate there are no obligations to redeem, repurchase or otherwise
acquire shares of capital stock or other Securities of the Company pursuant to
any Legal Requirement, any Fundamental Document of the Company or any agreement
to which the Company is a party or may be bound.
(e) All Securities issued by the Company have been either issued in
transactions in accordance with or exempt from registration under the Securities
Act and the rules and regulations promulgated thereunder and all applicable
state securities or "blue sky" laws, and the Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any such Securities. There are no restrictions
upon the voting rights associated with, or the transfer of, any of the capital
stock of the Company, except as provided by (i) United States or state
securities laws or (ii) the terms and provisions of the Transaction Documents or
as are disclosed in the SEC Reports.
(f) Except as set forth in Schedule 3.2(f), the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity or have any other
Subsidiaries.
3.3 Authorization; No Breach. The Company's execution and delivery of
the Transaction Documents, its performance of the obligations and transactions
contemplated thereunder, and its filing of the
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Certificate will be duly authorized by the Company and its stockholders, as
applicable. Each of the Transaction Documents constitutes, or upon its execution
and delivery will constitute, a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws and subject to general principles of equity.
Except as set forth in Schedule 3.3, the execution and delivery by the Company
of the Transaction Documents, the sale and issuance of the Preferred Stock and
Warrants hereunder, the issuance of the Common Stock upon conversion of the
Warrants, the filing of the Certificate and the fulfillment of and compliance
with the respective terms hereof and thereof by the Company, do not and will not
(a) conflict with or result in a breach of the terms, conditions or provisions
of, (b) constitute a default under, (c) result in the creation of any
Encumbrance upon the Company's capital stock or assets pursuant to, (d) give any
third party the right to accelerate any obligation under, (e) result in a
violation of, or (f) require any authorization, consent, approval, exemption or
other action by or notice to any Governmental Authority pursuant to the
Fundamental Documents of the Company, or any Legal Requirement to which the
Company is subject, or any agreement, commitment, instrument, order, judgment or
decree to which the Company is subject.
3.4 Governmental and Other Consents. Except with respect to the H-S-R
Act, obtaining the stockholder Approval (each of which shall be consummated
following the First Closing but prior to the Second Closing), filings made under
the Exchange Act, and related filings made with applicable state securities
authorities, as contemplated in the Transaction Documents, no consent, approval,
order or authorization of, or registration, qualification, Determination,
declaration or filing with, any Governmental Authority or any other third party
is required on the part of the Company in connection with the Company's valid
execution, delivery, or performance of the Transaction Documents, the
authorization of the Certificate, the offer, sale or issuance of the Preferred
Stock and Warrants by the Company, the issuance of Common Stock upon exercise of
the Warrants, or the consummation of the other transactions contemplated hereby.
3.5 Litigation; Environmental Law. Except as set forth in Schedule 3.5,
there are no material actions, suits, proceedings or investigations as to which
the Company has received notice or to the Knowledge of the Company, that are
threatened against or involve the Company or any Subsidiary whether at law or in
equity, whether civil or criminal in nature or by or before any Governmental
Authority, nor to the Knowledge of the Company does there exist any reasonable
basis therefor. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any Governmental Authority. There
is no action, suit or proceeding by the Company currently pending or that the
Company currently intends to initiate. To the Knowledge of the Company, the
Company is not in violation of any applicable Legal Requirements the violation
of which is or could reasonably be material to the Company, including any
Environmental and Safety Requirements, and no material expenditures will be
required in order to comply with any such Legal Requirements.
3.6 Intellectual Property. The Company has not received notice of any
Claims made and, to the Knowledge of the Company, no Claim has been threatened
against the Company or any Subsidiary alleging that the conduct of the Company's
business infringes or conflicts with the Intellectual Property Rights of others.
To the Company's Knowledge, the Company's business as now conducted and as
proposed to be conducted does not and will not infringe or conflict with the
Intellectual Property Rights of others, and the Company owns or possesses all
material Intellectual Property Rights with respect to the foregoing necessary
for the operation of its business as now conducted and as proposed to be
conducted. The Company is not aware of any violation by a third party of any of
the Company's Intellectual Property Rights. Schedule 3.6 contains a complete
list of all material patents and trademark registrations held by the Company and
applications pending. The Company has taken all reasonable steps necessary or
appropriate to safeguard and maintain its proprietary rights in the foregoing
trademarks, service marks, patents and other proprietary rights.
3.7 Compliance with Law and Other Instruments. The Company is not in
violation or default of any provisions of its current Certificate of
Incorporation, as in effect immediately prior to the filing of the Certificate,
or its current Bylaws, or in violation or default of any instrument, judgment,
order, writ, decree or oral or written contract or other agreement to which it
is a party or by which it is bound the violation of which would be material to
the Company. After receipt of the Approval, the Company will not be in violation
or
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<PAGE> 17
default of any provisions of its Certificate of Incorporation, as amended, or
Bylaws or in violation or default of any instrument, judgment, order, writ,
decree or oral or written contract or other agreement to which it is a party or
by which it is bound the violation of which would be material to the Company.
The Company has not violated, and currently is not in violation of, any
provision of any Applicable Law the violation of which would be material to the
Company. The execution, delivery and performance of the Transaction Documents,
and the consummation of the transactions contemplated hereby, will not result in
any such violation or be in conflict with any such provision, instrument,
judgment, order, writ, decree, contract or other agreement and will not be an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company.
3.8 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could have a Material Adverse Effect on the
Company. The Company is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority. None of such permits
shall be adversely affected as a result of the Company's execution and delivery
of, and the performance of its obligations under, this Agreement or any related
document or the consummation of the transactions contemplated thereby.
3.9 Disclosure to Governmental Authorities.
(a) The Company has filed in a timely manner with the SEC all reports
and other materials (collectively, the "SEC Reports") required to be filed
pursuant to the Securities Act and the Exchange Act, and the SEC Reports, at the
time they were filed, complied in all material respects with the requirements of
the Securities Act and the Exchange Act and to the Knowledge of the Company, did
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. Set forth in Schedule 3.9(a) is a list of all SEC Reports.
(b) The Company is in compliance with all applicable rules and
regulations of the National Association of Securities Dealers Inc. ("NASD").
Except as set forth in Schedule 3.9(b), the Company has not received any notice
of, and is not aware of any basis for, suspension of trading of the Company's
quoted securities or the delisting of any such securities on the National
Association of Securities Dealers small capitalization market.
(c) Except as set forth in Schedule 3.9(c) attached hereto, the
financial statements contained in the SEC Reports, and the related statements of
operations and statements of cash flows for the periods then ended (i) were in
accordance with the books and records of the Company, (ii) presented fairly the
consolidated financial condition and results of operations of the Company as of
the dates and for the periods indicated and (iii) were prepared in accordance
with GAAP (except as set forth in the notes thereto and subject, in the case of
financial statements as at the end of or for the periods other than fiscal
years, to normal year-end audit adjustments, provided that such adjustments are
not material individually or in the aggregate).
(d) Such financial statements complied, when filed, as to form in all
material respects with the applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.
(e) The pro forma financial statements (including a balance sheet and
income statement) set forth in Schedule 3.9(e), fairly present the pro forma
financial condition and results of operations of the Company as of and for the
periods covered thereby. Except as set forth or provided for in the pro forma
financial statements the Company does not have any material liabilities,
contingent or otherwise. The pro forma financial statements are based on
estimates and assumptions which are reasonable in light of the conditions which
existed at the time of their preparation and which exist on the date hereof, and
reflect reasonable estimations of future performance.
3.10 Title to Property and Assets. Except as disclosed in the SEC
Reports, the Company owns its property and assets free and clear of all
mortgages, judgments, claims, liens, security interests, pledges, escrows,
charges, restrictions or other encumbrances of any kind or character whatsoever
("Encumbrances"), except Encumbrances that arise in the ordinary course of
business and do not impair the Company's ownership or use of such property or
assets, and, with respect to the property and assets it leases, the Company
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is in compliance with such leases and, to its Knowledge, holds a valid leasehold
interest free of any Encumbrances.
3.11 Employees and Labor. Except as set forth in Schedule 3.11, the
Company does not have any Employee Plans. The Company has no agreement or
arrangement with any labor union, and no labor union has requested or, to the
Knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the Knowledge of the Company
threatened, that could result in a Material Adverse Change, nor is the Company
aware of any labor organization activity involving its employees.
3.12 Insurance. Schedule 3.12 hereto lists and briefly describes each
insurance policy maintained by the Company and its Subsidiaries with respect to
the properties, assets and business of the Company and its Subsidiaries (the
"Insurance Policies"). All of such Insurance Policies are in full force and
effect, and neither the Company nor any of its Subsidiaries is in default in any
material respect with respect to its obligations under any of such Insurance
Policies and has not received any notification of cancellation of any of such
Insurance Policies and has no claim outstanding which could be expected to cause
a material increase in the insurance rates. To the Knowledge of the Company, no
facts or circumstances exist that would relieve any insurer under any such
Insurance Policies of their obligations to satisfy in full any claim of the
Company thereunder. The Company has not received any notice that (i) any of such
Insurance Policies has been or will be canceled or terminated or will not be
renewed on substantially the same terms as are now in effect or (ii) the premium
on any of such Insurance Policies will be materially increased on the renewal
thereof. The Company maintains insurance for its benefit in amounts and against
all risks that are normal and customary for Persons operating similar properties
and businesses under policies in effect and issued by insurers of recognized
responsibility.
3.13 Financial Statements. The Company has furnished to the Investor
its audited financial statements for the fiscal year ended February 22, 1998,
its unaudited financial statements for the quarter ended May 24, 1998 and
unaudited monthly financial statements through June, 1998 (collectively, the
"Financial Statements"). Through the Closings, the Company will furnish to the
Investor, when available, subsequent monthly financial statements. Since
February 22, 1998, there has not been any material change other than as set
forth on the face of the Financial Statements. The Company is not subject to any
Liabilities of any nature that have had or can reasonably be expected to result
in a Material Adverse Effect except to the extent set forth or provided for in
the Financial Statements. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm, or corporation. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP.
3.14 Absence of Changes. Except as set forth in Schedule 3.14 attached
hereto, since February 22, 1998 there has not been any (i) event or condition
which has had or could reasonably be expected to result in a Material Adverse
Effect, (ii) material deviation from the Company's books and records, (iii)
except as in the ordinary course of business consistent with past practice,
increase in or prepayment of the compensation payable or to become payable by
the Company to any of its directors or officers, or the making of any bonus
payment or similar arrangement to or with any of them, (iv) except for the
write-off of accounts receivable in the ordinary course of business consistent
with past practice, cancellation of indebtedness due to the Company from others,
(v) waiver or release of any material rights of the Company, except in the
ordinary course of business and for fair value, or any lapse or other loss of a
material right of the Company to use its assets or conduct its business, or (vi)
material change in the policies of the Company with respect to the payment of
accounts payable or other current Liabilities or the collection of accounts
receivable, including any acceleration or deferral of the payment or collection
thereof, as applicable.
3.15 Tax Returns. The Company has filed all tax returns and reports as
required by Applicable Law except where the failure to file such tax returns
would not be material to the Company. These returns and reports conform to the
requirements of Applicable Law in all material respects. The Company has paid
all taxes and other assessments due. The Company has not made any elections
under the Code that would have a Material Adverse Effect on the Company and that
are not disclosed in the Financial Statements provided to
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the Investor. Since the date of the Financial Statements, the Company has made
adequate provisions on its books to account for all taxes, assessments, and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all necessary taxes and required
withholdings, and has paid the same to the proper tax receiving officers or
authorized depositories.
3.16 Transactions with Affiliates. Except as set forth in Schedule
3.16, and, except for reasonable compensation to regular employees of the
Company and any Affiliate for services rendered in the ordinary course of
business, no current or former Affiliate of the Company is presently, or during
the last fiscal year has been, (i) a party to any material agreement or material
transaction with the Company or any of its Subsidiaries (including, but not
limited to, any material contract, agreement or other arrangement providing for
the furnishing of services by, or rental of real or personal property from, or
otherwise requiring payments to, any such Affiliate) or (ii) the direct or
indirect owner of an interest in any Person which is a present or potential
competitor, supplier or customer of the Company or any of its Subsidiaries
(other than non-affiliated holdings in publicly held companies), nor does any
such Person receive income from any source other than the Company which relates
to the business of, or should properly accrue to, the Company. Except as set
forth in Schedule 3.16, the Company and each of its Subsidiaries is not a
guarantor or otherwise liable for any actual or potential Liability or
obligation, whether direct or indirect, of any of its Affiliates.
3.17 Brokerage. Except as set forth in Schedule 3.17, the Company has
not dealt with, or incurred liability for a fee to, any finder, broker,
investment banker or financial advisor in connection with any of the
transactions contemplated by this Agreement or the negotiations looking toward
the consummation of such transactions. Except as set forth in Schedule 3.17, the
Company agrees to indemnify and hold harmless the Investor from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.
3.18 Disclosure to Investor. Neither this Agreement nor any of the
Schedules or Exhibits, including the financial projections delivered to the
Investor in connection with the execution and delivery of this Agreement, when
taken together, contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein and therein, in
light of the circumstances in which they were made, not misleading. Neither the
Company nor any of its Subsidiaries is obligated under any contract or agreement
or subject to any restriction set forth in its Fundamental Documents or subject
to any other restriction which has or could reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
3.19 [Intentionally Omitted.]
3.20 Returns and Complaints. The Company has not received any written
notices of, and to its Knowledge is not aware of, any pending non-renewal by its
customers of agreements which, if not renewed, would reasonably be expected to
result in a Material Adverse Effect.
3.21 Accounts and Notes Receivable. Except as set forth in Schedule
3.21, all of the accounts receivable and notes receivable owing to the Company
as of the date hereof constitute, and as of the date hereof will constitute,
valid and enforceable claims arising from bona fide transactions in the ordinary
course of business, and there are no known or asserted claims, refusals to pay
or other rights of set-off against any thereof which are or could reasonably be
expected to be material to the Company. Except to the extent of reserves
established by the Company specifically for doubtful accounts and notes
receivable (which reserves are set forth in the Financial Statements, are
reasonable under the circumstances and are consistent with past practice), to
the Knowledge of the Company, each account receivable of the Company existing as
of the date hereof shall be paid in full not later than the 90th day after such
accounts receivable become due.
3.22 Year 2000. To the Knowledge of the Company except as set forth in
Schedule 3.22:
(a) Software which is developed, marketed and currently sold by the
Company is either Year 2000 complaint or scheduled to be Year 2000 compliant by
January 1, 1999; and
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(b) Billing and other data processing programs planned to be used by the
Company as of January 1, 2000 are either currently Year 2000 compliant or
scheduled to be Year 2000 complaint by July 1, 1999;
As used herein, Year 2000 compliant means that the programs that are
designed to be used prior to, during and after the calendar year 2000 A.D., and
such programs will operate during each such time period without error relating
to date data and date-dependent data, specifically including any error relating
to, or the program of, date data which represents or reference different
centuries or more than one century other than such errors which have not had nor
could reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect.
3.23 Private Sale. Assuming the accuracy of the representations of the
Investor in Section 4.3, the offering, sale, and issuance of the Preferred
Stock, the Warrants and the Reserved Common Stock, if applicable, will be exempt
from registration under the Securities Act and applicable state securities laws
and the rules and regulations promulgated thereunder. Neither the Company nor
any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering, sale or issuance of the Preferred
Stock has offered the same for sale to, or solicited any offers to buy the same
from, or otherwise approached or negotiated with respect thereto, any person
other than the Investor.
3.24 Closing Dates. The representations and warranties of the Company
contained in this Section 3 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any writing
delivered by, or on behalf of, the Company to the Investor will be true and
correct in all material respects on each of the Second and Third Closing Dates,
as applicable, as though then made, except as affected by the transactions
expressly contemplated by this Agreement.
4. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that as of the Effective Date:
4.1 Organization and Good Standing. The Investor is an entity validly
existing and in good standing under the laws of Delaware and currently operates
and has all requisite power and authority to own and operate its properties and
to carry on its business as now being conducted.
4.2 Authorization. All action on the part of the Investor necessary for
the authorization, execution and delivery of this Agreement has been taken. This
Agreement constitutes a valid and binding obligation of the Investor,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws and subject to general principles of equity.
4.3 Investment Representations. Solely for establishing that the sale
or issuance of the Preferred Stock, Warrants, Notes and Reserved Common Stock
(if any), to the Investor is exempt from the registration requirements of
Section 5 of the Securities Act and comparable provisions of state blue-sky laws
and not in any way to mitigate the responsibility or Liability of the Company
for any breach of the representations and warranties made by it in this
Agreement, on which the Investor is relying in full in connection with its
decision to invest in the Company:
(a) The Investor is acquiring the Securities to be purchased hereunder
and, in the event that the Investor should acquire any Reserved Common
Stock, will be acquiring such Reserved Common Stock, for its own account,
for investment and not with a view to the distribution thereof in violation
of the Securities Act or applicable state securities laws, without
prejudice, however, to Investor's rights at all times to sell or otherwise
dispose of all or any part of such Securities under an effective
registration statement under the Securities Act, or under an exemption from
such registration available under the Securities Act; provided, however,
that, if requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition does not require registration under Section 5 of the
Securities Act.
(b) The Investor understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Investor)
promulgated under the Securities Act depends on the
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satisfaction of various conditions, and that, if applicable, Rule 144 may
afford the basis for sales of Securities acquired hereunder only in limited
amounts.
(c) Except as set forth on Schedule 3.17, the Investor has not
employed any broker or finder in connection with the transactions
contemplated by this Agreement.
(d) The Investor is an "accredited investor" (as defined in Rule
501(a) of Regulation D promulgated under the Securities Act). The Company
has made available to the Investor or its representatives all agreement,
documents, records and books that the Investor has requested relating to an
investment in the Securities which may be acquired by the Investor
hereunder. The Investor has had an opportunity to ask questions of, and
receive answers from, a person or persons acting on behalf of the Company,
concerning the terms and conditions of this investment, and answers have
been provided to all of such questions to the full satisfaction of the
Investor. The Investor has such knowledge and experience in financial and
business matters that it is capable of evaluating the risks and merits of
this investment. The Investor's representations in this subsection shall in
no way limit the enforceability of any representations made by the Company
in any of the Transaction Documents to which it is a party.
(e) The Investor was not formed for the purpose of investing solely in
the Securities which may be acquired hereunder.
4.4 Closing Dates. The representations and warranties of the Investor
contained in this Section 4 and elsewhere in this Agreement will be true and
correct in all material respects on each of the Closing Dates, as applicable, as
though then made.
5. Conditions to the Investor's Obligations at the Effective Date and the
Closing Dates.
5.1 Effective Date. The obligation of the Investor to execute and
deliver this Agreement on the Effective Date is subject to the satisfaction of
the following conditions precedent (unless waived by the Investor). The Company
shall use its best efforts to ensure that all conditions set forth in this
Section 5.1 are satisfied on or prior to the Effective Date, including executing
and delivering all documents required to be delivered by the Company at the
Effective Date and taking any and all actions which may be necessary on its part
to cause each other party to the Transaction Documents to so execute and deliver
each Document.
(a) Certificate. The Board of Directors shall have authorized the
Certificate and the Certificate shall have been filed with the California
Secretary of State.
(b) DCI Merger Agreement. The Company shall have executed, and shall
have delivered to the Investor a copy of the Merger Agreement by and among the
Company, Alpha Micro Merger Corp., DCI and Joseph Lobozzo II and Joanne Lobozzo
(the "DCI Merger Agreement").
(c) Senior Credit Facility. The Company and Imperial Bank (or such other
financial institution acceptable to the Investor) shall have negotiated,
executed and delivered definitive loan documentation (a copy of which is set
forth in Schedule 5.1(c)) for a new senior credit facility in an amount of at
least $3,000,000 on terms and conditions acceptable to the Investor, and all of
the conditions to the initial extension of credit by each lender thereunder
shall have been fulfilled without waiver, modification or forbearance by such
lender except to the extent set forth in Schedule 5.1(c).
(d) Employment Agreements. The terms and conditions of the employment
agreement between the Company and Douglas J. Tullio shall be acceptable to the
Investor. The terms and conditions of the employment agreement to be entered
into following the Effective Date between the Company or any of its Subsidiaries
and John DeVito shall be acceptable to the Investor.
(e) Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered by the Company and all parties thereto.
(f) Representations and Warranties. The Company shall deliver a
certificate executed by an officer of the Company stating that the
representations and warranties contained in Section 3 hereunder are true,
correct and complete in all material respects on and as of the Effective Date,
except to the extent that any changes therein are specifically and affirmatively
contemplated by the Transaction Documents.
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(g) Performance. The Company shall have performed and complied in all
material respects with all agreements and conditions contained in the
Transaction Documents that are required to be performed or complied with by it
prior to or at the Effective Date and shall have certified to such effect to the
Investor in writing.
(h) All Proceedings to Be Satisfactory. All corporate and other
proceedings to be taken and all waivers, consents, approvals, qualifications and
registrations required to be obtained or effected in connection with the
execution, delivery and performance of the Transaction Documents and the
transactions contemplated thereunder shall have been taken, obtained or effected
(except for the filing of any notice subsequent to the Effective Date that may
be required under applicable Federal or state securities laws, which notice
shall be filed on a timely basis following the First Closing as so required),
and all documents incident thereto shall be satisfactory in form and substance
to the Investor. The Investor shall have received all such originals or
certified or other copies of such documents as have been reasonably requested by
it.
(i) Opinion of Counsel. Allen, Matkins, Leck, Gamble & Mallory, counsel
to the Company, shall have delivered its opinion addressed to the Investor,
dated as of the Effective Date, in a form acceptable to the Investor.
(j) Supporting Documents. The Investor shall have received copies of the
following supporting documents (in form and substance satisfactory to the
Investor):
(i) certificates of the Secretary of State of the State of California,
dated as of a recent date, as to the due incorporation or organization and
good standing of the Company and listing all documents of the Company on
file with said Secretary;
(ii) a telegram, telex or other acceptable method of confirmation from
said Secretary as of the close of business on the Business Day preceding
the Effective Date as to the continued good standing of the Company;
(iii) a certificate of the Secretary or an Assistant Secretary of the
Company, dated as of the Effective Date and certifying: (1) that attached
thereto is a true, correct and complete copy of each of the Certificate of
Incorporation and By-laws as in effect on the date of such certification
(each of which shall be in form and substance satisfactory to the
Investor); (2) that attached thereto is a true, correct and complete copy
of all resolutions adopted by the Board (and any committees thereof) and
the stockholders of the Company authorizing the execution, delivery and
performance of the Transaction Documents, and that all such resolutions are
still in full force and effect; (3) that the Certificate of Incorporation
has not been amended since the date of the last Certificate referred to in
the certificate delivered pursuant to clause (i) above other than in
connection with the filing of the Certificate; and (4) the incumbency and
specimen signature of all officers of the Company executing the Transaction
Documents and any certificate or instrument furnished pursuant hereto, and
a certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(iii); and
(iv) such additional supporting documents and other information with
respect to the operation and affairs of the Company as the Investor may
reasonably request.
(k) No Litigation or Legislation. No Legal Requirement shall have been
enacted after the date hereof and no proceeding shall be pending which prohibits
or seeks to prohibit, or materially restricts or delays the consummation of the
transactions contemplated by the Transaction Documents or materially restricts
or impairs the ability of the Investor to own Securities of the Company.
(l) Board of Directors. The Company shall have taken any and all actions
required such that the Board includes two (2) Preferred Directors as of the
Effective Date.
5.2 First Closing. The obligation of the Investor to purchase and pay
for the Class A Preferred Stock at the First Closing is subject to the
satisfaction of the following conditions precedent (unless waived by the
Investor). The Company shall use its best efforts to ensure that all conditions
to the First Closing set forth in this Section 5.2 are satisfied on or prior to
the First Closing Date, including executing and delivering all documents
required to be delivered by the Company at the First Closing and taking any and
all actions which
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may be necessary on its part to cause each other party to the Transaction
Documents to so execute and deliver each Document.
(a) Issuance of Securities. The Company shall have duly issued and
delivered to the Investor certificates evidencing the Class A Preferred Stock,
the Voting Preferred Stock and the First Closing Warrants.
(b) DCI Merger Agreement. The Company shall have acquired DCI on terms
and conditions in accordance with the terms and conditions of the DCI Merger
Agreement delivered to Investor under Section 5.1(b) hereof, (subject only to
the filing of any applicable merger certificate) without material modification
or waiver, and such acquisition shall have been consummated by the filing of a
duly executed Certificate of Merger with the Secretary of State of the State of
New York. A copy of the applicable Merger Agreement and Certificate of Merger
shall have been delivered to the Investor.
(c) Proxy Statement. The Company's proxy statement with respect to the
Approval shall have been filed with the SEC on or prior to August 14, 1998.
Equity Partners shall have received a draft proxy statement on or prior to
August 8, 1998, and shall have had the opportunity to review the preliminary
proxy statement prior to its being filed.
(d) All Proceedings to Be Satisfactory. All corporate and other
proceedings to be taken and all waivers, consents, approvals, qualifications and
registrations required to be obtained or effected in connection with the
execution, delivery and performance of the Transaction Documents and the
transactions contemplated thereunder shall have been taken, obtained or effected
(except for the filing of any notice subsequent to the First Closing that may be
required under applicable Federal or state securities laws, which notice shall
be filed on a timely basis following the First Closing as so required). The
Investor shall have received all such originals or certified or other copies of
such documents as have been reasonably requested by it.
(e) Opinion of Counsel. Allen, Matkins, Leck, Gamble & Mallory, counsel
to the Company, shall have delivered its opinion addressed to the Investor,
dated as of the First Closing Date, in a form acceptable to the Investor.
(f) Supporting Documents. The Investor shall have received copies of the
following supporting documents (in form and substance satisfactory to the
Investor):
(i) certificates of the Secretary of State of the State of
California, dated as of a recent date, as to the due incorporation or
organization and good standing of the Company and listing all documents
of the Company on file with said Secretary;
(ii) a telegram, telex or other acceptable method of confirmation
from said Secretary as of the close of business on the Business Day
preceding the First Closing Date as to the continued good standing of
the Company; and
(iii) a certificate of the Secretary or an Assistant Secretary of
the Company, dated as of the First Closing Date and certifying: (1) that
attached thereto is a true, correct and complete copy of each of the
Certificate of Incorporation and By-laws as in effect on the date of
such certification (each of which shall be in form and substance
satisfactory to the Investor); (2) that attached thereto is a true,
correct and complete copy of all resolutions adopted by the Board (and
any committees thereof) and the stockholders of the Company authorizing
the execution, delivery and performance of the Transaction Documents and
the issuance, sale and delivery of the Preferred Stock, and that all
such resolutions are still in full force and effect; (3) that the
Certificate of Incorporation has not been amended since the date of the
last Certificate referred to in the certificate delivered pursuant to
clause (i) above; and (4) the incumbency and specimen signature of all
officers of the Company executing the Transaction Documents, the stock
certificates representing the Preferred Stock, and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (iii).
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(g) No Litigation or Legislation. No Legal Requirement shall have been
enacted after the date hereof and no proceeding shall be pending which prohibits
or seeks to prohibit, or materially restricts or delays the consummation of the
transactions contemplated by the Transaction Documents or materially restricts
or impairs the ability of the Investor to own Securities of the Company.
(h) Closing Date. The First Closing shall have occurred on or prior to
September 4, 1998.
(i) Material Adverse Change. There shall have been no Material Adverse
Change from the Effective Date to the First Closing Date.
5.3 Second Closing. The obligation of the Investor to purchase and pay for
the Class B Preferred Stock at the Second Closing is subject to the satisfaction
of the following conditions precedent (unless waived by the Investor).
(a) Requisite Approvals. The Company shall give the Investor five (5)
business days notice of the receipt of all necessary approvals (and reasonably
acceptable evidence thereof), including but not limited to stockholder approval
required under applicable NASD Legal Requirements, for the issuance of all
Securities to the Investor contemplated by the Second and Third Closings.
(b) Issuance of Securities. The Company shall have duly issued and
delivered to the Investor certificates evidencing the Class B Preferred Stock
being purchased by the Investor at the Second Closing and the Second Closing
Warrants.
(c) No Default. No event of default shall have occurred under any
instrument evidencing any material Indebtedness or related to the issuance of
Securities, to which the Company is a party, regardless of the reason for such
event of default.
(d) No Material Adverse Change. There shall have been no Material
Adverse Change from the date hereof to the Second Closing Date.
(e) Approval. The Company shall have received all necessary approvals,
by its stockholders and otherwise, including the Approval, such that the Second
and Third Closings will comply with all Legal Requirements. The Company shall
have made the third Preferred Director designated by the Investor pursuant to
Section 7.2(g) a member of the Board.
(f) Representations and Warranties. The Company shall deliver a
certificate executed by an officer of the Company stating that the
representations and warranties contained in Section 3 hereunder are true,
correct and complete in all material respects on and as of the Second Closing
Date, except to the extent that any changes therein are specifically and
affirmatively contemplated by the Transaction Documents or are not material to
the Company.
(g) All Proceedings to Be Satisfactory. All corporate and other
proceedings to be taken and all waivers, consents, approvals, qualifications and
registrations required to be obtained or effected in connection with the
execution, delivery and performance of the Transaction Documents and the
transactions contemplated thereunder shall have been taken, obtained or effected
(except for the filing of any notice subsequent to the Second Closing that may
be required under applicable Federal or state securities laws, which notice
shall be filed on a timely basis following the Second Closing as so required),
and all documents incident thereto shall be satisfactory in form and substance
to the Investor. The Investor shall have received all such originals or
certified or other copies of such documents as have been reasonably requested by
it.
(h) Opinion of Counsel. Allen, Matkins, Leck, Gamble & Mallory, counsel
to the Company, shall have delivered its opinion addressed to the Investor,
dated as of the Second Closing Date, in a form acceptable to the Investor and
substantially similar to the opinion delivered to the Investor in connection
with the First Closing.
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(i) Supporting Documents. The Investor shall have received copies of the
following supporting documents (in form and substance satisfactory to the
Investor):
(i) certificates of the Secretary of State of the State of
California, dated as of a recent date, as to the due incorporation or
organization and good standing of the Company and listing all documents
of the Company on file with said Secretary;
(ii) a telegram, telex or other acceptable method of confirmation
from said Secretary as of the close of business on the Business Day
preceding the Second Closing Date as to the continued good standing of
the Company;
(iii) a certificate of the Secretary or an Assistant Secretary of
the Company, dated as of the Second Closing Date and certifying: (1)
that attached thereto is a true, correct and complete copy of each of
the Certificate of Incorporation and By-laws as in effect on the date of
such certification (each of which shall be in form and substance
satisfactory to the Investor); (2) that attached thereto is a true,
correct and complete copy of all resolutions adopted by the Board (and
any committees thereof) and the stockholders of the Company authorizing
the execution, delivery and performance of the Transaction Documents and
the issuance, sale and delivery of the Preferred Stock, and that all
such resolutions are still in full force and effect; (3) that the
Certificate of Incorporation has not been amended since the date of the
last Certificate referred to in the certificate delivered pursuant to
clause (i) above; and (4) the incumbency and specimen signature of all
officers of the Company executing the Transaction Documents, the stock
certificates representing the Preferred Stock, and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (iii); and
(iv) such additional supporting documents and other information
with respect to the operation and affairs of the Company as the Investor
may reasonable request.
(j) No Litigation or Legislation. No Legal Requirement shall have been
enacted after the date hereof and no proceeding shall be pending which prohibits
or seeks to prohibit, or materially restricts or delays the consummation of the
transactions contemplated by the Transaction Documents or materially restricts
or impairs the ability of the Investor to own Securities of the Company.
(k) Closing Date. The Second Closing shall have occurred on or prior to
October 30, 1998.
5.4 Third Closing. The obligation of the Investor to purchase and pay for
the Class C Preferred Stock is subject to the satisfaction of the following
conditions precedent (unless waived by the Investor).
(a) Issuance of Securities. The Company shall have duly issued and
delivered to the Investors certificates evidencing the Class C Preferred Stock
being purchased by the Investor at the Third Closing and the Third Closing
Warrants.
(b) Pro-forma Debt Ratio. The pro forma ratio of the Company's (A) Total
Net Indebtedness plus the Liquidation Value of its Preferred Stock at the Third
Closing Date to (B) EBITDA for the preceding four quarters, shall be less than
4.0:1.
(c) Performance. The Company shall have achieved an annualized 20%
organic growth rate with respect to its service business, and shall have
otherwise performed and complied in all material respects with all agreements
and conditions contained in the Transaction Documents and required to be
performed by or complied with by it prior to or at the Third Closing and shall
have certified to such effect to the Investor in writing.
(d) No Default. No event of default shall have occurred under any
instrument evidencing any material Indebtedness or related to the issuance of
Securities, to which the Company is a party, regardless of the reason for such
event of default.
(e) No Material Adverse Change. There shall have been no Material
Adverse Change from the date hereof to the Third Closing Date.
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(f) Closing Date. The Third Closing shall have occurred on or prior to
June 30, 1999.
6. Conditions of the Company's Obligations at Closing. The obligations of
the Company under this Agreement are subject to the fulfillment at or prior to
each Closing of the following conditions, any of which may be waived in writing
in whole or in part by the Company:
6.1 Representations and Warranties. The Investor shall have delivered a
certificate stating that the representations and warranties contained in Section
4 hereunder are true, correct and complete in all material respects on and as of
the applicable Closing Date, except to the extent that any changes therein are
specifically and affirmatively contemplated by the Transaction Documents.
6.2 Litigation. No injunction or other litigation shall be pending and
no injunction, order, decree or judgment shall have been entered, which does or
would prohibit or materially restrict or delay consummation of this Agreement or
the transactions contemplated by the Transaction Documents.
6.3 Purchase Price. The Investor shall have delivered to the Company
the purchase price for the Preferred Stock purchased by the Investor at such
Closing by a wire transfer of immediately available funds.
6.4 H-S-R Act Approval. Any applicable waiting period under the H-S-R
Act will have expired or terminated and no action shall have been instituted or
threatened by either the United States Department of Justice or the Federal
Trade Commission to prevent consummation of the transactions contemplated by
this Agreement or to modify or amend such transactions in any material manner,
or if any such action shall have been instituted, it shall have been withdrawn
or a final judgment shall have been entered against such Department or
Commission, as the case may be.
6.5 Proposed Board Members. The Company shall have received, and be
reasonably satisfied with, a list identifying the persons proposed by the
Investor as Preferred Directors and members of the Audit and Compensation
Committees of the Board pursuant to Section 7.2(g) hereof.
6.6 Fairness Opinion. The Company shall have received on or prior to
the First Closing, from Sutro & Co., an opinion regarding the fairness, from a
financial point of view, of the transactions contemplated hereby as of the
Effective Date.
7. Additional Agreements of the Company.
7.1 Compliance. The Company (a) in carrying out its business shall
comply in all material respects with Legal Requirements of any Governmental
Authority applicable to the Company, its business and the ownership of its
assets, and (b) shall obtain and maintain in full force and effect all licenses
and permits material to and necessary in the conduct of its business.
7.2 Affirmative Covenants. As long as any Preferred Stock or Warrants
and/or Notes are outstanding, the Company shall observe and perform the
following:
(a) The Company shall use the proceeds of the sale of the Preferred
Stock solely in the manner described in the Transaction Documents;
(b) The Company shall pay and discharge, before the same shall become
delinquent, (i) all amounts of taxes, assessments and governmental charges
or levies imposed upon it or its property and (ii) all lawful claims that,
if unpaid, could reasonably be expected by law to become an Encumbrance
upon its property; provided, however that the Company shall not be required
to pay or discharge any such tax, assessment, charge or claim (1) that is
being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained or (2) the non-payment or
non-discharge of which could not reasonably be expected to have a Material
Adverse Effect on the Company;
(c) The Company shall preserve and maintain its corporate existence,
its rights (charter and statutory), and all material permits, licenses,
approvals, privileges and franchises necessary or desirable in the normal
conduct of its business, unless the failure to preserve or maintain such
items could not reasonably be expected to have a Material Adverse Effect on
the Company;
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(d) The Company shall preserve and maintain all of its properties that
are reasonably required in the conduct of its business in good working
order and condition, ordinary wear, tear and depletion excepted, unless the
failure to preserve or maintain such properties could not reasonably be
expected to have a Material Adverse Effect on the Company;
(e) The Company shall keep proper books of record and account, in
which entries which are full and correct in all material respects shall be
made of all financial transactions and the assets and business of the
company in accordance with GAAP;
(f) So long as there exists a Significant Holder, the Company shall
afford the Investor, the Investor's employees and other authorized
representatives, during normal business hours, reasonable access, upon
reasonable advance notice, to all of the books, records and properties of
the Company and to all officers and employees of the Company, provided,
however, that such investigation shall not unreasonably interfere with the
operations of the Company. The Company will instruct its independent public
accountants to discuss such aspects of the financial condition of the
Company with the Investor and its representatives as the Investor may
reasonably request, and to permit the Investor and its representatives to
inspect, copy and make extracts from the financial statements, analyses,
work papers and other documents and information (including electronically
stored documents and information) prepared by such accountants with respect
to the Company as the Investor may reasonably request.
(g) So long as there exists a Significant Holder, the Board shall be
comprised of seven (7) members, constituted as follows:
(i) The Significant Holder shall be entitled to designate three
(3) individuals who the Company shall either (a) if sufficient vacancies
exist on the Board, cause to be placed on the Board by the remaining
directors or (b) if such vacancies do not exist, nominate for election by
the stockholders to serve as directors on the Board (each, a "Preferred
Director"); provided, that only two (2) such Preferred Directors may be
members of the Board prior to the Second Closing; provided, further, that
in the event Equity Partners is no longer the Significant Holder, the then
existing Significant Holder shall be entitled to designate (i) three (3)
Preferred Directors so long as such Significant Holder owns at least 20% of
the Company's Common Stock on a Fully-Diluted Basis, (ii) two (2) Preferred
Directors so long as the Significant Holder owns at least 15% of the
Company's Common Stock on a Fully-Diluted Basis, and (iii) one (1)
Preferred Director so long as the Significant Holder owns at least 10% of
the Company's Common Stock on a Fully-Diluted Basis.
(ii) The Significant Holder shall be entitled to designate
pursuant to clause (i) above each successor to any such Preferred Director
removed in accordance herewith or who otherwise vacates such office.
(iii) The right of the Significant Holder to designate Preferred
Directors pursuant to clause (i) above may be exercised at any Board
meeting called pursuant to this Section 7.2(g), to the extent and in the
manner permitted by the Fundamental Documents and Applicable Law.
(iv) In the event any individual designated by the Significant
Holder to serve as a Preferred Director pursuant to clause (i), (ii) or
(iii) is not placed on the Board within 10 Business Days of such
designation, (A) for so long as at least $100,000 in Liquidation Value of
Preferred Stock is outstanding, such event shall constitute a Maturity
Default (as defined in the Certificate) and (B) in the event less than
$100,000 in Liquidation Value of Preferred Stock is outstanding, the
Company will pay to such Significant Holder $500,000 as partial
compensation for the Company's failure to comply with the provisions of
this Section 7.2(g).
(v) The Company shall pay or reimburse each Preferred Director
for the reasonable out-of-pocket expenses incurred by such Person in
connection with attending formal meetings of the Board and any committee
thereof in accordance with the policies and procedures of the Company in
respect of reimbursing the other Board and Committee members who are not
employees of the Company; provided, however, that such policies and
procedures shall be adjusted, if necessary, to take into account the
greater distance that each Preferred Director must travel to attend such
meetings. The Company shall use its
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best efforts to maintain teleconferencing capabilities for all formal
meetings of the Board and any committee thereof.
(h) So long as there exists a Significant Holder, at least two of the
Preferred Directors shall be entitled to be a member of any committee or
subcommittee of the Board and the Board shall not make any change to the
number of members of any committee or subcommittee without the consent of
the Preferred Directors then in office.
(i) So long as there exists a Significant Holder, the Company hereby
grants to the Investor a right of first offer to purchase all or part of
such Investor's pro rata share of New Securities which the Company may,
from time to time, propose to sell and issue, subject to the terms and
conditions set forth below. The Investor's pro rata share, for purposes of
this Section 7.2(i), shall equal a fraction, the numerator of which is the
number of Common Stock Equivalents then held by the Investor and the
denominator of which is the total number of Common Stock Equivalents. If
Company desires to sell or issue New Securities, it will first offer to the
Investor the right to purchase such Investor's pro-rata share of New
Securities. Such offer shall set forth the number of New Securities to be
sold and such Investor's pro-rata share of such issuance and the price and
material terms and conditions of such proposed sale. If the Investor does
not elect to purchase all of its pro-rata share of the New Securities
proposed to be sold within fifteen (15) days of receipt of such offer, the
Company may within ninety (90) days thereafter sell all of the New
Securities to third parties on terms and conditions no less favorable to
the Company than those set forth in the offer delivered to the Investor. If
the Investor does elect to purchase its pro rata share of the New
Securities, the Investor shall be required to deliver the consideration to
Company for the New Securities being purchased by the Investor at the time
such third parties are required to deliver their consideration for the
balance of such New Securities to the Company.
(j) At each Closing, the Company shall deliver pro forma financial
statements, giving effect to such Closing, on a basis consistent with the
pro forma financial statements set forth in Schedule 3.9(e).
7.3 Committees and Subcommittees. Prior to the First Closing, the
Company and the Investor shall mutually determine the appropriate number of
members of, and composition of, any and all committees and subcommittees of the
Board, subject to the requirements of the Company's Fundamental Documents and
Applicable Law.
7.4 Approval and Filing of Certificate. The Company shall use its best
efforts to (a) obtain the Approval from its stockholders, (b) have the
Certificate filed with the Secretary of State of the State of California as
promptly as is practicable, and (c) generally cause the conditions to Investor's
closing to be satisfied and the transactions contemplated by this Agreement to
be consummated as soon as practicable.
7.5 Financial Reports. So long as there exists a Significant Holder,
the Company shall deliver, or shall cause to be delivered to the Significant
Holder the following financial reports within the applicable time periods
specified in this Section.
(a) Annual Financial Statements. The Company's annual audited financial
statements shall be delivered within ninety (90) days after the end of each
fiscal year, and shall be accompanied by the applicable audit report.
(b) Quarterly Financial Statements. The Company's quarterly financial
statements shall be delivered within forty-five (45) days after the end of each
quarter (other than the fourth quarter) of each fiscal year. Such quarterly
financial statements shall include a certificate of the Chief Financial Officer
of the Company on behalf of the Company that, to the Company's Knowledge, there
has been no material event of default under (i) the Transaction Documents, (ii)
the Fundamental Documents or (iii) any Indebtedness of the Company for borrowed
money in an aggregate principal amount in excess of $1,000,000.
(c) Monthly Financial Statements. The Company's monthly financial
statements shall be delivered promptly upon their dissemination to management of
the Company.
(d) Projections. The Company's annual financial projections shall be
delivered within 30 days after the beginning of each fiscal year.
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7.6 Notice and Supplemental Information. The Company and the Investor
shall each give prompt notice to the other parties of any material adverse
development causing a breach of any of its own representations and warranties in
Sections 3 and 4 respectively. In addition, the Company will, from time to time,
as necessary, within a reasonable period of time preceding any applicable
Closing, by notice in accordance with the terms of this Agreement, supplement or
amend the Schedules, including one or more supplements or amendments to correct
any matter which would constitute a breach of any representation, warranty,
agreement or covenant contained herein.
8. Miscellaneous.
8.1 Transactional Expenses. The Company will pay the Investor, whether
or not any Closing hereunder occurs, for the payment of all reasonable fees,
expenses and costs of the Investor relating to the negotiation, preparation,
execution and performance of this Agreement and the transactions contemplated
hereunder, including, but not limited to, (i) the reasonable fees, expenses and
disbursements of the Investor's counsel, independent public accountants and
other experts in negotiating and preparing this Agreement, conducting due
diligence in connection with the contemplated transactions and consummating the
transactions contemplated hereby, (ii) all transfer, stamp, documentary or other
similar taxes, assessments or charges levied by any governmental or revenue
authority in respect hereof or any other document referred to herein, (iii) fees
and expenses incurred by the Investor in respect of the enforcement of the
rights granted to the Investor under the Transaction Documents, the agreements
contemplated hereby and the shares of Preferred Stock, including without
limitation attorneys' fees and expenses and legal costs, (iv) the expenses of
the Investor relating to the consideration, negotiation, preparation or
execution of any Certificates, waivers or consents pursuant to the provisions
hereof, whether or not any such Certificates, waivers or consents are executed
and (v) reasonable fees and expenses incurred by the Investor in any filing with
any governmental agency with respect to its investment in the Company or in any
other filing with any governmental agency with respect to the Company which
mentions such Investor; provided, however, that the aggregate of such fees,
expenses and costs paid by the Company pursuant to this Section 8.1 shall not
exceed $400,000.
8.2 Portfolio Monitoring Expenses. The Company shall pay, upon written
notice from the Investor requesting such payment, reasonable out-of-pocket fees,
expenses and costs incurred by the Investor and its Affiliates following the
First Closing.
8.3 Survival of Representations, Warranties and Covenants. Each
Investor shall be entitled to make a claim for breach of the representations or
warranties in the Transaction Documents until the date which is 540 days
following the applicable Closing Date when such Investor purchased Securities.
There shall be no limitation, other than applicable statutes of limitations,
with respect to claims by an Investor for breaches of covenants set forth in the
Transaction Documents.
8.4 Publicity and Non-Disclosure. Without the prior written consent of
the other party, neither the Company nor any Investor shall release any
information to any third party (other than their directors, officers, limited
partners or their legal, accounting and other professional advisors) with
respect to the terms of this Agreement or the transactions contemplated hereby
except as may be required by Applicable Law or court order.
8.5 Successors and Assigns. Except as otherwise expressly provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including any transferee of any Notes, shares of Preferred Stock and/or Common
Stock issued upon the conversion of Warrants). Upon any transfer of Notes,
Preferred Stock, Warrants or Common Stock, the transferee shall be bound by, and
entitled to the benefits of, this Agreement with respect to such transferred
Securities in the same manner as the Investor.
8.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO AGREEMENTS AMONG NEW YORK
RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN NEW YORK.
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8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.8 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.9 Notices. All notices and other communications required or permitted
to be delivered under this Agreement shall be in writing and shall be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service, in each case to the appropriate addresses and telecopier
numbers set forth below (or such other addresses and telecopier numbers as the
Investor or the Company may designate by ten (10) days' advance written notice
to the other party):
<TABLE>
<S> <C>
If to the Investor: ING Equity Partners
520 Madison Avenue
New York, New York 10022-4213
Attention: Benjamin P. Giess
Telephone: 212-453-1708
Facsimile: 212-750-2970
with a copy to: Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
Attention: James B. Carlson
Telephone: 212-506-2515
Facsimile: 212-262-1910
If to the Company: Alpha Microsystems, Inc.
2722 S. Fairview Street
Santa Ana, California 92704
Attention: Douglas J. Tullio
Telephone: 714-957-8500
Facsimile: 714-641-7678
with a copy to: Allen, Matkins, Leck, Gamble & Mallory
515 South Figueroa Street, 7th Floor
Los Angeles, California 90071-3398
Attention: Debra Hall
Telephone: 213-622-5555
Facsimile No.: 213-620-8818
</TABLE>
8.10 Construction. The term "this Agreement" means this agreement
together with all schedules and exhibits hereto, as the same may from time to
time be amended, modified, supplemented or restated in accordance with the terms
hereof. The use in this Agreement of the term "including" means "including,
without limitation." The words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole, including the schedules
and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All references to
sections, schedules and exhibits mean the sections of this Agreement and the
schedules and exhibits attached to this Agreement, except where otherwise
stated. The title of and the section and paragraph headings in this Agreement
are for convenience of reference only and shall not govern or affect the
interpretation of any of the terms or provisions of this Agreement. The use
herein of the masculine, feminine or neuter forms shall also denote the other
forms, as in each case the context may require or permit. Where specific
language is used to clarify by example a general statement contained herein,
such specific language shall not be deemed to modify, limit or restrict in any
manner the construction of the general statement to which it relates. The
language used in this Agreement has been chosen by the parties to
26
<PAGE> 31
express their mutual intent, and no rule of strict construction shall be applied
against any party. Unless expressly provided otherwise, the measure of a period
of one month or year for purposes of this Agreement shall be that date of the
following month or year corresponding to the starting date, provided that if no
corresponding date exists, the measure shall be that date of the following month
or year corresponding to the next day following the starting date. For example,
one month following February 18 is March 18, and one month following March 31 is
May 1.
8.11 Indemnification.
(a) The Company shall indemnify and hold harmless any Investor
(including any Significant Holder) and its officers, directors, partners,
employees, representatives and agents, successors and assigns, in respect of any
and all claims, lawsuits, losses, costs, expenses, liabilities, fines,
penalties, interest, and damages, and also including attorneys' fees and
expenses, accountants' fees and expenses and all other reasonable costs and
expenses of investigation, defense or settlement of claims and amounts paid in
settlement) incurred by, imposed on or borne by the Investor ("Damages")
resulting from (i) a breach by the Company of any of the representations,
warranties or covenants contained in the Transaction Documents and (ii) any
third-party Claims made against the Investor as a result of the transactions
contemplated hereby.
(b) Whenever any claim shall arise for indemnification hereunder, the
party entitled to indemnification (the "Indemnified Party") shall promptly
notify the Company (the "Indemnifying Party") of the claim and, when known, the
facts constituting the basis for such claim; provided that the Indemnified
Party's failure to give such notice shall not affect any rights or remedies of
an Indemnified Party hereunder with respect to indemnification for damages
except to the extent that the Indemnifying Party is materially prejudiced
thereby. In the event of any claim for indemnification hereunder resulting from
or in connection with any claim or legal proceedings by a third party, the
notice to the Indemnifying Party shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The Indemnified Party
shall not settle or compromise any claim by a third party for which it is
entitled to indemnification hereunder, without the prior written consent of the
Indemnifying Party (which shall not be unreasonably withheld) unless suit shall
have been instituted against it and the Indemnifying Party shall not have taken
control of such suit after notification thereof as provided in this Agreement.
In connection with any claim giving rise to indemnity hereunder, the
Indemnifying Party may, upon written notice to the Indemnified Party, assume the
defense of any such claim or legal proceeding and defend against such claim or
litigation at the sole cost and expense of the Indemnifying Party; however, in
the event the Indemnifying Party does not fully assume such defense within 10
days after notice thereof by any Indemnified Party or in the event that counsel
for the Indemnifying Party is subject to conflicts of interest which would
restrict or limit such counsel in fully representing any Indemnified Party and
its interests then such Indemnified Party, upon written notice to the
Indemnifying Party, may assume the defense of any such claim or litigation at
the sole cost and expense of the Indemnifying Party; provided, that each
Indemnified Party will not agree to any settlement without the prior written
consent of the Indemnifying Party (which consent will not be unreasonably
withheld).
8.12 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of the Company and Equity Partners;
(b) by either Equity Partners or the Company if (i) the First Closing
shall not have been consummated on or before September 4, 1998 (unless the
failure to consummate the First Closing by such date shall be due to the
action or failure to act of the party seeking to terminate this Agreement)
or (ii) any permanent injunction or other order of a court or other
competent authority preventing the consummation of the Closing shall have
become final and non-appealable;
(c) by Equity Partners at any time prior to the First Closing, if (i)
the Company shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied with
or performed by the Company at the time of such termination and such
failure has not been cured within 10 Business Days following notice to the
Company from Equity Partners or (ii) any representation or warranty by the
Company contained in this Agreement shall be incorrect in any material
respect when made; and
27
<PAGE> 32
(d) by the Company at any time prior to the First Closing, before or
after the receipt by the Company of the Approval, if (i) the Investor shall
have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by
the Investor at the time of such termination and such failure has not been
cured within 10 Business Days following notice to the Investor from the
Company or (ii) any representation or warranty by the Investor contained in
this Agreement shall be incorrect in any material respect when made.
In the event of the termination of this Agreement, the Registration Rights
Agreement shall automatically terminate and be of no force or effect.
8.13 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER AGREEMENT CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE INVESTOR OR THE
COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE UNITED STATES
DISTRICT COURTS IN NEW YORK, NEW YORK.
8.14 Waiver of Jury Trial. THE COMPANY AND THE INVESTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS EACH MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT CONTEMPLATED
HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF THE COMPANY. THE COMPANY ACKNOWLEDGES AND AGREES THAT IT
HAS RECEIVED FULL AND FAIR CONSIDERATION FOR THIS PROVISION AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE INVESTOR FOR ENTERING INTO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
8.15 Certificates and Waivers. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Investor.
8.16 Severability. If one or more provisions of this Agreement are held
to be unenforceable under Applicable Law, such provision or provisions shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision or provisions were so excluded and shall be
enforceable in accordance with its terms.
8.17 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Transaction Documents and the other documents required to be
delivered pursuant hereto and thereto constitute the entire understanding and
agreement between the parties with regard to the specific subject matter hereof
and no party shall be liable or bound by any representation, warranty, covenant
or agreement except as specifically set forth herein. Any previous agreement
(whether written, oral or implied) among the parties relative to the specific
subject matter hereof, is superseded by this Agreement.
28
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above-written.
ALPHA MICROSYSTEMS
By: /s/ DOUGLAS J. TULLIO
------------------------------------
Name: Douglas J. Tullio
Title: President
ING EQUITY PARTNERS II, L.P.
By: Its General Partner,
LEXINGTON EQUITY PARTNERS II, L.P.
By: Its General Partner,
LEXINGTON EQUITY PARTNERS, INC.
By: /s/ BENJAMIN P. GIESS
------------------------------------
Name: Benjamin P. Giess
<PAGE> 34
EXHIBIT C-1
WARRANT SCHEDULE
<TABLE>
<CAPTION>
CLOSING
-----------------------------------
FIRST SECOND THIRD****
INTENDED --------- --------- ---------
DETERMINATION PERCENTAGE INITIAL EXERCISE AMOUNT***
------------- ---------- -----------------------------------
<S> <C> <C> <C> <C>
Series A Common Stock Warrant................. 17.50% 1,909,722 3,093,358 3,604,434
Series B Common Stock Warrant*................ 1.00% 109,127 176,763 205,968
Series B-1 Common Stock Warrant**............. 1.49% 162,599 0 0
---------
Cumulative Share Total (First Closing)........ 2,181,448
=========
Series C Common Stock Warrant................. 13.50% 2,386,304 2,780,563
Series D Common Stock Warrant*................ 1.00% 176,763 205,968
---------
Cumulative Share Total (Second Closing)....... 5,833,188
=========
Series E Common Stock Warrant................. 8.50% 1,750,725
Series F Common Stock Warrant*................ 1.00% 205,968
---------
Cumulative Share Total (Third Closing)........ 8,753,626
=========
</TABLE>
- ---------------
* Cancellable at Complete Preferred Redemption, defined as redemption in
full of all or all but one share of outstanding Preferred Stock issued at
the same Closing prior to June 30, 2000.
** These Warrants are cancellable upon the consummation of certain subsequent
Closings, as indicated by a "0" in the applicable column.
*** In the event the Company issues any New Securities on or after the First
Closing, the applicable Initial Exercise Amount as of the Second and Third
Closing shall be increased by the amount necessary such that the number of
Warrant Shares owned by the Investor equals the Intended Percentage of
Common Stock Equivalents on an Adjusted Fully-Diluted Basis.
**** The amounts set forth for the Third Closing assume the Investor subscribes
at such Closing for $5,000,000 of Securities. In the event the Third
Closing is consummated, but the Investor purchases less than $5,000,000 of
Securities in such Closing, the Initial Exercise Amount of the Series A,
B, C and D Warrants and the Initial Exercise Amount and the Intended
Percentage of the Series E and F Warrants reflected on this Warrant
Schedule for such Closing shall be proportionally adjusted as mutually
agreed by the Company and such Investor.
***** Capitalized terms used but not otherwise defined herein shall have the
meaning given to them in the Warrants.
<PAGE> 1
EXHIBIT 10.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAW,
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THEY HAVE BEEN
REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
, 1998
FORM OF WARRANT CERTIFICATE TO PURCHASE
COMMON STOCK OF
ALPHA MICROSYSTEMS
This Warrant Certificate (the " Warrant Certificate") is to certify that
ING Equity Partners II, L.P. or its registered assigns (the "Warrantholder") is
entitled, at any time after the date hereof but prior to the Expiration Date, to
purchase, at the Exercise Price (as hereinafter defined), shares of the Common
Stock (as modified pursuant to Section 4.3, the "Initial Exercise Amount") of
Alpha Microsystems, Inc. (the "Company"). Unless earlier exercised in full and
subject to the conditions set forth herein, this warrant shall expire at 5:00
P.M., New York City time, on , 2008 (the "Expiration Date"). Capitalized
terms used but not otherwise defined herein shall have the meanings given to
them in the Securities Purchase Agreement between the Investor (as defined
therein) and the Company dated as of August 7, 1998 (the "Purchase Agreement").
1. Exercise of Warrant.
1.1 This Warrant Certificate is exercisable by the Warrantholder at the
Exercise Price per share of Common Stock issuable hereunder, payable in cash, by
certified or official bank check or by surrender of other Securities of the
Company whose aggregate principal amount or stated liquidation value, together
with any accrued but unpaid interest or principal due thereon, is equal to the
Exercise Price. In lieu of payment of the Exercise Price as provided above, the
Warrantholder may elect a cashless net exercise. In the case of such cashless
net exercise, the Warrantholder shall surrender this Warrant Certificate for
cancellation and receive in exchange therefor the full number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
specified, subject to adjustment in accordance with Section 5, less the number
of shares of Common Stock with an aggregate Fair Market Value as of the Business
Day on which the Warrantholder surrenders this Warrant to the Company (the
"Exercise Date") equal to the aggregate Exercise Price that would have been
payable upon such exercise absent election of the cashless net exercise
alternative. Upon surrender of this Warrant Certificate with the attached
Subscription Form duly completed and executed, together with any required
payment of the Exercise Price for the shares of Common Stock being purchased, at
the Company's principal executive offices presently located at 2722 South
Fairview Street, Santa Ana, California 92704, the Warrantholder shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased.
1.2 The purchase rights represented by this Warrant Certificate are
exercisable at the option of the Warrantholder, in whole or in part (but not as
to fractional shares of Common Stock), at any time and from time to time prior
to the Expiration Date during the period in which this Warrant Certificate may
be exercised as set forth above.
1.3 In the case of the purchase of less than all the shares of Common
Stock purchasable under this Warrant Certificate, the Company shall cancel this
Warrant Certificate upon the surrender hereof and shall execute and deliver a
new Warrant Certificate as soon as practicable to the Warrantholder of like
tenor for the balance of the shares of Common Stock purchasable hereunder.
C-1
<PAGE> 2
2. Issuance of Stock Certificates.
2.1 The issuance of certificates for shares of Common Stock upon the
exercise of this Warrant Certificate shall be made as soon as practicable
thereafter or in any event within thirty (30) days of such exercise without
charge to the Warrantholder, including, without limitation, any tax that may be
payable in respect thereof, and such certificates shall (subject to the
provisions of this Section 2) be issued in the name of, or in such names as may
be directed by, the Warrantholder; provided, however, that the Company shall not
be required to pay any income tax to which the Warrantholder may be subject in
connection with the issuance of this Warrant Certificate or of shares of Common
Stock upon the exercise of this Warrant Certificate; provided, further, 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 in a
name other than that of the Warrantholder 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.
2.2 All shares of Common Stock issued upon the exercise of this Warrant
Certificate shall be validly issued, fully paid and nonassessable.
2.3 Each person in whose name any such certificate for shares of Common
Stock is issued shall for all purposes be deemed to have become the holder of
record of such shares on the date on which the Warrant Certificate was
surrendered and payment of the Exercise Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
3. Restrictions on Transfer.
3.1 Investment Representation and Transfer Restriction Legend. The
Warrantholder, by acceptance of this Warrant Certificate, represents and
warrants to the Company that it is acquiring this Warrant Certificate and the
shares of Common Stock issued or issuable upon exercise hereof (the "Warrant
Shares") for investment purposes only and not with a view towards the resale or
other distribution thereof. Each certificate representing Warrant Shares, unless
at the same time of exercise such Warrant Shares are registered under the Act,
shall bear a legend in substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY
NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THEY HAVE BEEN
REGISTERED UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a distribution under a registration statement covering the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby may be transferred as
contemplated by such Warrantholder without violation of the registration
requirements of the Act.
4. Exercise Price and Exercise Amount.
4.1 Initial and Adjusted Exercise Price. The initial exercise price of
this Warrant Certificate shall be $1.50 per share of Common Stock; provided,
that in the event the Second Closing is consummated in full, the initial
Exercise Price of Warrants issued in connection with the First Closing shall for
all purposes be retroactively adjusted and shall be deemed to have been $2.50
per share of Common Stock on the Original Issue Date, and any adjustments to the
Exercise Price or Exercise Amount pursuant to Section 5 hereof between the First
Closing and the Second Closing shall be recalculated as if the initial Exercise
Price as of the First Closing was $2.50 per share of Common Stock. In addition,
the Exercise Price may be further modified from time to time pursuant to the
provisions of Section 5 hereof.
C-2
<PAGE> 3
4.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price depending upon the
context.
4.3 Exercise Amount. The term "Exercise Amount" shall mean the Initial
Exercise Amount or the adjusted Exercise Amount determined pursuant to Section 5
depending upon the context; provided, however, that the Initial Exercise Amount
shall be deemed to be the number of shares equal to the Initial Exercise Amount
plus any Incremental Dilution Amount, each as indicated on or determined
pursuant to the Warrant Schedule to the Purchase Agreement, in the event the
indicated Closings reflected on the Warrant Schedule are consummated.
5. Adjustment of Exercise Amount and Number of Shares.
5.1 For purposes of this Section 5, the following definitions shall apply:
(a) "Option" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities,
excluding the options described on Schedule 5.1 hereto.
(b) "Original Issue Date" shall mean the date this Warrant was
granted.
(c) "Convertible Securities" shall mean any evidences of indebtedness,
shares or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(d) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Section 5.2 below, deemed to be
issued) by the Company after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(i) to employees or consultants of the Company pursuant to any plan
adopted by the Board and, in the event the Board includes any Preferred
Directors, agreed to by the Preferred Directors;
(ii) for so long as the Investor is a Significant Holder, in
connection with any dividend or distribution, where the approval of such
transaction requires the affirmative consent of the Significant Holder,
such approval has been granted and such transaction is consummated on
terms consistent with such approval.
(iii) in connection with the acquisition (by stock or asset
purchase, merger or other form of business combination) of another
company or business other than any such acquisition of or from any
Person or Persons that are Affiliates of the Company immediately prior
to such issuance;
(iv) to a lender to the Company (other than any lender which is an
Affiliate of the Company) in connection with a bona fide financing;
(v) in connection with an underwritten public offering of shares of
Common Stock registered pursuant to the Securities Act; or
(vi) upon the sale of any Warrants as set forth in the Warrant
Schedule or upon the issuance of Common Stock upon exercise of such
Warrants.
5.2 The Exercise Amount specified in Section 5 hereof shall be subject to
adjustment from time to time as follows:
(a) Issue of Securities Deemed Issue of Additional Shares of Common
Stock. For purposes of this Section 5.2, if the Company at any time or from
time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock
(as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date;
provided, that Additional Shares of Common Stock shall not be deemed to
have been issued unless
C-3
<PAGE> 4
the consideration per share (determined pursuant to Section 5.2(c) hereof)
of such Additional Shares of Common Stock would be less than the Fair
Market Value of the Common Stock on the date of and immediately prior to
such issue, or such record date, as the case may be; provided, further,
that in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(i) No further adjustment in the Exercise Amount shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(ii) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Exercise Amount computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such
increase or decrease;
(iii) No readjustment pursuant to clause (ii) above shall have the
effect of adjusting the Exercise Amount to an amount which is less than
(i) the Exercise Amount on the original adjustment date, or (ii) the
Exercise Amount that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date;
(iv) Notwithstanding clause (ii) above, upon the expiration or
termination of any unexercised Option or cancellation of unconverted
Convertible Securities, the Exercise Amount shall be readjusted as if
such Option or Convertible Security had not been issued; and
(v) In the event of any increase in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, an increase
resulting from the antidilution provisions thereof (other than an
increase resulting from an adjustment pursuant to this Section 5.2), the
Exercise Amount then in effect shall forthwith be readjusted to such
Exercise Amount as would have obtained had the adjustment (if any) which
was made upon the issuance of such Option or Convertible Security not
exercised or converted prior to such increase been made upon the basis
of such increased number of shares, but no further adjustment shall be
made for the actual issuance of Common Stock upon the exercise or
conversion of any such Option or Convertible Security.
(b) Adjustment of Exercise Amount Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
5.2(a), but excluding shares issued as a dividend or distribution as
provided in Section 5.2(e) or upon a stock split or combination as provided
in Section 5.2(d)), without consideration or for a consideration per share
less than the Exercise Price on the date of and immediately prior to such
issue (a "Dilutive Issuance"), then and in such event, the Initial Exercise
Amount then in effect shall be increased by the Incremental Dilution
Amount, determined as follows:
(i) x = Fair Market Value
(ii) y = The number of Additional Shares of Common Stock issued in
the Dilutive Issuance
(iii) z = The issue price of any Common Stock and/or the exercise,
conversion or similar strike price, if any, of any Convertible
Securities issued in the Dilutive Issuance.
(iv) Effective Dilution Percentage = the number of Additional
Shares of Common Stock deemed issued in the Dilutive Issuance divided by
the sum of (A) the number of shares of Common Stock outstanding on an
Adjusted Fully-Diluted Basis prior to the Dilutive Issuance plus (B) the
number of Additional Shares of Common Stock deemed issued in the
Dilutive Issuance. As used herein, "Adjusted Fully-Diluted Basis" means
the number of Common Stock Equivalents outstanding on the relevant date
of determination, giving effect to the full exercise of any Options and
the full
C-4
<PAGE> 5
conversion of any Convertible Securities which have an exercise,
conversion or similar strike price equal to or less than the Exercise
Price as of the relevant date of determination.
(v) Total Dilution Value = (x - z) multiplied by y
(vi) Intended Percentage = the cumulative aggregate percentage of
Common Stock (on an Adjusted Fully-Diluted Basis) the parties intended
the Investor to own after the most recent Closing as set forth on the
Warrant Schedule, subject to appropriate adjustment by the Company and
the Investor in the event of non-dilutive issuances of Securities prior
to such Closing.
(vii) Investor Dilution Imposed = Intended Percentage multiplied by
(1 - Effective Investor Dilution Percentage).
(viii) Total Dilution Value Imposed on Investor = Investor Dilution
Imposed multiplied by Total Dilution Value.
(ix) Incremental Dilution Amount = Total Dilution Value Imposed on
Investor divided by (Fair Market Value -- Investor Exercise Price).
Examples of the calculation of this adjustment are attached as Annex A
hereto.
In addition, the applicable Exercise Amount shall not be so increased
at such time if the amount of such increase would be an amount less than a
whole share of Common Stock, but any such amount shall be carried forward
and an increase with respect thereto made at the time of and together with
any subsequent increase which, together with such amount and any other
amount or amounts so carried forward, shall aggregate a whole share of
Common Stock or more.
(c) Determination of Consideration. For purposes of this Section 5.2,
the consideration received by the Company for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) Cash and Property: Such consideration shall:
(x) insofar as it consists of cash, be computed at the aggregate
of cash received by the Company, excluding amounts paid or payable
for accrued interest or accrued dividends;
(y) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue,
as determined in good faith by the Board; and
(z) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (x)
and (y) above, as determined in good faith by the Board.
(ii) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5.2(a), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of
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such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities.
(d) Adjustment for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Exercise Amount then in
effect immediately before the subdivision shall be proportionately
increased. If the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Exercise Amount then in effect immediately before the combination shall be
proportionately decreased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event
the Company at any time, or from time to time, after the Original Issue
Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock, then in each
such event the Exercise Amount then in effect shall be increased as of the
time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, to an amount equal
to the amount determined by multiplying the Exercise Amount then in effect
by a fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Exercise Amount shall be recomputed accordingly as
of the close of business on such record date and thereafter the Exercise
Amount shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution
payable in Securities of the Company or any Subsidiary or Affiliate thereof
other than shares of Common Stock, then and in each such event provision
shall be made so that the Warrantholder shall receive upon exercise
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount and type of Securities that it would have received
had its Warrant Certificate been exercised for shares of Common Stock on
the date of such event and had it thereafter, during the period from the
date of such event to and including the actual exercise date, retained such
securities receivable by it as aforesaid during such period giving
application to all adjustments called for during such period. In the event
of a Spinoff Transaction, the Warrantholder shall be entitled to receive,
without any requirement that this Warrant be exercised, Warrants (the "New
Warrants") with terms substantially equivalent to the terms of this Warrant
Certificate, to purchase the amount and type of Securities (the "Spinoff
Securities") that it would have received in such Spinoff Transaction had
this Warrant been exercised immediately prior to such Spinoff Transaction.
The exercise price of the New Warrants (the "New Warrant Exercise Price")
shall be equal to the Exercise Price in effect immediately prior to the
Spinoff Transaction multiplied by the product of (A) the relative value per
share of the business or assets subject to the Spinoff Transaction as
compared to the total value per share of the Company at the time of the
Spinoff Transaction (as mutually determined by the Company and Equity
Partners) times (B) one (1) minus the percentage of such business or assets
retained by the Company, if any. The Exercise Price shall thereafter be
reduced by the amount of the New Warrant Exercise Price such that the sum
of the New Warrant Exercise Price plus the Exercise Price shall not exceed
the Exercise Price as in effect immediately prior to the Spinoff
Transaction. In the event a Spinoff Transaction involves a third party
whose contribution to the entity or
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business subject to the Spinoff Transaction is other than cash or other
consideration to the Company, the Company and Equity Partners shall
mutually determine the appropriate adjustment in the application of the
provisions in this Section 5 with respect to the rights and interest
thereafter of the Warrantholder.
(g) Adjustment for Reclassification, Exchange, or Substitution. If the
Common Stock issuable upon exercise of this Warrant Certificate shall be
changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares of stock
dividend provided for above, or a reorganization, merger, consolidation, or
sale of assets provided for below), then and in each such event the
Warrantholder shall have the right thereafter to exercise this Warrant
Certificate for the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification, or
other change, by holders of the number of shares of Common Stock into which
this Warrant Certificate was exercisable immediately prior to such
reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another Person or the
sale of all or substantially all of the assets of the Company to another
Person, this Warrant Certificate shall thereafter be exercisable for the
kind and amount of shares of stock or other securities or property to which
a holder of the number of shares of Common Stock of the Company deliverable
upon exercise of this Warrant Certificate would have been entitled upon
such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board) shall be made in the
application of the provisions in this Section 5 with respect to the rights
and interest thereafter of the Warrantholder, to the end that the
provisions set forth in this Section 5 (including provisions with respect
to changes in and other adjustments of the Exercise Amount) shall
thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon exercise
of this Warrant Certificate.
(i) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company but will at all times in good faith assist in the carrying out
of all the provisions of this Section 5 and in the taking of all such
action as may be necessary or appropriate in order to protect the exercise
rights of the Warrantholder against impairment.
(j) Certificate as to Amendments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Section
5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms thereof and furnish to each
Warrantholder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment
is based. The Company shall, upon the written request at any time of any
Warrantholder, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Exercise Amount then in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then would be
received upon exercise of this Warrant Certificate.
(k) Notice of Record Date. In the event:
(i) that the Company declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Company;
(ii) that the Company subdivides or combines its outstanding shares
of Common Stock;
(iii) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Company into or with another
corporation, or of the sale of all or substantially all of the assets of
the Company; or
(iv) of the inventory or voluntary dissolution, liquidation or
winding up of the Company;
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then the Company shall cause to be filed at its principal office or at
the office of the transfer agent of the Common Stock, and shall cause to
be mailed to the Warrantholders at their last addresses as shown on the
records of the Company or such transfer agent, at least 15 days prior to
the record date specified in (A) below or 30 days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision
or combination, 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, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, 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, dissolution
or winding up.
5.3 Regulatory Compliance. Notwithstanding the foregoing provisions of
this Section 5, in the event any adjustment of the Exercise Amount pursuant to
this Section 5 shall cause the Investor to be entitled to acquire, upon exercise
of this Warrant Certificate, a number of shares of Common Stock which would
exceed the 20% threshold established in The Nasdaq Stock Market Marketplace Rule
4460(i)(D) or any successor rule or regulation (the "20% NASD Limit"), the
Exercise Amount shall be reduced to allow the Company to comply with the NASD
20% Limit until such time as the Company shall be in compliance with Rule
4460(i)(D), whether by obtaining requisite stockholder approval or otherwise.
6. Exchange and Replacement of Warrant Certificate.
6.1 On surrender for exchange of this Warrant Certificate, or any Warrant
Certificate or Warrant Certificates issued upon subdivision, exercise, or
transfer in whole or in part of this Warrant Certificate, properly endorsed, to
the Company, the Company at its expense will issue and deliver to or on the
order of the holder thereof a new Warrant Certificate or Warrant Certificates of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant Certificate or Warrant Certificates so
surrendered.
6.2 In the event this or any subsequently issued Warrant Certificate is
lost, stolen, mutilated or destroyed, the Company may, upon receipt or a proper
affidavit (and surrender of any mutilated Warrant Certificate) and an indemnity
agreement or security reasonably satisfactory in form and amount to the Company,
in each instance protecting the Company, issue a new Warrant Certificate of like
denomination, tenor and date as the Warrant Certificate so lost, stolen,
mutilated or destroyed. Any such new Warrant Certificate shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
7. Elimination of Fractional Interests.
7.1 The Company shall not issue any fraction of a share in connection with
the exercise of this Warrant Certificate, but in any case where the
Warrantholder would, except for the provisions of this Section 7, be entitled
under the terms of this Warrant Certificate to receive a fraction of a share
upon the exercise of this Warrant Certificate, the Company shall, upon the
exercise of the Warrant Certificate for the largest number of full shares then
called for thereby and receipt of the Exercise Price thereof, pay a sum in cash
equal to the Fair Market Value of such fraction of a share on the day preceding
such exercise. The Warrantholder expressly waives its rights to receive any
fraction of a share or a Warrant Certificate representing a fractional share
upon exercise thereof.
7.2 If the taking of any action would cause an adjustment in the Exercise
Price so that the exercise of this Warrant Certificate while such Exercise Price
is in effect would cause shares to be issued at a price below their then par
value, the Company will take such action as may, in the opinion of its counsel,
be necessary in
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order that it may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of this Warrant Certificate.
8. Reservation and Listing of Shares.
The Company will cause to be reserved and kept available out of its
authorized and unissued shares of Common Stock the number of whole shares of
Common Stock sufficient to permit the exercise in full of this Warrant
Certificate.
9. Rights of Warrantholder.
9.1 The Company may deem and treat the person in whose name this Warrant
Certificate is registered with it as the absolute owner for all purposes
whatever (notwithstanding any notation of ownership or other writing thereon
made by anyone other than the Company) and the Company shall not be affected by
any notice to the contrary. The terms "Warrantholder" and "holder of the Warrant
Certificate" and all other similar terms used herein shall mean only such
person(s) in whose name(s) this Warrant Certificate if properly registered on
the Company's books. However, notwithstanding the foregoing, no person, entity
or group may become a Warrantholder other than the Warrantholder unless and
until (a) the provisions of Section 3.1 hereof have been complied with, (b) the
Company has received an assignment transferring all right, title and interest in
and to this Warrant Certificate, and (c) such person, entity or group represents
and warrants in writing that it will be the sole legal and beneficial owner
thereof.
9.2 Each Person who is a Warrantholder shall be entitled to be issued a
share of Voting Preferred Stock from the Company at such time as such Person
becomes a Warrantholder. Each Warrantholder agrees to surrender such share of
Voting Preferred Stock to the Company at such time as he no longer is a
Warrantholder; provided, that any such share may be transferred by a
Warrantholder to any transferee of such Warrantholder.
10. Notices.
Any notice or demand authorized by this Warrant Certificate to be given or
made by the Warrantholder to or on the Company or to be given or made by the
Company to or on the Warrantholder shall be sufficiently given or made if sent
in writing by first-class mail, postage prepaid, addressed as follows:
(a) If to the Warrantholder, to the address for such holder as shown
on the books of the Company; or
(b) If to the Company, to:
Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
Attention: President
or at such other address as the registered holder or the Company may hereafter
have advised the other.
11. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant Certificate shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
12. Headings.
The Section headings in this Warrant Certificate have been inserted for
purposes of convenience only and shall have no substantive effect.
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13. Law Governing.
This Warrant Certificate is delivered in the State of New York and shall be
construed and enforced in accordance with, and governed by, the laws of the
State of New York (without giving effect to the choice of law principle of such
state), regardless of the jurisdiction of creation or domicile of the Company or
its successors or of the holder at any time hereof.
14. Remedies.
The Company stipulates that the remedies at law of the holder of this
Warrant Certificate in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant Certificate are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
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IN WITNESS WHEREOF, the Company has executed this Warrant Certificate by
its duly authorized officer as of the day and year first above written.
ALPHA MICROSYSTEMS
By:
Name:
Title:
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