SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 18, 1999
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ANDREA ELECTRONICS CORPORATION
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(Exact Name of Registrant as Specified in Charter)
New York 1-4324 11-0482020
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
45 Melville Park Road, Melville, New York 11747
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 719-1800
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS.
On June 22, 1999, Andrea Electronics Corporation (the "Company") issued a
press release that it had completed a private placement of 750 shares of
Series B Convertible Preferred Stock (the "Series B Preferred Stock") and a
warrant covering 75,000 shares of common stock, par value $0.50 per share (the
"Common Stock"), of the Company to an institutional investor (the "Investor"),
with proceeds to the Company of $7,500,000. A copy of this press release is
attached as Exhibit 99.1 to this Report on Form 8-K.
The shares of Series B Preferred Stock become convertible into Common
Stock according to a vesting schedule, with 12.5% of the shares becoming
convertible on October 17, 1999 and an additional 12.5% becoming convertible
at the end of each succeeding 30-day period, subject to acceleration upon the
occurrence of certain events. Each share of Series B Preferred Stock has a
stated value of $10,000 plus an additional amount equal to 4% per annum, which
sum is convertible into the Company's Common Stock at a conversion price equal
to the lower of $8.775 and the average of the two lowest closing bid prices of
the Common Stock during the 15 consecutive trading days immediately preceding
any conversion date, subject to certain adjustments. The 4% per annum
additional amount with respect to each share of Series B Preferred Stock may,
at the option of the Company, be paid in cash at the time of conversion. The
shares of Series B Preferred Stock pay no dividends, have no-voting rights and
will convert automatically into Common Stock at the applicable conversion
price then in effect on June 18, 2004, to the extent any shares remain
outstanding. The warrant has an exercise price of $8.775 per share and expires
on June 18, 2004.
Subject to certain terms and conditions, until June 18, 2000, the Company
may elect, in lieu of conversion, to redeem any or all shares of the Series B
Preferred Stock submitted for conversion if the applicable conversion price
for such shares is less than $4.725 per share. In addition, upon the
occurrence of certain events, the holder of the Series B Preferred Stock may
require the Company to redeem the Series B Preferred Stock. Due to this right
of redemption of the holder, the Company will record the Series B Preferred
Stock on its balance sheet as a mezzanine item between the Company's
liabilities and shareholders' equity. Additionally, subject to certain
conditions and limitations contained in the Securities Purchase Agreement, the
Company has the right during the six month period beginning March 14, 2000 to
sell to the Investor up to an additional $7.5 million of Series B Preferred
Stock and a warrant for up to an additional 75,000 shares of Common Stock.
The foregoing summary of the material terms of the Series B Preferred
Stock is qualified by reference to the full text of the underlying documents,
which consist of a Certificate of Amendment to the Certificate of
Incorporation of the Company, a Securities Purchase Agreement and a
Registration Rights Agreement, filed as Exhibits 3.1, 4.1 and 4.2,
respectively, to this Report on Form 8-K. A Form of Warrant is also filed as
Exhibit 4.3 to this Report.
The offer and sale of the Series B Preferred Stock was made pursuant to a
private placement under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"), and will not be registered under the Securities Act,
and may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements of the Securities Act.
The Company has agreed to use its best efforts to file a registration
statement pursuant to the Securities Act as soon as possible to register the
Common Stock issuable upon conversion of the Series B Preferred Stock and
exercise of the related warrants.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
Exhibit
Number Description
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3.1 Certificate of Amendment to the Certificate of
Incorporation of the Registrant.
4.1
Securities Purchase Agreement, dated June 11, 1999,
by and between HFTP Investment L.L.C. and the
Registrant.
4.2 Registration Rights Agreement, dated June 11, 1999,
by and between HFTP Investment L.L.C. and the
Registrant.
4.3 Form of Warrant by and between HFTP Investment
L.L.C. and the Registrant.
99.1 Press Release dated June 22, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 22, 1999 ANDREA ELECTRONICS CORPORATION
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(Registrant)
/s/ Patrick D. Pilch
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Patrick D. Pilch
Executive Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
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3.1 Certificate of Amendment to the Certificate of
Incorporation of the Registrant.
4.1 Securities Purchase Agreement, dated June 11, 1999,
by and between HFTP Investment L.L.C. and the
Registrant.
4.2 Registration Rights Agreement, dated June 11, 1999,
by and between HFTP Investment L.L.C. and the
Registrant.
4.3 Form of Warrant by and between HFTP Investment
L.L.C. and the Registrant.
99.1 Press Release dated June 22, 1999.
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE
OF
INCORPORATION
OF
ANDREA ELECTRONICS CORPORATION
(Pursuant to Section 805 of the
New York Business Corporation Law)
I, THE UNDERSIGNED, John N. Andrea, being the Co-Chief Executive Officer
of Andrea Electronics Corporation, do hereby certify and set forth:
1. The name of the corporation is Andrea Electronics Corporation
(hereinafter the "Corporation" or the "Company").
2. The Certificate of Incorporation of the Corporation was filed with the
Department of State on March 15, 1934, under the name "F.A.D. Andrea, Inc."
3. Article Third of the Restated Certificate of Incorporation of the
Corporation is hereby amended for the purpose of creating a series of
Preferred Stock, par value $0.01 per share, of the Corporation and hereby
stating the designation and the number of shares, and fixing the relative
rights, preferences, and limitations thereof, and the text of said Article
Third is hereby amended to add the following text at the end of Article Third:
"SERIES B CONVERTIBLE PREFERRED STOCK"
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1,500 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "PREFERRED
SHARES") and the Stated Value shall be Ten Thousand U.S. Dollars ($10,0000.00)
per share (the "STATED VALUE").
II. NO DIVIDENDS
The Preferred Shares shall not bear any dividends ("DIVIDENDS").
III. CERTAIN DEFINITIONS
For purposes of this Article Third, the following terms shall have the
following meanings:
(A) "CONVERSION PRICE" means, on a per share basis, as of the Conversion
Date (as defined below) or other date of determination of the applicable
Preferred Shares, the lesser of (1) the Variable Conversion Price (as defined
below) and (2) the Fixed Conversion Price (as defined below); provided,
however, that if the Variable Conversion Price is less than the Redemption in
Lieu of Conversion Trigger Price (as defined below), such holder, at its
election (as reflected in the Conversion Notice), may choose the Redemption in
Lieu of Conversion Trigger Price as the Conversion Price.
(B) "VARIABLE CONVERSION PRICE" means, as of any date of determination,
the product of the (1) Conversion Percentage and (2) the Market Price (as
defined below);
(C) "CONVERSION PERCENTAGE" means, as of any date of determination, 100%,
subject to adjustment as provided herein;
(D) "MARKET PRICE" means the average of the two lowest Closing Bid Prices
(as defined below) of the Common Stock during the 15 consecutive trading days
immediately preceding a date of determination;
(E) "CONVERSION AMOUNT" means the sum of (1) the Additional Amount (as
defined below), provided that the Company has not elected to pay the
Additional Amount in cash as described in Section IV(C) and (2) $10,000;
(F) "ADDITIONAL AMOUNT" means the result of the following formula: (.04)
(N/365) ($10,000).
(G) "FIXED CONVERSION PRICE" means, 130% of the Market Price on the
Issuance Date of such Preferred Share, subject to adjustment as provided
herein;
(H) "N" means, the number of days from, but excluding, the Issuance Date
of the applicable Preferred Share through and including the Conversion Date or
the Maturity Date for the Preferred Shares for which conversion and/or
redemption is being elected, as the case may be;
(I) "ISSUANCE DATE" means, with respect to each Preferred Share, the date
of issuance of such Preferred Share;
(J) "INITIAL ISSUANCE DATE" means the first date on which any Preferred
Shares are issued by the Company;
(K) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required
by law to remain closed;
(L) "SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement between the Company and the initial holders of the
Preferred Shares;
(M) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement between the Company and the initial holders of the Preferred
Shares relating to the filing of a registration statement covering the resale
of the Conversion Shares (as defined below) and the shares of Common Stock
issuable upon the exercise of the Warrants;
(N) "CONVERSION SHARES" means shares of Common Stock issuable upon
conversion of Preferred Shares;
(O) "WARRANTS" means the warrants to purchase shares of Common Stock
issued by the Company in accordance with the Securities Purchase Agreement;
(P) "CLOSING BID PRICE" means, for any security as of any date, the last
closing bid price for such security on The American Stock Exchange, Inc.
("AMEX") (as reported by Bloomberg Financial Markets ("Bloomberg")), or, if
AMEX is not the principal trading market for such security, the last closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded (as reported by Bloomberg), or
if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board (as reported by
Bloomberg) or if no closing bid price is reported by Bloomberg, the last
closing trade price of such security as reported by Bloomberg, or, if no last
closing trade price of such security is reported by Bloomberg, the average of
the bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date on any of the foregoing bases,
the Closing Bid Price of such security on such date shall be the fair market
value as mutually determined by the Company and the holders of a majority of
the outstanding Preferred Shares (including for purposes of this determination
any Preferred Shares with respect to which the Closing Bid Price is being
determined). If the Company and the holders of Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then such dispute shall
be resolved pursuant to Section IV(G)(3). (All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period).
IV. HOLDER'S CONVERSION OF PREFERRED SHARES
A holder of Preferred Shares shall have the right, at such holder's
option, to convert the Preferred Shares into shares of the common stock on the
following terms and conditions:
(A) Conversion Right. Subject to Section IV(K), at any time or times on
or after the Issuance Date, any holder of Preferred Shares shall be entitled
to convert any whole number of Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section IV(I)) of Common Stock, at the Conversion Rate; provided, however,
that in no event shall any holder be entitled to convert Preferred Shares in
excess of that number of Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
total outstanding shares of Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the Preferred
Shares with respect to which the determination of such proviso is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (1) conversion of the remaining, nonconverted Preferred Shares
beneficially owned by the holder and its affiliates and (2) exercise or
conversion of the unexercised or unconverted portion of any other securities
of the Company (including, without limitation, any warrants or convertible
preferred stock) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the holder and its
affiliates. Except as set forth in the preceding sentence, for purposes of
this Section IV(A), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section IV(A), in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Company's most recent Form 10-Q or
Form 10-K, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding. For purposes of
compliance with this Section IV(A), upon the written or oral request of any a
holder, the Company shall reasonably promptly confirm orally and in writing to
any such holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to conversions of Preferred Shares and exercise of
Warrants (as defined below) by such holder and its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported.
(B) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of each of the Preferred Shares pursuant to Sections IV(A) and
IV(H) shall be determined according to the following formula (the "CONVERSION
RATE"):
Conversion Amount
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Conversion Price
(C) Company's Option to Pay Additional Amount in Cash. Subject to the
notice provisions of this Section IV(C), upon conversion pursuant to Sections
IV(A) or IV(G), the Company shall have the right to elect to pay the
Additional Amount in cash, in lieu of conversion to Common Stock. If the
Company elects to pay the Additional Amount in cash, such cash shall be paid
simultaneously with the delivery to the holder of the certificates
representing the Common Stock issuable upon conversion in accordance with
Section IV(G). In order to exercise its right to pay any Additional Amount in
cash, the Company must advise each holder of Preferred Shares in writing (the
"CASH DIVIDEND NOTICE") that the Additional Amount shall be paid in cash until
such time as the Company shall terminate the Cash Dividend Notice by providing
at least five business days prior written notice of such termination (the
"TERMINATION NOTICE"). The Cash Dividend Notice shall set forth the effective
date of the Cash Dividend Notice, which date shall be at least ten business
days after the date the Cash Dividend Notice is deemed to have been delivered
pursuant to Section XX. The Termination Notice shall be effective on the fifth
business day after the date the Termination Notice is deemed to have been
delivered pursuant to Section XX unless a later date shall be specified in the
Termination Notice.
(D) Intentionally Omitted.
(E) Adjustment to Conversion Price -- Dilution and Other Events. In order
to prevent dilution of the rights granted under this Certificate of Amendment,
the Fixed Conversion Price, the Variable Conversion Price and the Conversion
Price will be subject to adjustment from time to time as provided in this
Section IV(E).
(1) Adjustment of Fixed Conversion Price upon Issuance of Common
Stock. If and whenever on or after the applicable Issuance Date, the Company
issues or sells, or is deemed to have issued or sold, any shares of Common
Stock (other than Preferred Shares or Warrants or shares of Common Stock
issued upon conversion of Preferred Shares or Warrants or deemed to have been
issued by the Company in connection with an Approved Stock Plan (as defined
below)) for a consideration per share less than a price equal to the Fixed
Conversion Price in effect immediately prior to such issuance or sale, then
immediately after such issue or sale, the Fixed Conversion Price then in
effect shall be reduced to an amount equal to the product of (x) the Fixed
Conversion Price then in effect and (y) the quotient of (1) the sum of (I) the
product of the Fixed Conversion Price in effect immediately prior to such
issuance or sale multiplied by the number of shares of Common Stock Deemed
Outstanding (as defined below) immediately prior to such issue or sale and
(II) the consideration, if any, received by the Company upon such issue or
sale, divided by (2) the product of (I) the Fixed Conversion Price in effect
immediately prior to such issuance or sale multiplied by (II) the number of
shares of Common Stock Deemed Outstanding immediately after such issue or
sale. For purposes of determining the adjusted Fixed Conversion Price under
this Section IV(E)(1), the following shall be applicable:
(a) Issuance of Options. If and whenever on or after the
applicable Issuance Date, the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock (other than pursuant
to an Approved Stock Plan or upon conversion of the Preferred Shares or
exercise of the Warrants) or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "OPTIONS" and such convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES") and the price
per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities is
less than the Fixed Conversion Price in effect immediately prior to such
grant, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options at the time of issuance of such Options (without
regard to limitations on exercise, conversion or exchange) shall be
deemed to be outstanding and to have been issued and sold by the Company
for such price per share. For purposes of this Section IV(E)(1)(a), the
"price per share for which Common Stock is issuable upon exercise of such
Options or upon conversion or exchange of such Convertible Securities" is
determined by dividing (I) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options at the time
of issuance of such Options (without regard to limitations on exercise,
conversion or exchange), plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale
of such Convertible Securities and the conversion or exchange thereof, by
(II) the total maximum number of shares of Common Stock issuable upon
exercise of such Options at the time of issuance of such Options (without
regard to limitations on exercise, conversion or exchange) or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. Except as set forth in Section IV(E)(1)(c)
below, no adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If and whenever on or
after the Initial Issuance Date, the Company in any manner issues or
sells any Convertible Securities and the price per share for which Common
Stock is issuable upon such conversion or exchange is less than the Fixed
Conversion Price in effect immediately prior to such issuance or sale,
then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities at the time of
issuance of such Convertible Securities (without regard to limitations on
exercise, conversion or exchange) shall be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
the purposes of this Section IV(E)(1)(b), the "price per share for which
Common Stock is issuable upon such conversion or exchange" is determined
by dividing (I) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof at the time of
issuance of such Convertible Securities (without regard to limitations on
exercise, conversion or exchange), by (II) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities at the time of issuance of such Convertible
Securities (without regard to limitations on exercise, conversion or
exchange). Except as set forth in Section IV(E)(1)(c), below, no
adjustment of the Fixed Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of
the Fixed Conversion Price had been or are to be made pursuant to other
provisions of this Section IV(E)(1), no further adjustment of such Fixed
Conversion Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock change at any time, the
Fixed Conversion Price of any Preferred Shares in effect at the time of
such change shall be readjusted to the Fixed Conversion Price which would
have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase
of such Fixed Conversion Price then in effect. Nothing in this Section
IV(E)(l)(c) shall be construed to require any adjustment to the Fixed
Conversion Price where the Board of Directors of the Company votes to
reprice at fair market value any rights or options to subscribe for or to
purchase Common Stock granted pursuant to an Approved Stock Plan in order
to provide appropriate employee incentives.
(d) Certain Definitions. For purposes of determining the
adjusted Fixed Conversion Price under this Section IV(E)(1), the
following terms have the meanings set forth below:
(i) "APPROVED STOCK PLAN" shall mean any stock option or
similar plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director.
(ii) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such
time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Section IV(E)(1) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account
of the Company or issuable upon conversion of the Preferred Shares or
exercise of the Warrants.
(e) Effect on Fixed Conversion Price of Certain Events. For
purposes of determining the adjusted Fixed Conversion Price under this
Section IV(E)(1), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor
will be deemed to be the net amount received by the Company therefor,
before deduction of commissions, underwriting discounts or allowances or
placement agent or finder fees (but only to the extent that such
commissions, discounts, allowances and fees do not exceed 6% of the gross
proceeds to the Company) in connection with such issuance or sale,
provided that any amounts paid to the purchasers of such Common Stock or
Convertibles Securities or to any affiliates of such purchasers in
connection with such issuance or sale shall be deducted from the amount
of consideration received by the Company. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received
by the Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount of
consideration received by the Company will be the average of the Closing
Bid Prices of such securities for the five consecutive trading days
immediately preceding the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company
is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be
determined jointly by the Company and the holders of a majority of the
Preferred Shares then outstanding. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration
will be determined within 48 hours of the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser selected by the
Company, which appraiser shall be reasonably acceptable to two-thirds
(2/3) of the holders of the Preferred Shares. The determination of such
appraiser shall be binding upon all parties absent manifest error.
(ii) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $.01
and the aggregate consideration received by the Company in such
integrated transaction shall be included in the adjustment calculation in
Section IV(E)(1) above.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company, and the disposition of any shares
so owned or held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(2) Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, each Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, each Fixed Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(3) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person (as
defined below) or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "ORGANIC Change." Prior
to the consummation of any Organic Change, the Company will make appropriate
provision (in form and substance reasonably satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to insure that each of the
holders of the Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock otherwise acquirable and receivable upon the conversion of such holder's
Preferred Shares, such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in exchange
for the number of shares of Common Stock which would have been acquirable and
receivable upon the conversion of such holder's Preferred Shares had such
Organic Change not taken place (without taking into account any limitations or
restrictions on the timing or amount of conversions). In any such case, the
Company will make appropriate provision (in form and substance reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding) with respect to such holders' rights and interests to insure that
the provisions of this Section IV(E) and Section IV(F) will thereafter be
applicable to the Preferred Shares (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of the Fixed
Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, if the value so reflected is less than
such Fixed Conversion Price in effect immediately prior to such consolidation,
merger or sale and an immediate revision to the Fixed Conversion Price to
reflect the price of the common stock of the surviving entity and the market
in which such common stock is traded). The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes, by written instrument (in
form and substance reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding), the obligation to deliver to each holder
of Preferred Shares such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire. "PERSON" shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(4) Adjustment of Variable Conversion Price upon Issuance of
Convertible Securities. If and whenever after the Issuance Date, the Company
in any manner issues or sells Convertible Securities that are convertible into
or exercisable or exchangeable for Common Stock at a price which may vary with
the market price of the Common Stock (including by way of periodic
adjustments) (the formulation for such variable price being herein referred to
as, the "VARIABLE PRICE") and such Variable Price is not calculated using the
same formula used to calculate the Variable Conversion Price in effect
immediately prior to the time of such issue or sale, the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of
the Preferred Shares ("VARIABLE NOTICE") on the date of issuance of such
Convertible Securities. If the holders of Preferred Shares representing at
least two-thirds (2/3) of the Preferred Shares then outstanding provide
written notice via facsimile and overnight courier (the "VARIABLE PRICE
ELECTION NOTICE") to the Company within five (5) Business Days of receiving a
Variable Notice that such holders desire to replace the Variable Conversion
Price then in effect with the Variable Price described in such Variable
Notice, then from and after the date of the Company's receipt of the Variable
Price Election Notice the Variable Conversion Price will automatically be
replaced with the Variable Price (together with such modifications to this
Certificate of Amendment as may be required to give full effect to the
substitution of the Variable Price for the Variable Conversion Price), subject
to further adjustments as provided in this Certificate of Amendment. A
holder's delivery of a Variable Price Election Notice shall serve as the
consent required to amend this Certificate of Amendment pursuant to Section XV
below. In the event that a holder delivers a Conversion Notice at any time
after the Company's issuance of Convertible Securities with a Variable Price
but before such holder's receipt of the Company's Variable Notice, then such
holder shall have the option by written notice to the Company to rescind such
Conversion Notice or to have the Conversion Price be equal to such Variable
Price for the conversion effected by such Conversion Notice.
(5) Expiration of Options or Convertible Securities. If the Fixed
Conversion Price was adjusted upon the issuance of Options pursuant to Section
IV(E)(1), then, upon the expiration of any Options or any rights of
conversion, exercise or exchange under Convertible Securities which shall not
have been exercised, converted or exchanged, the Fixed Conversion Price
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 such expiration, be recomputed as if: (A) in the case of
Convertible Securities or Options, the only Common Stock with respect to such
Convertible Securities or Options were shares of Common Stock, if any,
actually issued upon the exercise of such Options or exercise, conversion or
exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Company for the issue
of all such Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue of all such
Convertible Securities which were actually exercised, converted or exchanged,
plus any additional consideration, if any, actually received by the Company
upon such exercise, conversion or exchange, and (B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Company for the Common Stock
deemed to have been issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised.
(6) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section IV(E) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided, however, that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section IV(E)
(7) Adjustment of Fixed Conversion Price Upon Major Corporate Event
Announcement. In the event (A) the Company makes a public announcement that it
intends to consolidate or merge with or into another Person or engage in a
business combination involving the issuance or exchange of more than 50% of
the Company's outstanding Common Stock, (B) the Company makes a public
announcement that it intends to sell or transfer all or substantially all of
the Company's assets, or (C) any Person (including the Company) publicly
announces a purchase, tender or exchange offer for more than 50% of the
Company's outstanding Common Stock (the transactions described in clauses (A),
(B) and (C) above are hereinafter referred to as "MAJOR CORPORATE EVENTS" and
the date of the announcement referred to in clause (A), (B) or (C) is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Fixed Conversion
Price, effective upon the Announcement Date and continuing through and
including the Adjusted Conversion Price Termination Date (as defined below),
shall be equal to the Conversion Price which would have been applicable for a
conversion by the holder on the Announcement Date. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in Section IV(B). For purposes hereof, "ADJUSTED CONVERSION PRICE
TERMINATION DATE" shall mean, with respect to any proposed Major Corporate
Event for which a public announcement as contemplated by this Section IV(E)(7)
has been made, the date upon which the Company or other Person (in the case of
clause (C) above) consummates or publicly announces the termination or
abandonment of the proposed Major Corporate Event which was the subject of the
previous public announcement. Notwithstanding the foregoing, no adjustment
shall be made to the Fixed Conversion Price pursuant to this Section IV(E)(7)
if the Registration Statement (as defined in the Registration Rights
Agreement) is effective and available for the resale of all the Registrable
Securities (as defined in the Registration Rights Agreement) at all times
during the period beginning on and including the Announcement Date and ending
on and including the Adjusted Conversion Price Termination Date.
(8) Notices.
(a) Immediately upon any adjustment of the Conversion Price,
the Company will give written notice thereof to each holder of the
Preferred Shares, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(b) The Company will give written notice to each holder of the
Preferred Shares at least ten (10) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any
pro rata subscription offer to holders of Common Stock, or (III) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation and in no event shall such notice be provided
to such holder prior to such information being made known to the public.
(c) The Company will also give written notice to each holder of
the Preferred Shares at least ten (10) days prior to the date on which
any Organic Change, dissolution or liquidation will take place and in no
event shall such notice be provided to such holder prior to such
information being made known to the public.
(F) Purchase Rights. In addition to any adjustments of the Conversion
Price pursuant to Section IV(E), if at any time after the Initial Issuance
Date the Company grants, issues or sells any Options, Convertible Securities
or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"),
then the holders of the Preferred Shares will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares
of Common Stock acquirable upon complete conversion of the Preferred Shares
(without taking into account any limitations or restrictions on the timing or
amount of conversions) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of the Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(G) Mechanics of Conversion. Subject to the Company's inability to fully
satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section VI:
(1) Holder's Delivery Requirements. To convert Preferred Shares into
full shares of Common Stock on any date (the "CONVERSION DATE"), the holder
thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on
or prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION
NOTICE") to the Company and its designated transfer agent (the "TRANSFER
AGENT"), and (B) if required by Section IV(G)(7), surrender to a common
carrier, for delivery to the Company as soon as practicable following such
date, the original certificate(s) representing the Preferred Shares being
converted (or an indemnification undertaking with respect to such shares in
the case of their loss, theft or destruction) (the "PREFERRED STOCK
CERTIFICATE(S)").
(2) Company's Response. Upon receipt by the Company of a facsimile
copy of a Conversion Notice, the Company shall (A) as soon as practicable, but
in any event no later than the next Business Day send, via facsimile, a
confirmation of receipt of such Conversion Notice to such holder and (B) on
the second Business Day following the date of receipt, credit such aggregate
number of shares of Common Stock to which the holder shall be entitled to the
holder's or its designee's balance account with The Depository Trust Company;
provided, however, if the holder who submitted the Conversion Notice requested
physical delivery of any or all of the Conversion Shares, then the Company
shall, on or before the third Business Day following receipt of the Conversion
Notice issue and deliver to such holder, a certificate, registered in the name
of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled pursuant to such request. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted
for conversion is greater than the number of Preferred Shares being converted,
then the Company shall, as soon as practicable and in no event later than five
(5) Business Days after receipt of the Preferred Stock Certificate(s) and at
its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(3) Dispute Resolution. In the case of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within
one (1) Business Day of receipt of such holder's Conversion Notice. If such
holder and the Company are unable to agree upon the determination of the
Closing Bid Price or arithmetic calculation of the Conversion Rate within one
(1) Business Day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall within one (1) Business
Day submit via facsimile (A) the disputed determination of the Closing Bid
Price to an independent, reputable investment bank (which investment bank has
been approved by the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, which approval shall not be unreasonably withheld),
or (B) the disputed arithmetic calculation of the Conversion Rate to its
independent, outside accountant. The Company shall cause the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later
than two (2) Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent manifest error.
(4) Record Holder. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of Preferred Shares shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(5) Company's Failure to Timely Convert. If within five Business
Days after the Company's or the Transfer Agent's (as applicable) receipt of a
facsimile copy of a Conversion Notice, the Company shall fail to issue a
certificate for the number of shares of Common Stock to which a holder is
entitled or to credit the holder's balance account with The Depository Trust
Company for such number of shares of Common Stock to which the holder is
entitled upon such holder's conversion of the Preferred Shares, pursuant to
Section IV(G)(2), in addition to all other available remedies which such
holder may pursue hereunder and under the Securities Purchase Agreement
(including indemnification pursuant to Section 8 thereof), the Company shall
pay additional damages to such holder on each date after such fifth (5th)
Business Day that such conversion is not timely effected in an amount equal to
0.5% of the product of (A) the sum of the number of shares of Common Stock not
issued to the holder on a timely basis pursuant to Section IV(G)(2) and to
which such holder is entitled and (B) the Closing Bid Price of the Common
Stock on the last possible date which the Company could have issued such
Common Stock to such holder without violating Section IV(G)(2)
(6) Company's Failure to Issue Certificates. If within ten Business
Days after the Company's receipt of the Preferred Stock Certificates to be
converted and the Conversion Notice the Company shall fail to issue a new
Preferred Stock Certificate representing the number of Preferred Shares to
which such holder is entitled, pursuant to Section IV(G)(2), in addition to
all other available remedies which such holder may pursue hereunder and under
the Securities Purchase Agreement (including indemnification pursuant to
Section 8 thereof), the Company shall pay additional damages to such holder on
each date after such tenth (10th) Business Day that such delivery of such
Preferred Stock Certificates is not timely effected in an amount equal to 0.5%
of the product of (A) the number of shares of Common Stock issuable upon
conversion of the Preferred Shares represented by such Preferred Stock
Certificate as of the last possible date which the Company could have issued
such Preferred Stock Certificate to such holder without violating Section
IV(G)(2) and (B) the Closing Bid Price of the Common Stock on the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section IV(G)(2).
(7) Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of Preferred Shares in accordance with the terms
hereof, the holder thereof shall not be required to physically surrender the
certificate representing the Preferred Shares to the Company unless the full
number of Preferred Shares represented by the certificate are being converted.
The holder and the Company shall maintain records showing the number of
Preferred Shares so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the Company, so
as not to require physical surrender of the certificate representing the
Preferred Shares upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if Preferred Shares represented by a certificate are converted as aforesaid,
the holder may not transfer the certificate representing the Preferred Shares
unless the holder first physically surrenders the certificate representing the
Preferred Shares to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the holder a new certificate of like tenor,
registered as the holder may request, representing in the aggregate the
remaining number of Preferred Shares represented by such certificate. The
holder and any assignee, by acceptance of a certificate, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of
any Preferred Shares, the number of Preferred Shares represented by such
certificate may be less than the number of Preferred Shares stated on the face
thereof. Each certificate for Preferred Shares shall bear the following
legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW
THE TERMS OF THE COMPANY'S CERTIFICATE OF AMENDMENT,
PREFERENCES AND RIGHTS OF THE PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE, INCLUDING SECTION IV(G)(7) THEREOF. THE
NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON THE
FACE HEREOF PURSUANT TO SECTION IV(G)(7) OF THE CERTIFICATE
OF AMENDMENT, PREFERENCES AND RIGHTS.
(H) Mandatory Conversion. If any Preferred Shares remain outstanding on
the Maturity Date (as defined below), then all such Preferred Shares shall be
converted as of such date in accordance with this Section IV as if the holders
of such Preferred Shares had given the Conversion Notice on the Maturity Date;
provided, however, that if a Triggering Event (other than a Triggering Event
resulting from Section V(D)(7) due to the Company's breach of a representation
or warranty set forth in Section 3 of the Securities Purchase Agreement) or an
Excluded Redemption Event (as defined in Section V(H)) (other than an Excluded
Redemption Event resulting from Section V(H)(4)) has occurred and is
continuing on the Maturity Date, then the Company shall, within five Business
Days following the Maturity Date (unless otherwise notified in writing by the
holder of such holder's request to have the Preferred Shares converted into
Common Stock), pay to each holder of Preferred Shares then outstanding, in
immediately available funds, an amount equal to the Triggering Event
Redemption Price. All holders of Preferred Shares shall surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the Company,
provided that the Company has complied with its obligations under this Section
IV(H) and Section IV(G). "MATURITY DATE" means the date which is five years
after the applicable Issuance Date plus one (1) day for each day of any Grace
Period (as defined in the Registration Rights Agreement).
(I) Fractional Shares. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction
of a share of Common Stock. If, after the aforementioned aggregation, the
issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(J) Taxes. The Company shall pay any and all taxes which may be imposed
upon it with respect to the issuance and delivery of shares of Common Stock
upon the conversion of the Preferred Shares; provided, however, that the
Company shall not have any obligation to pay any such taxes in the nature of
income or franchise taxes of the holder of such Preferred Shares or shares of
Common Stock.
(K) Conversion Restrictions. The right of a holder of Preferred Shares to
convert Preferred Shares pursuant to this Section IV shall be limited as set
forth below. Without the prior consent of the Company, a holder of Preferred
Shares shall not be entitled to convert an aggregate number of Preferred
Shares from the Initial Issuance Date of such Preferred Shares through the
date of this determination in excess of the number of Preferred Shares which
when divided by the number of Preferred Shares purchased by such holder on
such Initial Issuance Date would exceed (i) 0.00 for the period beginning on
the Initial Issuance Date and ending on and including the date which is 120
days after the Initial Issuance Date, (ii) 0.125 for the period beginning on
and including the date which is 121 days after the Initial Issuance Date and
ending on and including the date which is 150 days after the Initial Issuance
Date, (iii) 0.25 for the period beginning on and including the date which is
151 days after the Initial Issuance Date and ending on and including the date
which is 180 days after the Initial Issuance Date, (iv) 0.375 for the period
beginning on and including the date which is 181 days after the Initial
Issuance Date and ending on and including the date which is 210 days after the
Initial Issuance Date, (v) 0.50 for the period beginning on and including the
date which is 211 days after the Initial Issuance Date and ending on and
including the date which is 240 days after the Initial Issuance Date, (vi)
0.625 for the period beginning on and including the date which is 241 days
after the Initial Issuance Date and ending on and including the date which is
270 days from the Initial Issuance Date, (vii) 0.75 for the period beginning
on and including the date which is 271 days after the Initial Issuance Date
and ending on and including the date which is 300 days after the Initial
Issuance Date, (viii) 0.875 for the period beginning on and including the date
which is 301 days after the Initial Issuance Date and ending on and including
the date which is 330 days after the Initial Issuance Date and (ix) 1.00 for
the period beginning on and including the date which is 331 days after the
Initial Issuance Date and ending on and including the Maturity Date.
Notwithstanding the foregoing, the conversion restrictions set forth in this
Section IV(K) shall not apply (A) on and after any date on which the Common
Stock is not listed on The American Stock Exchange, Inc., The Nasdaq National
Market or The New York Stock Exchange, Inc. or has been suspended from trading
(excluding suspensions of not more than one day resulting from business
announcements by the Company), or any such delisting or suspension is
threatened or pending, (B) on or after any date on which there shall have
occurred an event constituting a Major Transaction (as defined in Section
V(C)), Triggering Event (as defined in Section V(D)) or Excluded Redemption
Event (as defined in Section V(H)), (C) on or after any date on which there
shall have been an announcement of a pending Major Transaction, (D) on or
after any date on which the Company issues or sells or is deemed to have
issued or sold Convertible Securities that are convertible into or exercisable
or exchangeable for Common Stock at a Variable Price, (E) on or after the date
the Company delivers a Notice of Redemption at Company's Election (as defined
in Section VII) or (F) with respect to any conversion of Preferred Shares at a
price equal to the Fixed Conversion Price then in effect.
(L) Adjustment of Conversion Restrictions upon Issuance of Convertible
Securities. If the Company in any manner issues or sells Convertible
Securities that are convertible into Common Stock and are subject to (i)
restrictions on the amount of shares that can be converted, or (ii) no
restrictions on the amount of shares that can be converted (the restriction on
conversions or lack thereof being herein referred to as the "CONVERSION
RESTRICTION"), and such Conversion Restriction is not formulated using the
same time periods and percentages used in Section IV(K), then the Company
shall provide written notice thereof via facsimile and overnight courier to
each holder of the Preferred Shares ("CONVERSION RESTRICTION NOTICE") on the
date of issuance of such Convertible Securities. If the holders of Preferred
Shares representing a majority of the Preferred Shares then outstanding which
remain subject to the restrictions in Section IV(K) provide written notice via
facsimile and overnight courier (the "CONVERSION RESTRICTION ELECTION NOTICE")
to the Company within five (5) Business Days of receiving a Conversion
Restriction Notice that such holders desire to replace the conversion
restrictions set forth in Section IV(K) then in effect with the Conversion
Restriction described in such Conversion Restriction Notice, then from and
after the date of the Company's receipt of the Conversion Restriction Election
Notice the conversion restrictions set forth in Section IV(K) automatically
will be replaced with the Conversion Restriction (together with such
modifications to this Certificate of Amendment as may be required to give full
effect to the substitution of the Conversion Restriction for the conversion
restrictions set forth in Section IV(K)). A holder's delivery of a Conversion
Restriction Election Notice shall serve as the consent required to amend this
Certificate of Amendment pursuant to Section XV below.
(M) Conversion at the Option of the Company. At any time or times on or
after the date which is three (3) years after the Issuance Date of the
applicable Preferred Shares (subject to extension by two (2) days for each day
during a Grace Period (as defined in Section 3(s) of the Registration Rights
Agreement)) ("CONVERSION TRIGGER DATE"), the Company shall have the right, in
its sole discretion, to require that any or all of the outstanding Preferred
Shares issued on such Issuance Date be converted ("CONVERSION AT COMPANY'S
Election") at the Conversion Rate; provided that the Conditions to Conversion
at Company's Election (as defined below) are satisfied. The Company shall
exercise its right to Conversion at Company's Election by providing each
holder of such Preferred Shares written notice ("NOTICE OF CONVERSION AT
COMPANY'S ELECTION") at least 30 days prior to the date selected by the
Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"). If the Company
elects to require conversion of some, but not all, of such Preferred Shares,
the Company shall convert an amount from each holder of such Preferred Shares
equal to such holder's pro rata amount (based on the number of Preferred
Shares held by such holder relative to the number of Preferred Shares
outstanding on Company's Election Conversion Date) of all Preferred Shares the
Company is requiring to be converted. The Notice of Conversion at Company's
Election shall indicate (x) the number of Preferred Shares the Company has
selected for conversion, (y) the Company's Election Conversion Date, which
date shall be not less than 30 or more than 40 days after each holder's
receipt of such notice, and (z) each holder's pro rata share of outstanding
Preferred Shares. All Preferred Shares selected for conversion in accordance
with the provision of this Section IV(M) shall be converted as of the
Company's Election Conversion Date in accordance with this Section IV as if
the holders of such Preferred Shares selected by the Company to be converted
had given the Conversion Notice on the Company's Election Conversion Date. All
holders of Preferred Shares shall thereupon and within two business days of
the Company's Election Conversion Date surrender all Preferred Stock
Certificates selected for conversion, duly endorsed for cancellation, to the
Company or the Transfer Agent. "CONDITIONS TO CONVERSION AT COMPANY'S
Election" means the following conditions: (i) on each day during the 20
consecutive trading days immediately preceding the date of the Company's
Notice of Conversion at the Company's Election, the last reported sale price
(as reported by Bloomberg) of the Common Stock is at least 250% of the Fixed
Conversion Price of such Preferred Shares as of the applicable Issuance Date
of the Preferred Shares being converted (subject to adjustment for stock
splits, stock dividends, stock combinations, reverse stock splits and other
similar transactions); (ii) the Company shall not have previously given Notice
of Conversion at Company's Election in the 365 days prior to such Notice of
Conversion at Company's Election; (iii) on each day during the period
beginning 20 trading days prior to the Notice of Conversion at the Company's
Election and ending on and including the Company's Election Conversion Date,
no Grace Period shall have occurred and the Registration Statement shall be
effective and available for the sale of no less than 150% of the sum of (A)
the number of Conversion Shares and Warrant Shares then issuable upon the
conversion of all outstanding Preferred Shares and Warrants, including the
Conversion Shares to be issued pursuant to this Conversion at the Company's
Election and (B) the number of Conversion Shares and Warrant Shares that are
then held by the holders of the Preferred Shares and Warrants; (iv) on each
day during the period beginning 20 trading days prior to the date of the
Company's Notice of Conversion at Company's Election and ending on and
including the Company's Election Conversion Date, the Common Stock is
designated for quotation on AMEX and is not suspended from trading; (v) during
the period beginning on the Initial Issuance Date and ending on and including
the Company's Election Conversion Date, (a) the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares on a timely basis as
set forth in Section IV(G)(2) of this Certificate of Amendment and (b) no
Triggering Event or Excluded Redemption Event shall have occurred; and (vi)
the Company otherwise has satisfied its obligations under this Certificate of
Amendment, the Securities Purchase Agreement and the Registration Rights
Agreement and is not in default under any of this Certificate of Amendment,
the Securities Purchase Agreement or the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected for conversion) into Common Stock
pursuant to Section IV(A) on or prior to the date immediately preceding the
Company's Election Conversion Date.
V. REDEMPTION AT OPTION OF HOLDERS
(A) Redemption Option Upon Major Transaction. In addition to all other
rights of the holders of Preferred Shares contained herein, simultaneous with
or after the occurrence of a Major Transaction (as defined below), each holder
of Preferred Shares shall have the right, at such holder's option, to require
the Company to redeem all or a portion of such holder's Preferred Shares at a
price per Preferred Share equal to the greater of (i) 120% of the Liquidation
Value (as defined in Section XI) and (ii) the product of (A) the Conversion
Rate at such time, and (B) the Closing Bid Price on the date of the public
announcement of such Major Transaction or the next date on which the exchange
or market on which the Common Stock is traded is open if such public
announcement is made (X) after 12:00 p.m. Eastern Time, on such date or (Y) on
a date on which the exchange or market on which the Common Stock is traded is
closed (the "MAJOR TRANSACTION REDEMPTION PRICE").
(B) Redemption Option Upon Triggering Event. In addition to all other
rights of the holders of Preferred Shares contained herein, simultaneous with
or after the occurrence of a Triggering Event (as defined below), each holder
of Preferred Shares shall have the right, at such holder's option, to require
the Company to redeem all or a portion of such holder's Preferred Shares at a
price per Preferred Share equal to the greater of (i) 120% of the Liquidation
Value and (ii) the product of (A) the Conversion Rate at such time, and (B)
the greater of (I) the Closing Bid Price on the trading day immediately
preceding such Triggering Event or (II) the Closing Bid Price on the date of
the holder's delivery to the Company of a Notice of Redemption at Option of
Buyer Upon Triggering Event (as defined below) or, if such date of delivery is
not a trading day, the next date on which the exchange or market on which the
Common Stock is traded is open (the "TRIGGERING EVENT REDEMPTION PRICE" and,
collectively with the Major Transaction Redemption Price, the "REDEMPTION
PRICE").
(C) "Major Transaction". Subject to the Excluded Redemption Events (as
defined below) pursuant to Section V(H), a "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
(1) the consolidation, merger or other business combination of the
Company with or into another Person (other than (A) a consolidation, merger or
other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company);
(2) the sale or transfer of all or substantially all of the
Company's assets; or
(3) a purchase, tender or exchange offer made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock.
(D) "Triggering Event". Subject to the Excluded Redemption Events
pursuant to Section V(H), a "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(1) the failure of the Registration Statement (as defined in the
Registration Rights Agreement) to be declared effective by the SEC on or prior
to the date that is 180 days after the applicable Issuance Date;
(2) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
holder of the Preferred Shares for sale of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of ten consecutive trading days or for an aggregate of fifteen
trading days in any 365 day period;
(3) the suspension or halting from trading, the suspension from
listing or the delisting of the Common Stock from AMEX, for a period of five
consecutive days or for an aggregate of ten trading days in any 365 day
period;
(4) the Company's failure to deliver Conversion Shares within 10
days of the Conversion Date or the Company's notice to any holder of Preferred
Shares, including by way of public announcement, at any time, of its intention
not to comply with proper requests for conversion of any Preferred Shares into
shares of Common Stock, including due to any of the reasons set forth in
Section VI(A) below;
(5) upon the Company's receipt of a Conversion Notice, the Company
shall not be obligated to issue the Conversion Shares due to the provisions of
Section XIV;
(6) the Company shall have failed to make any Excluded Redemption
Event Daily Payment (as defined below) in a timely manner in accordance with
Section V(I) or the Company shall have failed to give an Excluded Redemption
Option Election Notice (as defined below) within one (1) day of receipt of the
Holders' Excluded Redemption Event Notice (as defined below); or
(7) the Company breaches any representation, warranty, covenant or
other term or condition of the Securities Purchase Agreement, the Registration
Rights Agreement, this Certificate of Amendment or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated thereby or hereby, except to the extent that such
breach would not have a Material Adverse Effect (as defined in Section 3(a) of
the Securities Purchase Agreement) and except, in the case of a breach of a
covenant which is curable, only if such breach continues for a period of at
least 10 days.
(E) Mechanics of Redemption at Option of Buyer Upon Major Transaction. No
sooner than 15 days nor later than 10 days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile
and overnight courier (a "NOTICE OF MAJOR TRANSACTION") to each holder of
Preferred Shares. At any time after receipt of a Notice of Major Transaction
(or, in the event a Notice of Major Transaction is not delivered at least 10
days prior to a Major Transaction, at any time on or after the date which is
10 days prior to a Major Transaction), any holder of the Preferred Shares then
outstanding may require the Company to redeem all or a portion of the holder's
Preferred Shares then outstanding by delivering written notice thereof via
facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF BUYER
UPON MAJOR TRANSACTION") to the Company, which Notice of Redemption at Option
of Buyer Upon Major Transaction shall indicate (i) the number of Preferred
Shares that such holder is submitting for redemption, and (ii) the applicable
Major Transaction Redemption Price, as calculated pursuant to Section V(A).
Notwithstanding the foregoing, the holders shall not be entitled to deliver a
Notice of Redemption at Option of Buyer Upon Major Transaction if the
Registration Statement is effective and available for the resale of all the
Registrable Securities at all times during the period beginning on and
including the Announcement Date and ending on and including the Adjusted
Conversion Price Termination Date.
(F) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Company
shall deliver written notice thereof via facsimile and overnight courier (a
"NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares. At any time
after the earlier of a holder's receipt of a Notice of Triggering Event and
such holder becoming aware of a Triggering Event, any holder of Preferred
Shares then outstanding may require the Company to redeem all or a portion of
the holder's Preferred Shares then outstanding by delivering written notice
thereof via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION
OF BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to
Section V(B). Notwithstanding the foregoing, if (A) the Triggering Event is
one described in Section V(D)(2) above, and (B) such lapse discontinues and a
holder of Preferred Shares receives notice from the Company that the lapse in
the effectiveness of the registration statement no longer continues prior to
such holder's delivery to the Company of the holder's Notice of Redemption at
Option of Buyer Upon Triggering Event, then the holder shall no longer have
the right to deliver a Notice of Redemption at Option of Buyer Upon Triggering
Event to the Company with respect to such lapse.
(G) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction from any
holder of Preferred Shares, the Company shall immediately notify each holder
of Preferred Shares by facsimile of the Company's receipt of such Notice(s) of
Redemption at Option of Buyer Upon Triggering Event or Notice(s) of Redemption
at Option of Buyer Upon Major Transaction and each holder which has sent such
a notice shall promptly submit, if required by Section IV(G)(7), to the
Company or its Transfer Agent such holder's Preferred Stock Certificates which
such holder has elected to have redeemed. The Company shall deliver the
applicable Triggering Event Redemption Price, in the case of a redemption
pursuant to Section V(F), to such holder within five (5) Business Days after
the Company's receipt of a Notice of Redemption at Option of Buyer Upon
Triggering Event and, in the case of a redemption pursuant to Section V(G),
the Company shall deliver the applicable Major Transaction Redemption Price
simultaneous with the consummation of the Major Transaction; provided that, if
required by Section IV(G)(7), a holder's Preferred Stock Certificates shall
have been so delivered to the Company; provided further that if the Company is
unable to redeem all of the Preferred Shares to be redeemed, the Company shall
redeem an amount from each holder of Preferred Shares being redeemed equal to
such holder's pro-rata amount (based on the number of Preferred Shares held by
such holder relative to the number of Preferred Shares outstanding) of all
Preferred Shares being redeemed. If the Company shall fail to redeem all of
the Preferred Shares submitted for redemption (other than pursuant to a
dispute as to the arithmetic calculation of the Redemption Price), in addition
to any remedy such holder of Preferred Shares may have under this Certificate
of Amendment, the Securities Purchase Agreement and the Registration Rights
Agreement, the applicable Redemption Price payable in respect of such
unredeemed Preferred Shares shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full. Until the Company pays such
unpaid applicable Redemption Price in full to a holder of Preferred Shares
submitted for redemption, such holder shall have the option (the "VOID
OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the Company to
promptly return to such holder(s) all of the Preferred Shares that were
submitted for redemption by such holder(s) under this Section V and for which
the applicable Redemption Price has not been paid, by sending written notice
thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE").
Upon the Company's receipt of such Void Optional Redemption Notice(s) prior to
payment of the full applicable Redemption Price to such holder, (i) the
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Redemption Price has not
been paid, (ii) the Company shall immediately return any Preferred Shares
submitted to the Company by each holder for redemption under this Section V(G)
and for which the applicable Redemption Price has not been paid and (iii) the
Fixed Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on which
the Void Optional Redemption Notice(s) is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on which the
Notice(s) of Redemption of Option of Buyer Upon Major Transaction or the
Notice(s) of Redemption at Option of Buyer Upon Triggering event, as the case
may be, is delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect. Notwithstanding the foregoing, in the
event of a dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section IV(G)(3) above with the term "Redemption Price" being
substituted for the term "Conversion Rate". A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this
Section V shall have priority to payments to other stockholders in connection
with a Major Transaction.
(H) Events Excluded from Redemption Provisions. Notwithstanding anything
to the contrary set forth in Section V, Section VI(A)(1) or Section VI(A)(2),
the following events shall be excluded from the definitions of Major
Transaction and Triggering Event (individually, an "EXCLUDED REDEMPTION EVENT"
and, collectively, the "EXCLUDED REDEMPTION EVENTS"):
(1) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the date that is 180 days after the
applicable Issuance Date, provided that the Company has used and continues to
use its best efforts to have such Registration Statement declared effective by
the SEC;
(2) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
holder of the Preferred Shares for sale of the Registrable Securities in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten consecutive trading days,
provided that the Company has used its best efforts to maintain the
effectiveness of such Registration Statement and has not taken voluntary
action or voluntarily failed to take any action which has directly or
indirectly caused the Registration Statement to lapse or become unavailable
for the sale of all the Registrable Securities pursuant to the terms of the
Registration Rights Agreement;
(3) the suspension or halting from trading, suspension from listing
or the delisting of the Common Stock from AMEX for a period of five
consecutive days or for an aggregate of ten trading days in any 365 day
period, provided that the Company (A) has used its best efforts to maintain
the listing of the Common Stock on such exchange and has not taken any
voluntary action or has voluntarily failed to take any action which has
resulted in the delisting of the Common Stock or the suspension of the Common
Stock from trading or (B) has voluntarily delisted the Common Stock because
the Company is not permitted to issue shares of Common Stock to a holder of
Preferred Shares upon conversion of such Preferred Shares due to the Exchange
Cap and the Company delists the Common Stock so that the Exchange Cap
limitations no longer apply; and
(4) a purchase, tender or exchange offer made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock which is
not approved or recommended by the Company's Board of Directors.
As soon as practicable but in no event later than one (1) day after the
occurrence of an Excluded Redemption Event, the Company shall deliver written
notice thereof via facsimile and overnight courier (a "COMPANY'S EXCLUDED
REDEMPTION EVENT NOTICE") to each holder of Preferred Shares. At any time
during the period beginning after the earlier of the holders' receipt of a
Company's Excluded Redemption Event Notice and such holders becoming aware of
an Excluded Redemption Event and ending on the date which is thirty (30) days
after the holders' receipt of a Company's Excluded Redemption Event Notice,
the holders of a majority of the Preferred Shares then outstanding may require
the Company to satisfy its obligations under Section V(I) by delivering
written notice thereof via facsimile and overnight courier (a "HOLDERS'
EXCLUDED REDEMPTION EVENT NOTICE") to the Company. The Company shall within
one (1) day of its receipt of the Holders' Excluded Redemption Event Notice
provide each holder with written notice via facsimile and overnight courier (a
"EXCLUDED REDEMPTION OPTION ELECTION NOTICE") which notice shall specify the
option which the Company has elected to exercise pursuant to and in accordance
with Section V(I).
(I) Rights of the Holders of the Preferred Shares upon the Occurrence of
an Excluded Redemption Event. In addition to any other remedies the holders of
the Preferred Shares may have at law or in equity, if an Excluded Redemption
Event occurs and the holders of the Preferred Shares have provided the Company
with a Holders' Excluded Redemption Event Notice, then the Company, at its
option, shall either (1) pay to each holder of Preferred Shares the Redemption
Price for each outstanding share of Preferred Stock held by such holder
pursuant to and in accordance with Section V(G) or (2) if:
(a) the Excluded Redemption Event is pursuant to Section
V(H)(1), then (i) beginning on and including the first day following the
receipt by the Company of a Holders' Excluded Redemption Event Notice,
the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment (as defined below) on each day that such
Excluded Redemption Event continues, provided, however, that the Company
shall not be obligated to make an Excluded Redemption Event Daily Payment
pursuant to this Section V(I) for more than 20 days in any 365 day period
and (ii) immediately upon the occurrence of such an Excluded Redemption
Event (and from time to time as applicable), the Fixed Price of the
Preferred Shares shall be permanently adjusted (subject to further
adjustment pursuant to this Certificate of Amendment) to equal the lesser
of (y) the Fixed Price in effect for such Preferred Shares on the date
which is 180 days after the applicable Issuance Date or (z) the product
of (1) the Payment Limitation Reduction Percentage (as defined
below) multiplied by (2) .80 multiplied by (3) the lowest
Variable Conversion Price during the period beginning on and including
the date which is 180 days after the applicable Issuance Date and ending
on and including the date the Registration Statement is declared
effective by the SEC;
(b) the Excluded Redemption Event is pursuant to Section
V(H)(2), then (i) beginning on and including the first day following the
receipt by the Company of a Holders' Excluded Redemption Event Notice,
the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment on each day that such Excluded Redemption
Event continues, provided, however, that the Company shall not be
obligated to make an Excluded Redemption Event Daily Payment pursuant to
this Section V(I) for more than 20 days in any 365 day period and (ii)
immediately upon the occurrence of such an Excluded Redemption Event (and
from time to time as applicable), the Fixed Price of the Preferred Shares
shall be permanently adjusted (subject to further adjustment pursuant to
this Certificate of Amendment) to equal the lesser of (y) the Fixed Price
in effect for such Preferred Shares on the date of the initial occurrence
of the Excluded Redemption Event (the "OCCURRENCE DATE") or (z) the
product of (1) the Payment Limitation Reduction Percentage
multiplied by (2) .80 multiplied by (3) the lowest Variable
Conversion Price during the period beginning on and including the
Occurrence Date and ending on and including the date that the Company
cures such Excluded Redemption Event;
(c) the Excluded Redemption Event is pursuant to Section
V(H)(3), then (i) beginning on and including the first day following the
receipt by the Company of a Holders' Excluded Redemption Event Notice,
the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment on each day that such Excluded Redemption
Event continues, provided, however, that the Company shall not be
obligated to make an Excluded Redemption Event Daily Payment pursuant to
this Section V(I) for more than 20 days in any 365 day period, and (ii)
immediately upon the occurrence of such Excluded Redemption Event (and
from time to time as applicable), the Fixed Price of the Preferred Shares
shall be permanently adjusted (subject to further adjustment pursuant to
this Certificate of Amendment) to equal the product of (x) the Payment
Limitation Reduction Percentage multiplied by (y) .80 multiplied by (z)
the lesser of (1) the Fixed Price of the Preferred Shares as in effect on
the Occurrence Date and (2) the lowest Variable Conversion Price during
the period beginning on and including the Occurrence Date and ending on
the 45th trading day following the Occurrence Date (provided that such 45
trading day period will be extended by one trading day for each day on
which there is no closing bid price or closing trade price reported by
Bloomberg or no bid prices of any market makers reported by the National
Quotation Bureau, Inc. in the "pink sheets" for the Company's
securities);
(d) the Excluded Redemption Event is pursuant to Section
V(H)(4), then (i) beginning on and including the first day following the
receipt by the Company of a Holders' Excluded Redemption Event Notice,
the Company shall pay to each holder of Preferred Shares an Excluded
Redemption Event Daily Payment on each day that such Excluded Redemption
Event continues, provided, however, that the Company shall not be
obligated to make an Excluded Redemption Event Daily Payment pursuant to
this Section V(I) for more than 20 days in any 365 day period and (ii)
immediately upon the occurrence of such an Excluded Redemption Event (and
from time to time as applicable), the Fixed Price of the Preferred Shares
shall be permanently adjusted (subject to further adjustment pursuant to
this Certificate of Amendment) to equal the lesser of (y) the Fixed Price
in effect for such Preferred Shares on the Occurrence Date or (z) the
product of (1) the Payment Limitation Reduction Percentage
multiplied by (2) .80 multiplied by (3) the lowest Variable
Conversion Price during the period beginning on and including the date on
which the purchase, tender or exchange offer (referred to in Section
V(H)(4)) was first publicly announced and ending on and including the
date such purchase, tender or exchange offer was publicly announced as
being consummated, abandoned or terminated.
"EXCLUDED REDEMPTION EVENT DAILY PAYMENT" shall mean the payment to each
holder of Preferred Shares, by the Company, of an amount in cash per Preferred
Share equal to one percent (1%) of the Liquidation Value. "PAYMENT LIMITATION
REDUCTION PERCENTAGE" shall mean (I) 85%, with respect to any Excluded
Redemption Event other than the first Excluded Redemption Event to occur
during any 365 day period, provided that the Company shall have made an
Excluded Redemption Event Daily Payment in accordance with the terms of this
Section V(I) on at least 20 days in such 365 day period or (II) 100%,
otherwise.
VI. INABILITY TO FULLY CONVERT
(A) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Maturity Date, the Company
can not issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation, because
the Company (1) does not have a sufficient number of shares of Common Stock
authorized and available, (2) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Company or
its Securities, including without limitation the Exchange Cap (as defined in
Section XIV below), from issuing all of the shares of Common Stock which are
to be issued to a holder of Preferred Shares pursuant to a Conversion Notice
or (3) fails to have a sufficient number of shares of Common Stock registered
for resale under the Registration Statement, then the Company shall issue as
many shares of Common Stock as it is able to issue in accordance with such
holder's Conversion Notice and pursuant to Section IV(G) and, with respect to
the unconverted Preferred Shares, the holder, solely at such holder's option,
can elect to:
(1) require the Company to redeem from such holder those Preferred
Shares for which the Company is unable to issue Common Stock in accordance
with such holder's Conversion Notice ("MANDATORY Redemption") at a price per
Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the product of (A)
the Conversion Rate and (B) the Closing Bid Price as of such Conversion Date;
(2) if the Company's inability to fully convert Preferred Shares is
pursuant to clause (3) of Section VI(A) above, require the Company to issue
restricted shares of Common Stock in accordance with such holder's Conversion
Notice and pursuant to Section IV(G); or
(3) void its Conversion Notice and retain or have returned, as the
case may be, the nonconverted Preferred Shares that were to be converted
pursuant to such holder's Conversion Notice (provided that a holder's voiding
its Conversion Notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice).
(B) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Preferred Shares, upon receipt
of a facsimile copy of a Conversion Notice from such holder which cannot be
fully satisfied as described in Section VI(A), a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the "INABILITY TO
FULLY CONVERT NOTICE"). Such Inability to Fully Convert Notice shall indicate
(1) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (2) the number of Preferred Shares which cannot be
converted and (3) the applicable Mandatory Redemption Price. Such holder shall
within 10 Business Days of receipt of such Inability to Convert Notice notify
the Company of its election pursuant to Section VI(A) above by delivering
written notice via facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY
TO CONVERT").
(C) Payment of Mandatory Redemption Price. If such holder shall elect to
have its Preferred Shares redeemed pursuant to Section VI(A)(1), the Company
shall pay the Mandatory Redemption Price in cash to such holder within ten
days of the Company's receipt of the holder's Notice in Response to Inability
to Convert. If the Company shall fail to pay the applicable Mandatory
Redemption Price to such holder on a timely basis as described in this Section
VI(C) (other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Redemption Price), in addition to any remedy
such holder of Preferred Shares may have under this Certificate of Amendment,
the Securities Purchase Agreement and the Registration Rights Agreement, such
unpaid amount shall bear interest at the rate of 2.0% per month (prorated for
partial months) until paid in full. Until the full Mandatory Redemption Price
is paid in full to such holder, such holder may void the Mandatory Redemption
with respect to those Preferred Shares for which the full Mandatory Redemption
Price has not been paid and (1) receive back such Preferred Shares and (2) the
Fixed Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (a) the Fixed Conversion Price in effect on the date on which
the holder voided the Mandatory Redemption and (b) the lowest Closing Bid
Price during the period beginning on the Conversion Date and ending on the
date the holder voided the Mandatory Redemption. Notwithstanding the
foregoing, if the Company fails to pay the applicable Mandatory Redemption
Price within such ten-day period due to a dispute as to the determination of
the arithmetic calculation of the Redemption Price, such dispute shall be
resolved pursuant to Section IV(G)(3) with the term "Redemption Price" being
substituted for the term "Conversion Rate".
(D) Pro-rata Conversion and Redemption. In the event the Company receives
a Conversion Notice, Notice of Redemption at Option of Buyer Upon Major
Transaction or Notice of Redemption at Option of Buyer Upon Triggering Event
from more than one holder of Preferred Shares on the same day and the Company
can convert and/or redeem some, but not all, of the Preferred Shares pursuant
to this Section VI, the Company shall convert and redeem from each holder of
Preferred Shares electing to have Preferred Shares converted and redeemed at
such time an amount equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being converted and
redeemed at such time.
(E) Senior Secured Note. If a redemption voided pursuant to Sections V(G)
or VI(C) was caused by the Company's inability to fully convert Preferred
Shares as a result of the Exchange Cap, and if so directed by the holders of a
majority of the Preferred Shares then outstanding, the Company shall issue to
each holder of Preferred Shares in exchange for such holder's Preferred Shares
a senior secured note in the amount of the applicable redemption price of such
holder's Preferred Shares (collectively, the "Notes"). The Notes shall have a
term of one week, shall be senior to any other of the Company's indebtedness
and shall contain other mutually acceptable credit terms.
VII. COMPANY'S RIGHT TO REDEEM IN LIEU OF CONVERSION
Subject to the terms and conditions of this Section VII, at any time
after the applicable Issuance Date and prior to the date which is 365 days
after the applicable Issuance Date, and so long as the Company has provided
appropriate notice as described below, the Company may elect to redeem
Preferred Shares submitted for conversion in lieu of converting such Preferred
Shares, provided that the Conversion Price for such Preferred Shares (as
reflected in the Conversion Notice for such Preferred Shares) on the
Conversion Date is less than a price (the "REDEMPTION IN LIEU OF CONVERSION
TRIGGER PRICE") equal to 70% the Market Price on the applicable Issuance Date
(appropriately adjusted for any stock split, stock dividend, combination or
other similar transaction) (a "COMPANY REDEMPTION IN LIEU OF CONVERSION"). If
the Company elects to redeem some, but not all, of the Preferred Shares
submitted for conversion, the Company shall redeem a number of Preferred
Shares from each holder of Preferred Shares submitted for conversion on the
applicable date equal to such holder's pro-rata amount (based on the number of
Preferred Shares held by such holder relative to the number of Preferred
Shares outstanding) of all Preferred Shares submitted for conversion which the
Company elects to redeem.
(A) Redemption Price of Company Redemption in Lieu of Conversion. The
"REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION" shall be an
amount per Preferred Share equal to the sum of (i) 110% of the Stated Value
and (ii) the Additional Amount of such Preferred Share on the Conversion Date.
(B) Mechanics of Company Redemption in Lieu of Conversion. The Company
shall exercise its right to redeem by delivering written notice by facsimile
and overnight courier ("NOTICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION")
to (1) each holder of the Preferred Shares and (2) the Transfer Agent. Such
Notice of Company Redemption in Lieu of Conversion shall indicate (a) the
maximum, if any, aggregate number of Preferred Shares which the Company will
redeem for Company Redemption in Lieu of Conversion and (b) confirm the time
period during which the Company may effect Company Redemption in Lieu of
Conversion, which period shall begin on and include the date which is ten
Business Days after the date of receipt by all of the holders' of the Notice
of Redemption in Lieu of Conversion and shall end on the date specified in the
Notice of Redemption in Lieu of Conversion (the "REDEMPTION IN LIEU OF
CONVERSION PERIOD"). If the Company elects to limit the number of Preferred
Shares which it will redeem during the Redemption in Lieu of Conversion
Period, the Company shall allocate for redemption from each holder of
Preferred Shares a number of Preferred Shares equal to such holder's pro-rata
amount (based on the number of Preferred Shares held by such holder on the
date of the Notice of Company Redemption in Lieu of Conversion relative to the
total number of Preferred Shares outstanding on such date). The Company may
terminate a Redemption in Lieu of Conversion Period at any time with respect
to Preferred Shares which have not been submitted for conversion by delivering
written notice of such termination to each holder of Preferred Shares by
facsimile and overnight courier at least five Business Days prior to the
effective date of such termination. Notwithstanding anything to the contrary
in this Section VII, the Company shall convert Preferred Shares pursuant to
Section IV if such Preferred Shares are submitted for conversion (i) before
the beginning, or after the effective date of the termination, of the
Redemption in Lieu of Conversion Period, (ii) for a Conversion Price (as
reflected in the Conversion Notice) greater than or equal to the Redemption in
Lieu of Conversion Trigger Price or (iii) are in excess of such holder's pro
rata allocation of the maximum number of Preferred Shares the Company
indicated that it would redeem in its Notice of Company Redemption in Lieu of
Conversion. The Company shall redeem all Preferred Shares submitted for
conversion during the Redemption in Lieu of Conversion Period in accordance
with the term of Section VII(C), subject to the right of the Company to limit
the number of Preferred Shares to be redeemed as provided in Section VII(B).
(C) Payment of Redemption Price. The Company shall pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to the holder of
the Preferred Shares being redeemed in cash by wire transfer within five
Business Days after the applicable Conversion Date on which such Preferred
Shares are submitted for conversion. If the Company shall fail to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to
such holder on a timely basis as described in this Section VII(C), in addition
to any remedy such holder of Preferred Shares may have under this Certificate
of Amendment and the Securities Purchase Agreement, such unpaid amount shall
bear interest at the rate of 2.0% per month until paid in full. Until the
Company pays such unpaid applicable Redemption Price of Company Redemption in
Lieu of Conversion in full to each holder, each holder of Preferred Shares
submitted for redemption pursuant to this Section VII and for which the
applicable Redemption Price of Company Redemption in Lieu of Conversion has
not been paid, shall have the option to, in lieu of redemption, (1) to require
the Company to promptly return to each holder all of the Preferred Shares that
were submitted for conversion by such holder under this Section VII and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid or (2) to convert those Preferred Shares for
which the applicable Redemption Price of the Company Redemption in Lieu of
Conversion has not been paid at a Conversion Price equal to the lesser of (a)
the Conversion Price applicable to such conversion on the date on which such
Preferred Shares were originally presented for conversion and (b) the
Conversion Price which would have been in effect if such Preferred Shares were
presented for conversion on the Business Day immediately following the last
day on which the Company could have effected a timely Company Redemption in
Lieu of Conversion, by sending written notice thereof to the Company via
facsimile (the "VOID COMPANY REDEMPTION NOTICE"). Upon the Company's receipt
of such Void Company Redemption Notice(s), requesting the return of the
Preferred Shares, prior to payment of the full applicable redemption price to
each holder, (i) the Company's Redemption in Lieu of Conversion shall be null
and void with respect to those Preferred Shares submitted for redemption and
for which the applicable redemption price has not been paid and with respect
to any Preferred Shares submitted in the future for conversion in the same
Redemption in Lieu of Conversion Period, (ii) the Company shall immediately
return any Preferred Shares submitted to the Company by each holder for
redemption under this Section VII and for which the applicable Redemption
Price of Company Redemption in Lieu of Conversion has not been paid and (iii)
the Fixed Conversion Price of such returned Preferred Shares shall be adjusted
to the lesser of (I) the Conversion Price applicable to such conversion on the
date on which such Preferred Shares were originally presented for conversion
and (II) the lowest Conversion Price which would have been in effect if such
Preferred Shares were presented for conversion on any Business Day during the
period beginning on the Business Day immediately following the last day on
which the Company could have effected a timely Company Redemption in Lieu of
Conversion and ending on the date of the Company's receipt of the applicable
Void Company Redemption Notice. Notwithstanding the foregoing, if the Company
fails to pay the applicable Redemption Price of Company Redemption in Lieu of
Conversion to a holder within the time period described in this Section VII(C)
due to a dispute as to the arithmetic calculation of the Redemption Price of
Company Redemption in Lieu of Conversion, such dispute shall be resolved
pursuant to Section IV(G)(3). above with the term "Redemption Price of Company
Redemption in Lieu of Conversion" being substituted for the term "Conversion
Rate." If the Company fails to timely effect a Company Redemption in Lieu of
Conversion in accordance with this Section VII, the Company shall not be
allowed to submit another Notice of Company Redemption in Lieu of Conversion
without the prior written consent of the holders of at least two-thirds (2/3)
of the Preferred Shares then outstanding.
(D) Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Notice of Company Redemption in
Lieu of Conversion pursuant to Section VII(B) above and begin the redemption
procedure under this Section VII, unless it has:
(1) the full amount of the Redemption Price of Company Redemption in
Lieu of Conversion in cash, available in a demand or other immediately
available account in a bank or similar financial institution;
(2) credit facilities, with a bank or similar financial institutions
that are immediately available and unrestricted for use in redeeming the
Preferred Shares, in the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion;
(3) a written agreement with a standby underwriter ready, willing
and able to purchase from the Company a sufficient number of shares of stock
to provide proceeds necessary to redeem any Preferred Shares that are not
converted prior to a Company Redemption in Lieu of Conversion; or
(4) a combination of the items set forth in the preceding clauses
(1), (2) and (3), aggregating the full amount of the Redemption Price of
Company Redemption in Lieu of Conversion.
VIII. REISSUANCE OF CERTIFICATES
Subject to Section IV(G)(7), in the event of a conversion or redemption
pursuant to this Certificate of Amendment of less than all of the Preferred
Shares represented by a particular Preferred Stock Certificate, the Company
shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
IX. RESERVATION OF SHARES
The Company shall, so long as any of the Preferred Shares are
outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares
then outstanding (without regard to any limitations on conversions); provided
that the number of shares of Common Stock so reserved shall at no time be less
than 200% of the number of shares of Common Stock for which the Preferred
Shares are at any time convertible. The initial number of shares of Common
Stock reserved for conversions of the Preferred Shares and each increase in
the number of shares so reserved shall be allocated pro rata among the holders
of the Preferred Shares based on the number of Preferred Shares held by each
holder at the time of issuance of the Preferred Shares or increase in the
number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common
Stock reserved and which remain allocated to any person or entity which does
not hold any Preferred Shares shall be allocated to the remaining holders of
Preferred Shares, pro rata based on the number of Preferred Shares then held
by such holder.
X. VOTING RIGHTS
Holders of Preferred Shares shall have no voting rights, except as
required by law, including but not limited to the New York Business
Corporation Law of the State of New York, and as expressly provided in this
Certificate of Amendment.
XI. LIQUIDATION, DISSOLUTION, WINDING-UP
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Preferred Shares shall be
entitled to receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its stockholders (the
"PREFERRED FUNDS"), before any amount shall be paid to the holders of any of
the capital stock of the Company of any class junior in rank to the Preferred
Shares in respect of the preferences as to the distributions and payments on
the liquidation, dissolution and winding up of the Company, an amount per
Preferred Share equal to the sum of (i) $10,000 and (ii) the Additional Amount
(such sum being referred to as the "LIQUIDATION VALUE"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to the holders of
Preferred Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as to
payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Amendment, Preferences and Rights, as a percentage of the full
amount of Preferred Funds payable to all holders of Preferred Shares and Pari
Passu Shares. The purchase or redemption by the Company of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither
the consolidation or merger of the Company with or into any other Person, nor
the sale or transfer by the Company of all or substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
XII. PREFERRED RANK; PARTICIPATION
(A) All shares of Common Stock shall be of junior rank to all Preferred
Shares in respect to the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. The rights of the
shares of Common Stock shall be subject to the preferences and relative rights
of the Preferred Shares. Without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares, the Company shall not hereafter authorize or issue additional or other
capital stock that is of rank senior to the Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. Without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Secretary of
State of the State of New York containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
holders of the Preferred Shares relative to the holders of the Common Stock or
the holders of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, Amendments and preferences
provided for herein and no merger shall result inconsistent therewith.
(B) Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the
holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
XIII. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS
WITH RESPECT TO OTHER CAPITAL STOCK
For so long as at least 50 of the Preferred Shares remain outstanding,
the Company shall not, directly or indirectly, redeem, or declare or pay any
cash dividend or distribution on, its Common Stock, other than cash dividends
or distributions payable out of earned surplus or net profits for the current
or the immediately preceding year, without the prior express written consent
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares.
XIV. LIMITATION ON NUMBER OF CONVERSION SHARES
Notwithstanding any other provision herein, the Company shall not be
obligated to issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon Conversion of the
Preferred Shares (the "EXCHANGE CAP") without breaching the Company's
obligations, if any, under the rules or regulations of the AMEX or such
exchange on which the stock is then traded except that such limitation shall
not apply in the event that the Company (a) obtains the approval of its
stockholders as required by applicable rules and regulations of the AMEX or
such other exchange on which the stock is then traded for issuances of Common
Stock in excess of such amount or (b) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall
be reasonably satisfactory to the holders of a majority of the Preferred
Shares then outstanding. Until such approval or written opinion is obtained,
no purchaser of Preferred Shares pursuant to the Securities Purchase Agreement
(the "PURCHASERS") shall be issued, upon conversion of Preferred Shares,
shares of Common Stock in an amount greater than the product of (i) the
Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is
the number of Preferred Shares issued to such Purchaser pursuant to the
Securities Purchase Agreement and the denominator of which is the aggregate
amount of all the Preferred Shares issued to the Purchasers pursuant to the
Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that
any Purchaser shall sell or otherwise transfer any of such Purchaser's
Preferred Shares, the transferee shall be allocated a pro rata portion of such
Purchaser's Cap Allocation Amount. In the event that any holder of Preferred
Shares shall convert all of such holder's Preferred Shares into a number of
shares of Common Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
holders of Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such holder.
XV. VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED SHARES
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, shall be required for (a) any
change to this Certificate of Amendment or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
Amendments, preferences and rights of the Preferred Shares, or (b) any
issuance of Preferred Shares other than pursuant to the Securities Purchase
Agreement.
XVI. LOST OR STOLEN CERTIFICATES
Upon receipt by the Company of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Preferred Stock Certificates
representing the Preferred Shares, and, in the case of loss, theft or
destruction, of an indemnification undertaking by the holder to the Company
and, in the case of mutilation, upon surrender and cancellation of the
Preferred Stock Certificate(s), the Company shall execute and deliver new
preferred stock certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue preferred stock certificates if the
holder contemporaneously requests the Company to convert such Preferred Shares
into Common Stock.
XVII. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF
The remedies provided in this Certificate of Amendment shall be
cumulative and in addition to all other remedies available under this
Certificate of Amendment, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall
be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of this
Certificate of Amendment. The Company covenants to each holder of Preferred
Shares that there shall be no characterization concerning this instrument
other than as expressly described herein. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation
of the Company (or the performance thereof). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
holders of the Preferred Shares and that the remedy at law for any such breach
be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the holders of the Preferred Shares shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
XVIII. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION
No specific provision contained in this Certificate of Amendment shall
limit or modify any more general provision contained herein. This Certificate
of Amendment shall be deemed to be jointly drafted by the Company and all
holders of Preferred Shares and shall not be construed against any person as
the drafter hereof.
XIX. FAILURE OR INDULGENCE NOT WAIVER
No failure or delay on the part of a holder of Preferred Shares in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
XX. NOTICE
Whenever notice is required to be given, it shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement.
* * * * * *
(4) This Amendment to Article Third of the Certificate of Incorporation
of the Corporation was authorized by a resolution of the Board of Directors of
the Corporation duly adopted on June 7, 1999.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and signed this
Certificate this 10th day of June, 1999, and I affirm the statements contained
herein as true under penalties of perjury.
ANDREA ELECTRONICS CORPORATION
By: /s/ John N. Andrea
-----------------------------------
Name: John N. Andrea
Title: Co-Chief Executive Officer
By: /s/ Richard A. Maue
- ----------------------------
Name: Richard A. Maue
Title: Secretary
<PAGE>
EXHIBIT I
ANDREA ELECTRONICS CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Amendment of the Certificate of
Incorporation of Andrea Electronics Corporation, a New York corporation (the
"Company") setting forth the Amendments, preferences and rights of Series B
Convertible Preferred Stock (the "CERTIFICATE OF AMENDMENT"). In accordance
with and pursuant to the Certificate of Amendment, the undersigned hereby
elects to convert the number of shares of Series B Convertible Preferred
Stock, par value $0.01 per share (the "PREFERRED SHARES"), of the COMPANY,
indicated below into shares of common stock, par value $0.50 per share (the
"COMMON STOCK"), of the Company, by tendering the stock certificate(s)
representing the Preferred Shares specified below as of the date specified
below.
Date of Conversion:By: __________________________
Number of Preferred Shares to be converted: ________________________
Stock certificate no(s). of Preferred Shares to be
converted: ________________________
Please confirm the following information:
Conversion Price: ________________________
Number of shares of Common Stock
to be issued: ________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ________________________
________________________
________________________
________________________
Facsimile Number: ________________
Authorization: __________________
By: ______________________________
Title: ___________________________
Dated: ___________________________
Account Number:
(if electronic book entry transfer): ________________________
Transaction Code Number
(if electronic book entry transfer): ________________________
<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated June
___, 1999 from the Company and acknowledged and agreed to by [TRANSFER AGENT].
ANDREA ELECTRONICS CORPORATION
By: ________________________
Name: ________________________
Title: ________________________
<PAGE>
Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of June 11,
1999, by and among Andrea Electronics Corporation, a New York corporation,
with headquarters located at 45 Melville Park Road, Melville, New York 11747
(the "COMPANY"), and the investor listed on the Schedule of Buyers attached
hereto (the "BUYER").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule
506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, par value $0.01 per share which shall be called the Company's Series B
Convertible Preferred Stock (the "PREFERRED STOCK"), which shall be
convertible into shares of the Company's common stock, par value $0.50 per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Amendment of the
Certificate of Incorporation of the Company, substantially in the form
attached hereto as Exhibit A (the "CERTIFICATE OF AMENDMENT");
C. The Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, initially (i) an aggregate of 750 shares of the Preferred
Stock (the "INITIAL PREFERRED SHARES"), and (ii) warrants to purchase up to
100 shares of Common Stock (as exercised collectively, the "INITIAL WARRANT
SHARES") for each Initial Preferred Share purchased by Buyer on the Initial
Closing Date (as defined below), such warrants to be substantially in the form
attached as Exhibit E (the "INITIAL WARRANTS");
D. Subject to the terms and conditions set forth in this Agreement, the
Company may have the right to cause the Buyer to purchase (i) up to an
aggregate of 750 shares of Preferred Stock (the "ADDITIONAL PREFERRED SHARES")
(the Initial Preferred Shares and the Additional Preferred Shares collectively
are referred to in this Agreement as the "PREFERRED SHARES") and (ii) warrants
to purchase up to 100 shares of Common Stock (as exercised, collectively, the
"ADDITIONAL WARRANT SHARES") for each Additional Preferred Share purchased by
Buyer on the Additional Closing Date (the Initial Warrant Shares and the
Additional Warrant Shares collectively are referred to in this Agreement as
the "WARRANT SHARES");
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or waiver)
of the conditions set forth in Sections 6(a) and 7(a), the Company shall issue
and sell to the Buyer and the Buyer shall purchase from the Company 750
Initial Preferred Shares, along with the related Warrants (the "INITIAL
CLOSING"). Subject to the satisfaction (or waiver) of the conditions set forth
in Sections 1(c), 1(d), 6(b) and 7(b), the Company may require that Buyer
purchase up to 750 Additional Preferred Shares along with the related Warrants
(the "ADDITIONAL CLOSING" and together with the Initial Closing, the
"CLOSINGS"). The purchase price (the "PURCHASE PRICE") of each Preferred Share
and the related Warrant at each of the Closings shall be an aggregate of
$10,000. "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in the city of New York are authorized or required
by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time, within
three (3) Business Days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a)
and 7(a) (or such later date as is mutually agreed to by the Company and the
Buyer). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661-3693.
c. The Additional Closing Date. The date and time of each of the
Additional Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00 a.m.
Central Time, on the date specified in the Company's Additional Share Notice
(as defined below), subject to satisfaction (or waiver) of the conditions to
the Additional Closing set forth in Sections 6(b) and 7(b) and the conditions
set forth in this Section 1(c) and Section 1(d), (or such later date as is
mutually agreed to by the Company and the Buyer). During the period beginning
on and including the date which is 271 days after the Initial Closing Date and
ending on the date which is 451 days after the Initial Closing Date (the
"ADDITIONAL NOTICE PERIOD"), but subject to the requirements of Sections 6(b)
and 7(b) and satisfaction of the Additional Notice Conditions (as defined in
Section 1(d) below), the Company on not more than two occasions may require
Buyer to purchase Additional Preferred Shares and the related Additional
Warrants by delivering written notice to the Buyer (an "ADDITIONAL SHARE
NOTICE") during the Additional Notice Period at least ten (10) Business Days
but not more than 15 Business Days (the "ADDITIONAL SHARE NOTICE DATE") prior
to the Additional Closing Date set forth in the Company's Additional Share
Notice, which Additional Closing Date shall not be later than the last
business day of the Additional Notice Period. The Company's Additional Share
Notice shall set forth (i) the number of Additional Preferred Shares which the
Company is requiring the Buyer to purchase at the Additional Closing, which
number shall not exceed, in the aggregate, 750 shares of Preferred Stock at
all Additional Closings and which number shall be at least 250 shares of
Preferred Stock, (ii) the aggregate Purchase Price for Buyer's Additional
Preferred Shares and (iii) the date selected by the Company for the Additional
Closing Date. Notwithstanding the foregoing, if at the first Additional
Closing to occur after the Initial Closing Date the Company sells and issues
less than 375 shares of Preferred Stock or more than 500 shares of Preferred
Stock, then the Company shall not be entitled to deliver another Additional
Share Notice or to require the Buyer to acquire any additional shares of
Preferred Stock at any subsequent Additional Closing. The Additional Closing
shall occur on the Additional Closing Date at the offices of Katten Muchin &
Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693. The
Initial Closing Date and the Additional Closing Date collectively are referred
to in this Agreement as the "CLOSING Dates."
d. The Additional Notice Conditions. Notwithstanding anything in
this Agreement to the contrary, the Company shall not be entitled to deliver
an Additional Share Notice and require the Buyer to purchase the Additional
Preferred Shares unless, in addition to the satisfaction of the requirements
of Sections 6(b) and 7(b), all of the following conditions (the "ADDITIONAL
NOTICE CONDITIONS") are satisfied: (i) either (A) the Company's stockholders
shall have approved the issuance of the Securities (as defined below) on or
prior to the Additional Share Notice Date or (B) on each day during the period
beginning on and including the date which is 60 days prior to the Additional
Closing Date and ending on and including the Additional Closing Date 19.99% of
the number of shares of Common Stock outstanding on the Initial Closing Date
is greater than (x) the sum of (I) the number of Conversion Shares and Warrant
Shares issued by the Company, (II) the number of Conversion Shares and Warrant
Shares then issuable upon conversion of all outstanding Preferred Shares and
Warrants, respectively, without regard to any limitations on conversion or
exercise thereof, plus (III) the number of Conversion Shares and Warrant
Shares that would be issuable upon conversion of the Additional Preferred
Shares and exercise of the Additional Warrants (without regard to any
limitations on conversion or exercise) covered by the applicable Additional
Notice, as if all such Additional Preferred Shares and Additional Warrants
were issued and outstanding on each such date, multiplied by (y) 1.5; (ii) the
Initial Registration Statement shall have been declared effective by the
Securities and Exchange Commission (the "SEC") and available for sale of 125%
of the sum of (A) the number of Conversion Shares and Warrant Shares then
issuable upon conversion of all outstanding Preferred Shares and Warrants,
respectively, (B) the Additional Conversion Shares and Additional Warrant
Shares covered by such Additional Notice and (C) the number of Conversion
Shares and Warrant Shares that are then held by the Buyer, in accordance with
the terms of the Registration Rights Agreement at all times during the 60 days
immediately preceding the Additional Closing Date; (iii) at all times during
the period beginning on the Initial Closing Date and ending on and including
the Additional Closing Date, the Common Stock shall have been designated for
quotation on The American Stock Exchange, Inc. ("AMEX") and shall not have
been suspended from trading on such exchange nor shall delisting or suspension
by such exchange have been threatened in writing by such exchange; (iv) during
the period beginning on the Initial Closing Date and ending on and including
the Additional Closing Date, there shall not have occurred either (A) the
consummation of a Major Transaction (as defined in the Certificate of
Amendment) or a public announcement of a pending Major Transaction which
has not been abandoned or terminated or (B) a Triggering Event (as defined in
the Certificate of Amendment), an Excluded Redemption Event (as defined in the
Certificate of Amendment) or an event which, with the passage of time, would
constitute a Triggering Event or an Excluded Redemption Event; (v) either (A)
both (I) the average Variable Conversion Price during the ten trading days
immediately preceding the Additional Closing Date is not less than the
Variable Conversion Price on the Initial Closing Date and (II) the average
Variable Conversion Price has been no less than 120% of the Fixed Conversion
Price for 20 consecutive trading days while the Registration Statement has
been effective and available for resale of all shares of Common Stock issuable
upon conversion of the Preferred Shares and upon exercise of the Warrants or
(B) the average Variable Conversion Price during the 10 trading days
immediately preceding the Additional Closing Date is not less than the Fixed
Conversion Price on the Initial Closing; (vi) the Variable Conversion Price on
the Additional Closing Date is either (A) no less than 80% of the Variable
Conversion Price on the Additional Notice Date or (B) no less than the
Variable Conversion Price on the Initial Closing Date; (vii) during the period
beginning on the Initial Closing Date and ending on and including the
Additional Closing Date, the Company shall have delivered Conversion Shares
upon conversion of the Preferred Shares on a timely basis as set forth in
Section IV(G)(2) of the Certificate of Amendment (unless any non-compliance
therewith shall have been waived in writing by the holders of the Preferred
Stock) and otherwise shall have been in compliance with and shall not have
breached any provision of the Transaction Documents (as defined below) and the
Certificate of Amendment; and (viii) there previously shall not have occurred
more than one Additional Closing.
e. Form of Payment. On each of the Closing Dates (i) Buyer shall pay
the Purchase Price to the Company for the Preferred Shares and the related
Warrants to be issued and sold to Buyer by wire transfer of immediately
available funds in accordance with the Company's written wire instructions,
and (ii) the Company shall deliver to Buyer stock certificates (in the
denominations as Buyer shall request) (the "STOCK Certificates") representing
such number of the Preferred Shares which Buyer is then purchasing along with
the related Warrants, duly executed on behalf of the Company and registered in
the name of Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Buyer represents and warrants that:
a. Investment Purpose. Buyer (i) is acquiring the Preferred Shares
and the Warrants, (ii) upon conversion of the Preferred Shares, will acquire
the Conversion Shares then issuable and (iii) upon exercise of the Warrants,
will acquire the Warrant Shares issuable upon exercise thereof (the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares,
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making
the representations herein, Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of Buyer to
acquire such Securities.
d. Information. Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by Buyer. Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by Buyer or its
advisors, if any, or its representatives shall modify, amend or affect Buyer's
right to rely on the Company's representations and warranties contained in
Sections 3 and 9(m) below. Buyer understands that its investment in the
Securities involves a high degree of risk. Buyer has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably satisfactory to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or
(C) Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 promulgated under
the 1933 Act (or a successor rule thereto)("RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale
of the Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that
term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
g. Legends. Buyer understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM
REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it
is stamped, if (i) such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a form reasonably satisfactory to the Company,
to the effect that a public sale, assignment or transfer of such Securities
may be made without registration under the 1933 Act, or (iii) such holder
provides the Company with assurances reasonably acceptable to the Company that
such Securities can be sold pursuant to Rule 144 without any restriction as to
the number of securities acquired as of a particular date that can then be
immediately sold. Buyer acknowledges, covenants and agrees to sell the
Securities represented by a certificate(s) from which the legend has been
removed, only pursuant to (i) a registration statement effective under the
1933 Act, or (ii) advice of counsel that such sale is exempt from registration
required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Buyer and are valid and binding agreements of Buyer enforceable
against Buyer in accordance with their terms, subject as to enforceability to
general principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
i. Residency. Buyer is a resident of that jurisdiction specified on
the Schedule of Buyers.
j. Short Sale Limitation. During (i) the 30 days immediately
preceding the Initial Closing Date neither Buyer nor its affiliates has
engaged and (ii) the period beginning on the Additional Share Notice Date and
ending on the Additional Closing Date (or such earlier date as the Additional
Closing may be abandoned due to the failure to meet the Additional Notice
Conditions), neither Buyer nor its affiliates will engage, directly or
indirectly, in any transaction constituting a "short sale" (as defined in Rule
3b-3 of the Securities Exchange Act of 1934, as amended (the "1934 ACT")),
provided, however, that a sale which would otherwise be deemed a short sale
shall not be prohibited by this Agreement so long as the Buyer submits on the
same day of such sale a Conversion Notice of Preferred Shares entitling such
Buyer to receive a number of shares of Common Stock equal to at least the
number of shares so sold.
k. Section 9 of the Securities Exchange Act. So long as the Buyer
holds any Preferred Shares, Buyer will comply with the provisions of Section 9
of the 1934 Act and the rules promulgated thereunder with respect to
transactions involving the securities of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power and authorization to own properties and to carry on
their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. As used in this Agreement,
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the business,
properties, assets, operations, results of operations or financial condition
of the Company and its Subsidiaries taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below) or the
Certificate of Amendment.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5), the Warrants and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery
of the Transaction Documents by the Company and the execution and filing of
the Certificate of Amendment by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Preferred Shares and the Warrants and the reservation for
issuance and the issuance of the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise thereof, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders (except
such stockholder approval as may be required by AMEX for the issuance of a
number of shares of Common Stock which is greater than 19.99% of the number of
shares outstanding on the Initial Closing Date), (iii) the Transaction
Documents have been duly executed and delivered by the Company, (iv) this
Agreement and, when executed and delivered, the other Transaction Documents,
constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of creditors' rights
and remedies, and (v) prior to each of the Closing Dates, the Certificate of
Amendment will have been filed with the Secretary of State of the State of New
York and will be in full force and effect, enforceable against the Company in
accordance with its terms.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 25,000,000 shares of Common Stock, of which as of the date
hereof 13,251,288 shares were issued and outstanding, 3,725,500 shares were
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 3,000 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock
and (ii) 5,000,000 shares of Preferred Stock, of which as of the date hereof,
no shares were issued and outstanding and 25,000 shares are issuable and
reserved for issuance pursuant to the Company's Rights Plan (as defined in
Section 3(u)). All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed
in Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities issued by the Company; (iii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries; (iv) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and
as in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Certificate of Amendment. At least 2,450,000
shares of Common Stock (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(f) below) have been duly authorized and
reserved for issuance upon conversion of the Preferred Shares and exercise of
the Warrants. Upon conversion or exercise in accordance with the Certificate
of Amendment or the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares will be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
The issuance by the Company of the Securities is exempt from registration
under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the
Certificate of Amendment and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the reservation for issuance and issuance of the Conversion Shares and the
Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Amendment, Preferences and Rights of any
outstanding series of Preferred Stock of the Company or the By-laws; (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party; or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the principal market or exchange
on which the Common Stock is traded or listed) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected. Except as disclosed in Schedule
3(e), neither the Company nor its Subsidiaries is in violation of any term of
(i) its Certificate of Incorporation, any Certificate of Amendment,
Preferences and Rights of any outstanding series of Preferred Stock or By-laws
or their organizational charter or by-laws, respectively, or (ii) any statute,
rule or regulation applicable to the Company or its Subsidiaries and neither
the Company nor its Subsidiaries is in default under any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order, except for defaults as would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation
of any law, ordinance or regulation of any governmental entity, except where
such violation would not result in a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and the securities laws of the State of New York and except such as have been
obtained as of the date hereof, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency
in order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Certificate of Amendment in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries have no actual knowledge of any facts or circumstances which
might reasonably be expected to give rise to any of the foregoing. The Company
is not in violation of the listing requirements of AMEX as in effect on the
date hereof and on each of the Closing Dates and has no actual knowledge of
any facts which would reasonably lead to delisting or suspension of the Common
Stock by AMEX in the foreseeable future.
f. SEC Documents; Financial Statements. Since December 31, 1997, the
Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act, (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC DOCUMENTS"). A complete list of the
Company's SEC Documents is set forth on Schedule 3(f). As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto,
and (ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Neither the Company nor any of its Subsidiaries
or any of their officers, directors, employees or agents have provided the
Buyer with any material, nonpublic information. The Company meets the
requirements for the use of Form S-3 for registration of the resale of the
Registrable Securities (as defined in the Registration Rights Agreement) by
the Buyer.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g),
since December 31, 1998 there has been no material adverse change and no
material adverse development in the business, properties, operations,
financial condition, liabilities results of operations of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any actual
knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so.
h. Absence of Litigation. Except as disclosed in Schedule 3(h),
there is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as expressly set
forth in Schedule 3(h). Except as set forth in Schedule 3(h), to the knowledge
of the Company none of the directors or officers of the Company have been
involved in securities related litigation during the past five years.
i. Acknowledgment Regarding Buyer's Purchase of Preferred Shares.
The Company acknowledges and agrees that the Buyer is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction
Documents and the Certificate of Designation and the transactions contemplated
thereby. The Company further acknowledges that Buyer is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the Certificate of Amendment and
the transactions contemplated thereby and any advice given by the Buyer or any
of its respective representatives or agents in connection with the Transaction
Documents and the Certificate of Amendment and the transactions contemplated
thereby is merely incidental to Buyer's purchase of the Securities. The
Company further represents to Buyer that the Company's decision to enter into
the Transaction Documents has been based solely on the independent evaluation
by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Stock and Warrants
contemplated by this Agreement, no event, liability, development or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement (including by way of
incorporation by reference) filed with the SEC relating to an issuance and
sale by the Company of its Common Stock and which has not been publicly
disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
any of the Securities under the 1933 Act or cause this offering of Securities
to be integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of AMEX, nor will the Company or
any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. No executive officer (as defined in Rule
501(f) of the 1933 Act) has notified the Company's Board of Directors that
such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted, except where the failure to own or possess such
rights would not, individual or in the aggregate, have a Material Adverse
Effect. Except as set forth on Schedule 3(n), none of the Company's
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
have expired or terminated, or are expected to expire or terminate within two
years from the date of this Agreement, except where such expiration or
termination would not result, individually or in the aggregate, in a Material
Adverse Effect. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of trademarks, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secrets or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(n), no claim, action or proceeding has been made or brought
against, or to the Company's knowledge, has been threatened against, the
Company or its Subsidiaries regarding trademarks, trade name rights, patents,
patent rights, inventions, copyrights, licenses, service names, service marks,
service mark registrations, trade secrets or other infringement; and the
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing, except where any of the foregoing
would not have a Material Adverse Effect.
o. Regulatory Permits. Except the absence of which would not have a
Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
p. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
q. Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on Schedule
3(r) or in the SEC Documents filed at least ten days prior to the date hereof
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred
Shares and Warrant Shares issued upon exercise of the Warrants will increase
in certain circumstances. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Amendment and its
obligation to issue the Warrant Shares in accordance with this Agreement and
the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
t. Application of Takeover Protections. Assuming that Buyer has no
present intention to takeover or to participate in a takeover of the Company,
the Company and its board of directors have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the Buyer and the Company
fulfilling their obligations under the Transaction Documents and the
Certificate of Designation, including, without limitation, the Company's
issuance of the Securities and the Buyer's ownership of the Securities.
u. Rights Agreement. Assuming that Buyer has no present intention to
takeover or to participate in a takeover of the Company and so long as the
proviso to the first sentence of Section IV(A) of the Certificate of Amendment
remains in full force and effect, the Company specifically represents,
warrants and agrees that, (i) in accordance with that certain Rights Agreement
dated as of April 23, 1999 (the "Rights Plan") between the Company and
Continental Stock Transfer & Trust Company, as the Rights Agent thereunder,
regardless of the number of Conversion Shares and Warrant Shares of which
Buyer is deemed the Beneficial Owner (as defined in the Rights Plan), Buyer is
not intended to be nor will be deemed to be an Acquiring Person within the
meaning of the Rights Plan because of the acquisition of the Securities
(including the Conversion Shares and the Warrant Shares) pursuant to this
Agreement, and (ii) the acquisition of the Securities (including the
Conversion Shares and the Warrant Shares) pursuant to this Agreement, shall
not, under any circumstances, trigger a Distribution Date within the meaning
of the Rights Plan; provided, however, that only Securities (including the
Conversion Shares and the Warrant Shares) acquired pursuant to this Agreement
shall be deemed excluded from the number of shares of Common Stock deemed
beneficially owned by Buyer in determining whether Buyer is an Acquiring
Person within the meaning of the Rights Plan.
v. Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiary's business and
operations that could be materially adversely affected by the "YEAR 2000
PROBLEM" (that is, the risk that computer applications used by the Company or
any of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on the foregoing, the Company believes that the
computer applications that are currently material to its or any Subsidiary's
business and operations are reasonably expected to be able to perform properly
data-sensitive functions for all dates before and after January 1, 2000,
except to the extent that the failure to do so would not reasonably be
expected to have a Material Adverse Effect.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to
Buyer promptly after such filing. The Company shall, on or before each of the
Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the
Securities for, sale to the Buyer at each of the Closings pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the date on which the
Investors (as that term is defined in the Registration Rights Agreement) may
sell all of the Conversion Shares and the Warrant Shares without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto)
and (ii) the date on which (A) the Investors have sold all the Conversion
Shares and Warrant Shares and (B) none of the Preferred Shares or Warrants is
outstanding (the "REPORTING PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale
of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the following
to each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period: (i) within two (2) Business Days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries and (iii) copies of any
notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares (without regard to any
limitations on conversions) and 100% of the number of shares of Common Stock
needed to provide for the issuance of the Warrant Shares.
g. Right of First Refusal. Subject to the exceptions described
below, for so long as at least 150 Initial Preferred Shares or 20% of the
number of Additional Preferred Shares issued remain outstanding, the Company
and its Subsidiaries shall not, without the prior written consent of the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding,
negotiate or contract with any party for any equity financing (including any
debt financing with an equity component) or issue any equity securities of the
Company or any Subsidiary or securities convertible or exchangeable into or
for equity securities of the Company or any Subsidiary (including debt
securities with an equity component) in any form ("FUTURE OFFERINGS") during
the periods (i) beginning on the Initial Closing Date and ending on and
including the date which is 365 days after the Initial Closing Date and (ii)
beginning on each Additional Closing Date and ending on the date which is 365
days after such Additional Closing Date, unless it shall have first delivered
to Buyer or a designee appointed by Buyer written notice (the "FUTURE OFFERING
NOTICE") describing the proposed Future Offering, including the buyer and
terms and conditions thereof, and providing the Buyer an option to purchase up
to the entire Future Offering on the same terms and conditions set forth in
the Future Offering Notice (the limitations referred to in this sentence are
collectively referred to as the "CAPITAL RAISING LIMITATION"). The Buyer can
exercise its option to participate in a Future Offering by delivering written
notice thereof to participate to the Company within ten (10) business days of
receipt of a Future Offering Notice, which notice shall state the quantity of
securities being offered in the Future Offering that Buyer will purchase. In
the event the Buyer fails to elect to fully participate in the Future Offering
within the periods described in this Section 4(g), the Company shall have 60
days thereafter to sell the securities of the Future Offering for which
Buyer's rights were not exercised, upon the same terms and conditions
(including the amount thereof) specified in the Future Offering Notice. In the
event the Company has not sold such securities of the Future Offering within
such 60 day period, the Company shall not thereafter issue or sell such
securities without first offering such securities to the Buyer in the manner
provided in this Section 4(g). The Capital Raising Limitation shall not apply
to any of the following transactions (each an "EXCLUDED ISSUANCE" and,
collectively, the "EXCLUDED ISSUANCES") (i) a loan or lease from a commercial
bank which does not have any equity feature (other than warrants exercisable
at exercise prices greater than 150% of the average of the Closing Bid Price
(as defined in the Certificate of Amendment) of the Common Stock for the five
trading days immediately preceding the date of issuance of such warrant and
exercisable for a number of Shares of Common Stock that does not exceed the
quotient of (A) 10% of the proceeds to the Company from, such loan or value of
the property covered by such lease, as the case may be, divided by (B) the
average of the Closing Bid Price of the Common Stock for the five trading days
immediately preceding the date of issuance of such warrant), (ii) any
transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture with any entity, the primary purpose of
which is not to raise equity capital, or (C) in connection with any strategic
partnership or joint venture with a "high-tech" company, the sole purpose of
which is not to raise equity capital, (D) as consideration for the acquisition
of a business, product, license or other assets by the Company, (iii) the
issuance of Common Stock in a firm commitment underwritten public offering,
(iv) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof, (v) the grant of additional options or warrants (including the
issuance of shares of Common Stock upon exercise of such options or warrants),
or the issuance of additional securities, under any Company stock option or
restricted stock plan for the benefit of the Company's employees, directors or
consultants or (vi) the issuance of securities pursuant to an offering by the
Company in reliance upon Rule 144A under the 1933 Act with proceeds to the
Company of at least $75,000,000. The Buyer shall not be required to
participate or exercise its right of first refusal with respect to a
particular Future Offering in order to exercise its right of first refusal
with respect to later Future Offerings.
h. Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system
(including AMEX), if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents and the Certificate of Amendment. The Company shall
maintain the Common Stock's authorization for listing on AMEX, the Nasdaq
National Market ("NASDAQ") or The New York Stock Exchange ("NYSE"). Neither
the Company nor any of its Subsidiaries shall take any action which may result
in the delisting or suspension of the Common Stock on AMEX, Nasdaq or NYSE
(other than to switch listings from AMEX, Nasdaq or NYSE ). The Company shall
promptly provide to Buyer copies of any notices it receives from AMEX, Nasdaq
or NYSE regarding the continued eligibility of the Common Stock for listing on
such automated quotation system or securities exchange. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(h).
i. Expenses. Subject to Section 9(l) below, following the Initial
Closing, the Company shall reimburse the Buyer for the Buyer's legal expenses
in connection with negotiating and preparing the Transaction Documents and
consummating the transactions contemplated thereby up to an aggregate of
$50,000.
j. Transactions With Affiliates. So long as (i) at least 50
Preferred Shares are outstanding or (ii) any Buyer owns Conversion Shares or
Warrant Shares with a market value of $500,000 the Company shall not, and
shall cause each of its Subsidiaries not to, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, person who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company or (c) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no
less favorable than terms which would have been obtainable from a person other
than such Related Party. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
k. Filing of Form 8-K. On or before the second business day
following each of the Closing Dates, each Additional Share Notice Date and the
Additional Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transaction contemplated by the Transaction
Documents and consummated at such Closing, in each case in the form required
by the 1934 Act.
l. Corporate Existence. Until the later of (i) the date which is 30
months of the last Closing Date to occur or (ii) so long as a Buyer
beneficially owns at least 75 Preferred Shares, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the
Company's assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where the surviving or
successor entity in such transaction (x) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (y) is a publicly traded corporation whose common stock is listed
for trading on AMEX, Nasdaq or NYSE. So long as a Buyer beneficially owns any
Preferred Shares, if the Company fails to maintain its corporate existence or
sells all or substantially all of the Company's assets, except in the event of
a merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is listed for trading on AMEX, Nasdaq or NYSE
(each a "CORPORATE TERMINATION EVENT"), then the Company shall deliver written
notice ("CORPORATE TERMINATION NOTICE") to the Buyer at least 10 Business Days
prior to the consummation of such Corporate Termination Event and at the
election of the Buyer the Company shall redeem any Preferred Shares held by
such Buyer at a price per Preferred Share equal to 250% of the Liquidation
Value (as defined in the Certificate of Amendment) concurrently with the
consummation of the Corporate Termination Event. The Buyer shall exercise its
right to require the Company to redeem outstanding Preferred Shares pursuant
to this Section 4(l) by delivering written notice to the Company within five
Business Days after the Buyer's receipt of the Company's Corporate Termination
Notice.
m. Proxy Statement. The Company shall provide each stockholder
entitled to vote at a meeting of stockholders of the Company, which meeting
shall be not later than the earlier of (i) the date which is 180 days after
the first date (a "180-DAY PROXY STATEMENT TRIGGER DATE") on which for each of
the 20 consecutive trading days ending on such Proxy Statement Trigger Date
the sum of (A) the Conversion Shares issued or issuable upon conversion of the
Preferred Shares (without regard to any limitations on conversions) and (B)
the Warrant Shares issued or issuable upon exercise of the Warrants (without
regard to any limitations on conversions) is greater than or equal to the
Exchange Cap (as defined in the Articles of Amendment) and (ii) the date which
is 60 days after the first date (a "60-DAY PROXY STATEMENT TRIGGER DATE") on
which the sum of (A) the Conversion Shares issued upon conversion of the
Preferred Shares and (B) the Warrant Shares issued upon exercise of the
Warrants is greater than or equal to the Exchange Cap (the "STOCKHOLDER
MEETING DEADLINE"), a proxy statement, which has been previously reviewed by
the Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such stockholder meeting for approval of the Company's
issuance of all of the Securities as described in this Agreement, and the
Company shall use its best efforts to solicit its stockholders' approval of
such issuance of the Securities and cause the Board of Directors of the
Company to recommend to the stockholders that they approve such proposal.
Notwithstanding the foregoing, if a 60-Day Proxy Statement Trigger Date
occurs, the Company shall not be required to hold a meeting of stockholders
solely because of the occurrence of such 60-Day Proxy Statement Trigger Date
unless the holders of the Preferred Shares temporarily waive, in writing, any
redemption rights to which such holders are entitled under the Certificate of
Amendment due to the Company's inability to issue Conversion Shares as a
result of the Exchange Cap (the "REDEMPTION WAIVER") during the period
beginning on the date of the mailing of the proxy statement to the Company's
stockholders (the "MAILING DATE") and ending on the earlier of (i) the date
which is thirty (30) days after the Mailing Date and (ii) the date of the
meeting of stockholders; provided, however, that the holders of Preferred
Shares shall not be required to execute the Redemption Waiver and the Company
will remain obligated to hold a meeting of stockholders unless the Company
gives such holders written notice of the requirement for the Redemption Waiver
at least the two (2) Business Days prior to the Mailing Date. If the Company
fails to hold a meeting of its stockholders by the Stockholder Meeting
Deadline, then, as partial relief (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to each
holder of Preferred Shares an amount in cash per Preferred Share equal to the
product of (i) $10,000 multiplied by (ii) .025 multiplied by (iii) the
quotient of (x) the number of days after the Stockholder Meeting Deadline that
a meeting of the Company's stockholders is not held, divided by (y) 30. The
Company shall make the payments referred to in the immediately preceding
sentence within five days of the earlier of (I) the holding of the meeting of
the Company's stockholders, the failure of which resulted in the requirement
to make such payments and (II) the last day of each 30-day period beginning on
the Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.0% per month (pro rated for partial months) until paid in full.
Notwithstanding the foregoing, the Company shall not be required to hold a
meeting of its stockholders within 180 days of a 180-Day Proxy Statement
Trigger Date as a result of such 180-Day Proxy Statement Trigger Date having
occurred if for 20 consecutive trading days during the period beginning on the
first day following such 180-Day Proxy Statement Trigger Date and ending on
and including the date which is 90 days after such 180-Day Proxy Statement
Trigger Date 19.99% of the number of shares of Common Stock outstanding on the
Initial Closing Date is greater than (x) the sum of (I) the number of
Conversion Shares and Warrant Shares issued by the Company and (II) the number
of Conversion Shares and Warrant Shares then issuable upon conversion of all
outstanding Preferred Shares and Warrants, respectively, without regard to any
limitations on conversion or exercise thereof, multiplied by (y) 1.5 (a "PROXY
STATEMENT CURE"); provided, however, that if a Proxy Statement Cure shall have
occurred then the Company shall be obligated to hold a meeting of its
stockholders pursuant to clause (i) of the first sentence of this Section 4(m)
following the next 180-Day Proxy Statement Trigger Date to occur following
such Proxy Statement Cure.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of Buyer or its respective nominee(s), for the Conversion Shares and
the Warrant Shares in such amounts as specified from time to time by Buyer to
the Company upon conversion of the Preferred Shares or exercise of the
Warrants (the "IRREVOCABLE TRANSFER AGENT Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section
5, and stop transfer instructions to give effect to Section 2(f) hereof (in
the case of the Conversion Shares and the Warrant Shares, prior to
registration of the Conversion Shares and the Warrant Shares under the 1933
Act) will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in any
way Buyer's obligations and agreements set forth in Section 2(g) to comply
with all applicable prospectus delivery requirements, if any, upon resale of
the Securities. If a Buyer provides the Company with an opinion of counsel, in
a form reasonable satisfactory to the Company, that registration of a resale
by Buyer of any of such Securities is not required under the 1933 Act or the
Buyer provides the Company with reasonable assurances that the Securities can
be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denominations as specified by Buyer and without any restrictive legends. The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company hereunder to
issue and sell the Initial Preferred Shares and the Initial Warrants to Buyer
at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(i) Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.
(ii) The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York.
(iii) Buyer shall have delivered to the Company the Purchase Price
for the Initial Preferred Shares and the related Warrants being purchased
by Buyer at the Initial Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of Buyer contained herein
shall be true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by Buyer at or prior to the Initial Closing
Date.
b. Additional Closing Date. The obligation of the Company hereunder
to issue and sell the Additional Preferred Shares and the Additional Warrants
to Buyer at the Additional Closings is subject to the satisfaction, at or
before each of the Additional Closing Dates, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
(i) The Buyer shall have delivered to the Company the Purchase Price
for the Additional Preferred Shares and the related Warrants being
purchased by Buyer at the Additional Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by
the Company.
(ii) The representations and warranties of Buyer contained herein
shall be true and correct as of the date when made and as of the
applicable Additional Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date), and
Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by Buyer at or prior to the
applicable Additional Closing Date.
7. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of Buyer hereunder to
purchase the Initial Preferred Shares and Initial Warrants at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for
Buyer's sole benefit and may be waived by Buyer at any time in its sole
discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to Buyer.
(ii) The Certificate of Amendment, shall have been filed with the
Secretary of State of the State of New York, and a copy thereof certified
by such Secretary of State shall have been delivered to Buyer.
(iii) The Common Stock shall be designated for quotation on AMEX or
listed on the NYSE, and shall not have been suspended from trading on or
delisted from such exchanges nor shall delisting or suspension by such
exchanges have been threatened either (A) in writing by such exchanges or
(B) by falling below the minimum listing maintenance requirements of such
exchanges and the Company has complied with the listing requirements of
AMEX for the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise of the Initial Preferred Shares and the related
Warrants, as the case may be.
(iv) The representations and warranties of the Company contained
herein shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents or
Certificate of Amendment to be performed, satisfied or complied with by
the Company at or prior to the Initial Closing Date. Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Initial Closing Date, to the foregoing effect
which also shall include an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
(v) Buyer shall have received the opinion of Brown & Wood LLP, dated
as of the Initial Closing Date, in substantially the form of Exhibit C
attached hereto.
(vi) The Company shall have executed and delivered to Buyer the
Stock Certificates for the Initial Preferred Shares and Initial Warrants
being purchased by Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and exercise
of the Warrants, at least 2,450,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within ten
days of the Initial Closing Date.
(xi) The Company shall have delivered to Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) the Certificate of
Incorporation, (C) By-laws and (D) the number of shares of Common Stock
outstanding as of a date within five (5) days of the Initial Closing,
each as in effect at the Initial Closing Date.
(xii) The Company shall have delivered to Buyer a certified copy of
its Certificate of Incorporation as certified by the Secretary of State
of the State of New York within days of the Initial Closing Date.
(xiii) The Company shall have delivered to Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as Buyer or its counsel may reasonably request.
b. Additional Closing Date. The obligation of Buyer hereunder to
purchase the Additional Preferred Shares and the Additional Warrants at the
Additional Closings is subject to the satisfaction, at or before each of the
Additional Closing Dates, of each of the following conditions, provided that
these conditions are for Buyer's sole benefit and may be waived by Buyer at
any time in its sole discretion:
(i) The Company shall have complied with the requirements of Section
1(c) and all of the Additional Notice Conditions set forth in Section
1(d) shall have been satisfied as of the Additional Closing Date.
(ii) The Certificate of Amendment, shall be in full force and effect
and shall not have been amended, without the knowledge or consent of the
Buyer, since the Initial Closing Date, and a copy thereof certified by
the Secretary of State of the State of New York shall have been delivered
to Buyer.
(iii) The Common Stock shall be authorized for quotation on AMEX,
trading in the Common Stock issuable upon conversion of the Additional
Preferred Shares to be traded on AMEX shall not have been suspended by
the SEC, AMEX and all of the Conversion Shares issuable upon conversion
of the Additional Preferred Shares to be sold at the Additional Closing
shall be listed upon AMEX.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Additional Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents or the Certificate of
Amendment to be performed, satisfied or complied with by the Company at
or prior to the Additional Closing Date. Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company,
dated as of the Additional Closing Date, to the foregoing effect which
also shall include an update as of the Additional Closing Date regarding
the representation contained in Section 3(c) above.
(v) Buyer shall have received the opinion of Brown & Wood LLP, dated
as of the Additional Closing Date in substantially the form of Exhibit C
attached hereto.
(vi) The Company shall have executed and delivered to Buyer the
Stock Certificates for the Additional Preferred Shares and the Additional
Warrants being purchased by Buyer at the Additional Closing.
(vii) The Board of Directors of the Company shall have adopted, and
shall not have amended, the Resolutions.
(viii) As of the Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number of
shares of Common Stock equal to at least 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the then
outstanding Preferred Shares (without regard to any limitations on
conversions) and 100% of the number of shares of Common Stock which would
be issuable upon conversion in full of the then outstanding Warrants,
including for such purposes the Additional Preferred Shares and related
Warrants to be issued at such Additional Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent and shall be in effect as of
the Additional Closing.
(x) The Company shall have delivered to Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in the state of such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within ten days of the Additional Closing Date.
(xi) The Company shall have delivered to Buyer a certified copy of
its Certificate of Incorporation as certified by the Secretary of State
of the State of New York within ten days of the Additional Closing Date.
(xii) The Company shall have delivered to Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) the Certificate of
Incorporation and (C) By-laws and (D) the number of shares of Common
Stock outstanding as of a date within five (5) days of the Additional
Closing Date, each as in effect at the Additional Closing.
(xiii) The Company shall have delivered to Buyer such other
documents relating to the transactions contemplated by this Agreement as
Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of Buyer's execution and delivery of
the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Amendment, the Company shall defend, protect,
indemnify and hold harmless Buyer and all of its stockholders, officers,
directors, employees and direct or indirect equity investors and any of the
foregoing persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the
Transaction Documents or Certificate of Amendment or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction
Documents or the Certificate of Amendment or any other certificate, instrument
or document contemplated hereby or thereby or (c) any cause of action, suit or
claim brought or made against such Indemnitee (other than a cause of action,
suit or claim which is (x) brought or made by the Company and (y) is not a
shareholder derivative suit) and arising out of or resulting from (i) the
execution, delivery, performance or enforcement of the Transaction Documents
or the Certificate of Amendment, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities (excluding losses resulting solely from a decline
in the market value of the Company's securities) or (iii) solely the status of
Buyer or holder of the Securities as an investor in the Company.
Notwithstanding the foregoing, Indemnified Liabilities shall not include any
liability of any Indemnitee arising solely out of such Indemnitee's willful
misconduct or fraudulent action(s). To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except
as otherwise set forth herein, the mechanics and procedures with respect to
the rights and obligations under this Section 8 shall be the same as those set
forth in Sections 6(a) and (d) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and the Company's rights to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of
the State of New York shall govern all issues concerning the relative rights
of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts sitting the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyer, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less
than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Amendment unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of the Preferred
Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) upon delivery by a nationally
recognized delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
Telephone: (516) 719-1800
Facsimile: (516) 719-1824
Attention: President, Chief Operating Officer
With a copy to:
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
Telephone: (516) 719-1800
Facsimile: (516) 719-1824
Attention: Executive Vice President, Chief Financial Officer
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
Two Broadway
New York, New York 10004
Telephone: (212) 509-4000
Facsimile: (212) 509-7616
Attention: Compliance Officer
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to Buyer's representatives as set forth on the
Schedule of Buyers, or at such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness
of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communications, (B) mechanically or
electronically generated by the sender's facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Buyer, including by merger or consolidation,
except pursuant to a Major Transaction (as defined in Section V(C) of the
Certificate of Amendment or an Excluded Redemption Event described in Section
V(H)(4) of the Certificate of Amendment with respect to which the Company is
in compliance with its obligations under Sections V and IV(E)(3) of the
Certificate of Amendment). The rights under this Agreement shall be assignable
by the Buyer without consent of the Company. Notwithstanding the foregoing,
any assignment by the Buyer shall not release the Buyer from its obligations
hereunder unless such obligations are assumed by such assignee and the Company
has consented to such assignment and assumption, which consent shall not be
unreasonably withheld. Notwithstanding anything to the contrary contained in
the Transaction Documents or the Certificate of Amendment, Buyer shall be
entitled to pledge the Securities in connection with a bona fide margin
account.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyer contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive
each of the Closings.
j. Publicity. The Company and Buyer shall have the right to approve
before issuance any press releases or any other public statements with respect
to the transactions contemplated hereby; provided, however, that the Company
shall be entitled, without the prior approval of any Buyer, to make any press
release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although Buyer shall be consulted
by the Company in connection with any such press release or other public
disclosure prior to its release and shall be provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall not have
occurred with respect to a Buyer on or before three (3) Business Days from the
date hereof due to the Company's or Buyer's failure to satisfy the conditions
set forth in Sections 6 and 7 above (and the non-breaching party's failure to
waive such unsatisfied condition(s)), the non-breaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse the
non-breaching Buyer for expenses up to the amount described in Section 4(i)
above.
m. Placement Agent. The Company and the Buyer each acknowledges that
it has not engaged any placement agent in connection with the sale of the
Preferred Shares and the related Warrants.
n. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and the Certificate
of Amendment and all rights and remedies which such holders have been granted
at any time under any other agreement or contract and all of the rights which
such holders have under any law. Any person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyer hereunder or pursuant to the Registration Rights
Agreement, the Certificate of Amendment or the Warrants or the Buyer enforce
or exercise its rights hereunder or thereunder, and such payment or payments
or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYER:
ANDREA ELECTRONICS HFTP INVESTMENT L.L.C.
CORPORATION By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ John N. Andrea By: /s/ James F. O'Brien, Jr.
------------------------------ -------------------------------
Name: John N. Andrea Name: James F. O'Brien, Jr.
Title: Co-Chief Executive Officer Its: Managing Member
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
- --------------- ----------------------------- ----------- ------------------------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. Promethean Investment Group, L.L.C. 750 Promethean Investment Group, L.L.C.
750 Lexington Avenue 750 Lexington Avenue
22nd Floor 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Thomas Lumsden Thomas Lumsden
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe
Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
</TABLE>
<PAGE>
SCHEDULES
---------
Schedule of Buyer
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(f) - SEC Documents
Schedule 3(e) - Conflicts
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(r) - Transactions with Affiliates
Schedule 4(d) - Use of Proceeds
EXHIBITS
--------
Exhibit A - Form of Certificate of Amendment
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Company Counsel Opinion
Exhibit D - Form of Irrevocable Transfer Agent Instructions
Exhibit E - Form of Warrant
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 11,
1999, by and among ANDREA ELECTRONICS CORPORATION, a New York corporation,
with headquarters located at 45 Melville, New York, 11747 (the "COMPANY"), and
the undersigned Buyer (the "BUYER").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyer (i) 750 shares
of the Company's Series B Convertible Preferred Stock, par value $0.01 per
share (the "INITIAL PREFERRED SHARES"), which will be convertible into shares
(as converted, the "INITIAL CONVERSION SHARES") of the Company's common stock,
par value $0.50 per share (the "COMMON STOCK"), in accordance with the terms
of the Company's Certificate of Amendment of the Certificate of Incorporation
of the Company (the "CERTIFICATE OF AMENDMENT"), and (ii) warrants to purchase
shares of Common Stock (the "INITIAL WARRANTS" and, as exercised, the "INITIAL
WARRANT SHARES").
B. In connection with the Securities Purchase Agreement, the Company may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Buyer to purchase (i) up to 750 shares of
Preferred Stock (the "ADDITIONAL PREFERRED SHARES" and, collectively with the
Initial Preferred Shares, the "PREFERRED SHARES"), which will be convertible
into Common Stock (as converted, the "ADDITIONAL CONVERSION SHARES" and,
collectively with the Initial Conversion Shares, the "CONVERSION SHARES") in
accordance with the Certificate of Amendment, and (ii) warrants to purchase
shares of Common Stock (the "ADDITIONAL Warrants" and, collectively with the
Initial Warrants, the "WARRANTS"; and as exercised the "ADDITIONAL WARRANT
SHARES" and, collectively with the Initial Warrant Shares, the "WARRANT
SHARES").
C. To induce the Buyer to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"),
and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyer hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to
become bound by the provisions of this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("RULE 415"), and the declaration
or ordering of effectiveness of such Registration Statement(s) by the United
States Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means (i) the Conversion Shares issued
or issuable upon conversion of the Preferred Shares, (ii) the Warrant Shares
issued or issuable upon exercise of the Warrants and (iii) any shares of
capital stock issued or issuable with respect to the Conversion Shares, the
Preferred Shares, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitations on conversions of Preferred
Shares or exercises of Warrants.
e. "INITIAL REGISTRATION STATEMENT" means a registration statement
or registration statements of the Company filed under the 1933 Act covering
Registrable Securities relating to the Initial Preferred Shares and the
Initial Warrants.
f. "ADDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Additional Preferred Shares
and the Additional Warrants.
g. "REGISTRATION STATEMENT" means Initial Registration Statement and
the Additional Registration Statement.
h. "EFFECTIVENESS DEADLINE" means the Initial Effectiveness Deadline
or the Additional Effectiveness Deadline, as applicable.
2. REGISTRATION.
a. Mandatory Registration.
(i) Initial Mandatory Registration. The Company shall prepare,
and, as soon as practicable, but in no event later than 30 days after the
Initial Closing Date (the "INITIAL FILING DEADLINE"), file with the SEC an
Initial Registration Statement or Initial Registration Statements (as
necessary) on Form S-3 covering the resale of all of the Registrable
Securities relating to the Initial Preferred Shares and the related Warrants
(the "INITIAL REGISTRABLE SECURITIES") which were issued on the Initial
Closing Date (as defined in the Securities Purchase Agreement). In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration, subject to the
provisions of Section 2(d). Any initial Registration Statement prepared
pursuant hereto shall register for resale at least that number of shares of
Common Stock equal to the product of (x) 2.0 and (y) the number of Initial
Registrable Securities (without regard to any limitations on conversion) as of
the date immediately preceding the date the Registration Statement is
initially filed with the SEC, subject to adjustment as provided in Section
3(b). The Company shall use its best efforts to cause such Registration
Statement to be declared effective by the SEC as soon as possible, but in no
event later than 120 days after the Initial Closing Date (the "INITIAL
EFFECTIVENESS Deadline").
(ii) Additional Mandatory Registration. The Company shall
prepare, and, as soon as practicable, but in no event later than 30 days after
each Additional Closing Date (each an "ADDITIONAL FILING DEADLINE")(the
Initial Filing Deadline and each of the Additional Filing Deadlines are
referred to collectively in this Agreement as the "FILING DEADLINE") file with
the SEC an Additional Registration Statement or Additional Registration
Statements (as necessary) on Form S-3 covering the resale of all of the
Registrable Securities relating to the Additional Preferred Shares and the
related Warrants (the "ADDITIONAL REGISTRABLE SECURITIES") which were issued
on the Additional Closing Date (as defined in the Securities Purchase
Agreement). In the event that Form S-3 is unavailable for such a registration,
the Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(d). Any Additional Registration
Statement prepared pursuant hereto shall register for resale at least that
number of shares of Common Stock equal to the product of (x) 2.0 and (y) the
number of Additional Registrable Securities (without regard to any limitations
on conversion) as of the date immediately preceding the date the Registration
Statement is initially filed with the SEC, subject to adjustment as provided
in Section 3(b). The Company shall use its best efforts to cause such
Registration Statement to be declared effective by the SEC as soon as
possible, but in no event later than 120 days after each of the Additional
Closing Dates (the "ADDITIONAL EFFECTIVENESS DEADLINE")(the Initial
Effectiveness Deadline and each of the Additional Effectiveness Deadlines are
referred to collectively in this Agreement as the "EFFECTIVENESS DEADLINE").
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time the Registration Statement
covering such initial number of Registrable Securities or increase thereof is
declared effective by the SEC. In the event that an Investor sells or
otherwise transfers any of such Person's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement
and which remain allocated to any Person which ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities
then held by such Investors which are covered by such Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Buyer shall have
the right to select one legal counsel to review and oversee any offering
pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be Katten Muchin &
Zavis or such other counsel as thereafter designated by the holders of a
majority of Registrable Securities.
d. Ineligibility for Form S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
e. Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If (i) the Registration Statement covering all the
applicable Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the
applicable Filing Deadline or (B) declared effective by the SEC on or before
the applicable Effectiveness Deadline or (ii) on any day after the
Registration Statement has been declared effective by the SEC, sales of all
the Registrable Securities required to be included on a Registration Statement
cannot be made pursuant to the respective Registration Statement (including,
without limitation, because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, to register sufficient shares of
Common Stock), then, as partial relief for the damages to any holder by reason
of any such delay in or reduction of its ability to sell the underlying shares
of Common Stock (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Registrable Securities an amount in cash per Preferred Share held equal to the
product of (i) $10,000 multiplied by (ii) the sum of (A) .01, if the
Registration Statement is not filed by the scheduled Filing Date, plus (B)
.01, if the Registration Statement is not declared effective by the scheduled
Effective Date, plus (C) the product of (I) .0005 multiplied by (II) the sum
of (x) the number of days after the scheduled Filing Date that such
Registration Statement is not filed with the SEC, plus (y) the number of days
after the scheduled Effective Date that the Registration Statement is not
declared effective by the SEC, plus (z) the number of days that sales cannot
be made pursuant to the Registration Statement after the Registration
Statement has been declared effective by the SEC (excluding days during any
Allowable Grace Period (as defined in Section 3(s)). The payments to which a
holder shall be entitled pursuant to this Section 2(e) are referred to herein
as "REGISTRATION DELAY PAYMENTS." Registration Delay Payments shall be paid on
the earlier of (I) the last day of the calendar month during which such
Registration Delay Payments are incurred and (II) the third business day after
the event or failure giving rise to the Registration Delayed Payments is
cured. In the event the Company fails to make Registration Delay Payments in a
timely manner, such Registration Delay Payments shall bear interest at the
rate of 2.0% per month (prorated for partial months) until paid in full. If
the Company fails to pay the Registration Delay Payments, including any
interest thereon, within 15 business days of the date such Registration Delay
Payments are due, then the holder entitled to such payments shall have the
right at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately issue,
in lieu of the Registration Delay Payments, including any interest thereon,
the number of shares of Common Stock equal to the quotient of (X) the sum of
the Registration Delay Payments and all interest accrued thereon divided by
(Y) the lowest Conversion Price in effect during the period beginning on and
including the date such written notice is delivered to the Company and ending
on and including the business day immediately preceding the date such shares
of Common Stock are received by the holder entitled thereto.
f. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(b), the Company shall
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at
least 200% of such Registrable Securities (based on the market price of the
Common Stock on the trading day immediately preceding the date of filing of
such amendment or new Registration Statement), in each case, as soon as
practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use its best efforts to cause
such amendment and/or new Registration Statement to become effective as soon
as practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if, on at
least three trading days within any seven trading day period, the number of
Registrable Securities issued or issuable upon conversion of the Preferred
Shares and exercise of the Warrants covered by such Registration Statement is
greater than the quotient determined by dividing (i) the number of shares of
Common Stock available for resale under such Registration Statement by (ii)
1.5. For purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Preferred Shares or exercise of the
Warrants shall be disregarded and such calculation shall assume that the
Preferred Shares are then convertible into, and the Warrants are then
exercisable for, shares of Common Stock at the then prevailing Conversion
Price (as defined in the Certificate of Amendment) or Exercise Price (as
defined in the Warrants), respectively.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(f), the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (but in no
event later than the applicable Filing Deadline) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as practicable after such filing (but in no event
later than the applicable Effectiveness Deadline). The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which the Investors shall have sold all
the Registrable Securities covered by such Registration Statement (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The term
"best efforts" as used in the first sentence of this Section 3(a) shall mean,
among other things, that the Company shall submit to the SEC, within two
business days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such
period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), the Company shall have
incorporated such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement
for the Company to amend or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and comment
upon those sections of (i) the Initial Registration Statement and the
Additional Registration Statement which are applicable to the Buyer at least
five (5) business days prior to its filing with the SEC and (ii) all other
Registration Statements and all amendments and supplements to all Registration
Statements which are applicable to the Buyer (except for Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and
any similar or successor reports) within a reasonable number of days prior to
the their filing with the SEC and (b) not file any document in a form to which
Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which
consent shall not be unreasonably withheld. The Company shall furnish to Legal
Counsel, without charge, (i) any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC,
one copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy
of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, and all exhibits and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, ten
(10) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (v) make any change in the
Company's Certificate of Incorporation or by-laws that the Company's board of
directors determines in good faith to be contrary to the best interests of the
Company and its shareholders, (w) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3(e),
(x) subject itself to general taxation in any such jurisdiction, or (y) file a
general consent to service of process in any such jurisdiction. The Company
shall promptly notify Legal Counsel and each Investor who holds Registrable
Securities of the receipt by the Company of any notification with respect to
the suspension of the registration or qualification of any of the Registrable
Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such event or
development, the Company shall notify Legal Counsel and each Investor in
writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare
a supplement or amendment to such Registration Statement to correct such
untrue statement or omission, and deliver ten (10) copies of such supplement
or amendment to Legal Counsel and each Investor (or such other number of
copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when
a prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Investor by facsimile on the same day of such
effectiveness), (ii) of any request by the SEC for amendments or supplements
to a Registration Statement or related prospectus or related information, and
(iii) of the Company's reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify Legal Counsel and each Investor who holds
Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. At the reasonable request of the holders of at least two-thirds
(2/3) of the Registrable Securities, the Company shall furnish, at its
expense, to the Investors, on the date of the effectiveness of the
Registration Statement and thereafter from time to time on such dates as the
holders of at least two-thirds (2/3) of the Registrable Securities may
reasonably request (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors. The Company shall
also furnish the letter and opinion described in this Section 3(h) to any
Investor, at such Investor's expense, upon the reasonable request of such
Investor.
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties
of the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall agree, and each Investor
hereby agrees, to hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of
such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b)
the release of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent jurisdiction,
or (c) the information in such Records has been made generally available to
the public other than by disclosure in violation of this or any other
agreement of which the Inspector has knowledge. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements with the Company with respect thereto,
substantially in the form of this Section 3(i). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement, or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities
covered by the Registration Statement on The American Stock Exchange, Inc.,
the Nasdaq National Market or The New York Stock Exchange, Inc., or, if,
despite the Company's best efforts to satisfy the preceding clause (i) or
(ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), to secure the inclusion for quotation on The Nasdaq Small Cap Market,
for such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the Investors may
reasonably request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
n. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor requests to be included therein relating to
the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration
Statement if reasonably requested by an Investor of such Registrable
Securities.
o. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
s. Notwithstanding anything to the contrary in Section 3(f), at any
time after the applicable Registration Statement has been declared effective
by the SEC, the Company may delay the disclosure of material non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a"GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of
material non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace
Period will begin, and (ii) notify the Investors in writing of the date on
which the Grace Period ends; and, provide further, that all Grace Periods
shall not exceed 20 calendar days during any consecutive 120 day period and
all Grace Periods shall not exceed an aggregate of 30 days during any
consecutive 365 day period, (an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin
on and include the date the holders receive the notice referred to in clause
(i) and shall end on and include the later of the date the holders receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Section 2(e) hereof and Section V(D)(2) of the Certificate of
Amendment shall not be applicable during the period of any Allowable Grace
Period. Upon expiration of the Grace Period, the Company shall again be bound
by the first sentence of Section 3(f) with respect to the information giving
rise thereto unless such material non-public information has been publically
disclosed or is no longer required to be publically disclosed. In the event
there is a Grace Period, (i) the Maturity Date (as defined in the Certificate
of Amendment) shall be delayed by one (1) day for each day in the Grace Period
as provided in Section IV(H) of the Certificate of Amendment and (ii) the
Company's Conversion Trigger Date (as defined in Section IV(M) of the
Certificate of Amendment) shall be delayed by two (2) days for each day in a
Grace Period.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's
receipt of the copies of the supplemented or amended prospectus contemplated
by Section 3(g) or the first sentence of 3(f) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of
the Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor's receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting
fees shall be paid by the Company. In addition, the Company shall reimburse
the Investors for the reasonable fees and disbursements of Legal Counsel in
connection with registrations, filings or qualifications pursuant to Sections
2 and 3 of this Agreement, provided that the Company shall only reimburse that
amount, if any, equal to the difference between (i) $50,000 minus (ii) the
amount of reimbursement paid to the Buyer under Section 4(i) of the Securities
Purchase Agreement.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT") (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees,
amounts paid in settlement or expenses, joint or several, (collectively,
"CLAIMS") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not an
indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in
the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS").
Subject to Section 6(c), the Company shall reimburse the Investors and each
such controlling person, promptly as such expenses are incurred and are due
and payable, for any legal fees or disbursements or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(d); (ii) shall not be available to the extent
such Claim is based on a failure of the Investor to deliver or to cause to be
delivered the prospectus made available by the Company, if such prospectus was
timely made available by the Company pursuant to Section 3(d); (iii) with
respect to any prospectus, shall not inure to the benefit of any such person
from whom the person asserting any such Claim purchased Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in such
prospectus was corrected in a subsequent prospectus, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus
prior to the use giving rise to a violation and such Indemnified Person,
notwithstanding such advice, used it; and (iv) shall not apply to amounts paid
in settlement of any Claim, if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant
to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the
same manner as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement and each
Person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act (each an "INDEMNIFIED PARTY"), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or
are based upon any Violation, in each case to the extent, and only to the
extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for
use in connection with such Registration Statement; and, subject to Section
6(c), such Investor will reimburse any legal or other expenses reasonably
incurred by them promptly as such expenses are incurred and are due and
payable in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a
Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more
than one counsel for such Indemnified Person or Indemnified Party to be paid
by the indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding. In the case of an Indemnified Person, legal
counsel referred to in the immediately preceding sentence shall be selected by
the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The
Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified
Party or Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or
Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party
or Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are
incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise
be liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of fraudulent misrepresentation; and (ii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount
of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment; (ii) the Company
is, within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities
laws; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein; and (v) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section
10 shall be binding upon each Investor and the Company. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is
offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation
of transmission is mechanically or electronically generated and kept on file
by the sending party); or (iii) upon delivery by a nationally recognized
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
Telephone: (516) 719-1800
Facsimile: (516) 719-1824
Attention: President, Chief Operating Officer
With a copy to:
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
Telephone: (516) 719-1800
Facsimile: (516) 719-1824
Attention: Executive Vice President,
Chief Financial Officer
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers or to such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness
of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt
from a nationally recognized overnight delivery service in accordance with
clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of New York shall govern all
issues concerning the relative rights of the Company and the Buyer as its
stockholder. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the Warrants
and the Certificate of Amendment constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein and therein. This Agreement, the Securities
Purchase Agreement, the Warrants and the Certificate of Amendment supersede
all prior agreements and understandings among the parties hereto with respect
to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares and the Warrants then outstanding
have been converted into or exercised for Registrable Securities without
regard to any limitation on conversions of the Preferred Shares or exercises
of the Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYER:
- -------- ------
ANDREA ELECTRONICS CORPORATION HFTP INVESTMENT L.L.C.
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ John N. Andrea By: /s/ James F. O'Brien, Jr.
- ------------------------------ -----------------------------------
Name: John N. Andrea Name: James F. O'Brien, Jr.
Its: Co-Chief Executive Officer Its: Managing Member
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
- -------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
HFTP Investment L.L.C. Promethean Investment Group, L.L.C. Promethean Investment Group, L.L.C.
750 Lexington Avenue 750 Lexington Avenue
22nd Floor 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Thomas Lumsden Thomas Lumsden
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe
Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
</TABLE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:
Re: ANDREA ELECTRONICS CORPORATION
Ladies and Gentlemen:
We are counsel to Andrea Electronics Corporation, a New York corporation
(the "COMPANY"), and have represented the Company in connection with that
certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into
by and among the Company and the Buyer named therein (collectively, the
"HOLDERS") pursuant to which the Company issued to the Holders shares of its
Series B Preferred Stock, $0.01 par value per share (the "PREFERRED SHARES")
convertible into shares of the Company's common stock, $0.50 par value per
share (the "COMMON STOCK") and the related Warrants (the "THE WARRANTS') to
acquire shares of Common Stock. Pursuant to the Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Holders
(the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed,
among other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants, under
the Securities Act of 1933, as amended (the "1933 ACT"). In connection with
the Company's obligations under the Registration Rights Agreement, on
____________ ____, the Company filed a Registration Statement on Form S-3
(File No. 333-_____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder
thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By: _________________________
cc: [LIST NAMES OF HOLDERS]
<PAGE>
Exhibit 4.3
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR
TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
ANDREA ELECTRONICS CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 1 Number of Shares: 75,000
Date of Issuance: June _____, 1999
Andrea Electronics Corporation, a New York corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, HFTP Investment L.L.C., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Eastern Time on the
Expiration Date (as defined herein) SEVENTY FIVE THOUSAND (75,000) fully-paid
and nonassessable shares of Common Stock (as defined herein) of the Company
(the "WARRANT SHARES") at the purchase price per share provided in Section
1(b) below; provided, however, that in no event shall the holder be entitled
to exercise this Warrant for a number of Warrant Shares in excess of that
number of Warrant Shares which, upon giving effect to such exercise, would
cause the aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock of the Company following such exercise. For purposes of the
foregoing proviso, the aggregate number of shares of Common Stock beneficially
owned by the holder and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the
determination of such proviso is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by the holder and its
affiliates (including, without limitation, any convertible notes or preferred
stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence,
for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall reasonably promptly
confirm in writing to any such holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to conversions of Preferred
Shares and exercise of Warrants (as defined below) by such holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the Warrants
(the "Preferred Share Warrants") issued pursuant to Section 1 of that certain
Securities Purchase Agreement dated as of June 11, 1999, among the Company and
the Buyer referred to therein (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this Warrant
shall have the following meanings:
(i) "APPROVED STOCK PLAN" shall mean any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer,
director, consultant or other service provider of the Company.
(ii) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in the City of New York are
authorized or required by law to remain closed.
(iii) "CERTIFICATE OF AMENDMENT" means the Certificate of Amendment
of the Certificate of Incorporation of the Company filed with the
Secretary of State of the State of New York on June 11, 1999.
(iv) "CLOSING BID PRICE" means, for any security as of any date, the
last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"),
or, if the Principal Market is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg,
or, if no closing bid price is reported for such security by Bloomberg,
the last closing trade price for such security as reported by Bloomberg,
or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as
mutually determined by the Company and the holders of the Preferred Share
Warrants. If the Company and the holders of the Preferred Share Warrants
are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(a) of this Warrant
with the term "Closing Bid Price" being substituted for the term "Market
Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such
period.)
(v) "CLOSING SALE PRICE" means, for any security as of any date, the
last closing trade price for such security on the Principal Market (as
defined below) as reported by Bloomberg, or, if the Principal Market is
not the principal securities exchange or trading market for such
security, the last closing trade price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by
Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as
reported by Bloomberg, or, if no last closing ask price is reported for
such security by Bloomberg, the average of the ask prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for
such security on such date on any of the foregoing bases, the Closing
Sale Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of the Preferred
Share Warrants. If the Company and the holders of the Preferred Share
Warrants are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(a) below
with the term "Closing Sale Price" being substituted for the term "Market
Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such
period).
(vi) "COMMON STOCK" means (i) the Company's common stock, par value
$0.50 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(vii) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether
the Options (as defined below) or Convertible Securities (as defined
below) are actually exercisable or convertible at such time, but
excluding any shares of Common Stock owned or held by or for the account
of the Company or issuable upon exercise of the Preferred Share Warrants.
(viii) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(ix) "EXPIRATION DATE" means the date five years from the date of
this Warrant plus one (1) day for each day of any Grace Period (as
defined in the Registration Rights Agreement) or, if such date falls on a
Saturday, Sunday or other day on which banks are required or authorized
to be closed in The City of New York or the State of New York or on which
trading does not take place on the principal exchange or automated
quotation system on which the Common Stock is traded (a "HOLIDAY"), the
next date that is not a Holiday.
(x) "MARKET PRICE" means, with respect to any security for any
period, the average of the two lowest Closing Bid Prices for the 15
trading days immediately preceding the date of determination.
(xi) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
(xii) "OTHER SECURITIES" means (i) those warrants of the Company
issued prior to, and outstanding on, the date of issuance of this
Warrant, (ii) the Preferred Shares and (iii) the shares of Common Stock
issued upon conversion of the Preferred Shares.
(xiii) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xiv) "PREFERRED SHARES" means the shares of the Company's Series B
Convertible Preferred Stock issued pursuant to the Securities Purchase
Agreement.
(xv) "PRINCIPAL MARKET" means The American Stock Exchange, Inc.
(xvi) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(xvii) "WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
(xviii) "WARRANT EXERCISE PRICE" shall be equal to, with respect to
any Warrant Share, 130% of the Market Price for such Warrant Share at the
applicable Closing (as defined in the Securities Purchase Agreement),
subject to adjustment as hereinafter provided.
(xix) "WARRANT PERIOD" means the period beginning on the date hereof
and ending on and including the Expiration Date.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A)
to the Company shall be deemed to include the Company's successors and
(B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be
amended or supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN," "HEREOF," and
"HEREUNDER," and words of similar import, shall refer to this Warrant as
a whole and not to any provision of this Warrant, and the words
"SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and
Schedules and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender includes
the masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Eastern Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify
the number of Warrant Shares to be purchased, (ii) payment to the Company of
an amount equal to the applicable Warrant Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (plus any
applicable issue or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash
or wire transfer of immediately available funds and (iii) the surrender to a
common carrier for overnight delivery to the Company as soon as practicable
following such date, this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction);
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), the Company shall on the second Business Day following the date
of receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction) (the "EXERCISE DELIVERY DOCUMENTS"),
credit such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance account with The
Depository Trust Company; provided, however, if the holder who submitted the
Exercise Notice requested physical delivery of any or all of the Warrant
Shares, then the Company shall, on or before the third Business Day following
receipt of the Exercise Delivery Documents issue and deliver to such holder a
certificate, registered in the name of the holder, for the number of shares of
Common Stock to which the holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to
in clause (ii) above or notification to the Company of a Cashless Exercise
referred to in Section 2(e), the holder of this Warrant shall be deemed for
all corporate purposes to have become the holder of record of the Warrant
Shares with respect to which this Warrant has been exercised, irrespective of
the date of delivery of this Warrant as required by clause (iii) above or the
certificates evidencing such Warrant Shares. In the case of a dispute as to
the determination of the Warrant Exercise Price, the Closing Sale Price or the
Market Price of a security or the arithmetic calculation of the Warrant
Shares, the Company shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one Business Day
of receipt of the holder's Exercise Notice. If the holder and the Company are
unable to agree upon the determination of the Warrant Exercise Price, the
Closing Sale Price or Market Price or arithmetic calculation of the Warrant
Shares within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
immediately submit via facsimile (i) the disputed determination of the Warrant
Exercise Price, the Closing Sale Price or the Market Price to an independent,
reputable investment banking firm or (ii) the disputed arithmetic calculation
of the Warrant Shares to its independent, outside accountant. The Company
shall cause the investment banking firm or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
holder of the results no later than two (2) Business Days from the time it
receives the disputed determinations or calculations. Such investment banking
firm's or accountant's determination or calculation, as the case may be, shall
be deemed conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in no event later than five Business Days after any exercise and at its own
expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such
Warrant is exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the
nearest whole number.
(d) If the Company shall fail for any reason or for no reason to issue to
the holder, within five (5) Business Days of receipt of the Exercise Delivery
Documents, a certificate for the number of shares of Common Stock to which the
holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which
the holder is entitled upon the holder's exercise of this Warrant or, within
ten (10) Business Days of receipt of the Exercise Delivery Documents, a new
Warrant for the number of shares of Common Stock to which such holder is
entitled pursuant to Section 2(b) hereof, the Company shall, in addition to
any other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, including any indemnification under
Section 8 of the Securities Purchase Agreement, pay as additional damages in
cash to such holder on each day the issuance of such Common Stock certificate
or new Warrant, as the case may be, is not timely effected an amount equal to
0.5% of the product of (A) the sum of the number of shares of Common Stock not
issued to the holder on a timely basis and to which the holder is entitled
and/or, the number of shares represented by the portion of this Warrant which
is not being converted, as the case may be, and (B) the Closing Bid Price of
the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Common Stock or Warrant, as the
case may be, to the holder without violating this Section 2.
(e) Notwithstanding anything contained herein to the contrary and in
addition to and not in lieu of any of the other rights and remedies to which
the holder may be entitled by reason of the Company's failure fully to meet
its obligations under the Securities Purchase Agreement or the Registration
Rights Agreement, the holder of this Warrant may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to
the following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number shares with respect to which this Warrant is
then being exercised.
B= the Closing Sale Price of the Common Stock on the date
immediately preceding the date of the subscription notice.
C= the Warrant Exercise Price then in effect for the applicable
Warrant Shares at the time of such exercise.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued,
fully-paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved
at least 100% of the number of shares of Common Stock needed to provide for
the exercise of the rights then represented by this Warrant and the par value
of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price. (d) The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(e) 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 by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment, consistent with
the tenor and purpose of this Warrant. No impairment of the designations,
preferences and rights of the Preferred Shares contained in the Company's
Certificate of Amendment or any waiver thereof which has an adverse effect on
the rights granted hereunder shall be given effect until the Company has taken
appropriate action (satisfactory to the holders of Preferred Share Warrants
representing a majority of the shares of Common Stock issuable upon the
exercise of such Preferred Share Warrants then outstanding) to avoid such
adverse effect with respect to this Warrant. Without limiting the generality
of the foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the
Warrant Exercise Price then in effect, and (ii) will take all such actions as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be imposed
on it with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, that the Company shall not have
any obligation to pay any such taxes in the nature of income or franchise
taxes of the holder of such Warrant Shares, and provided further, however,
that the Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issue or delivery of Common Stock or
other securities or property in a name other than that of the registered
holders of this Warrant to be converted and such holder shall pay such amount,
if any, to cover any applicable transfer or similar tax.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to
any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any
of the Warrant Shares for any minimum or other specific term and reserves the
right to dispose of this Warrant and the Warrant Shares at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act. The holder of this Warrant further represents, by
acceptance hereof, that, as of this date, such holder is an "accredited
investor" as such term is defined in Rule 501(a)(1) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
(an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, other than pursuant
to a Cashless Exercise the holder shall, if requested by the Company, confirm
in writing, in a form satisfactory to the Company, that the Warrant Shares so
purchased are being acquired solely for the holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale and that such holder is an Accredited Investor. If such
holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of this Warrant
that the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of this Warrant shall not violate any United States or state
securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as
the owner and holder thereof for all purposes, notwithstanding any notice to
the contrary, but in all events recognizing any transfers made in accordance
with the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall be assignable by
the holder hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares for resale
under the Securities Act pursuant to the Registration Rights Agreement dated
June 11, 1999 by and between the Company and the Buyer listed on the signature
page thereto (the "REGISTRATION RIGHTS AGREEMENT") and the initial holder of
this Warrant (and certain assignees thereof) is entitled to the registration
rights in respect of the Warrant Shares as set forth in the Registration
Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan or
upon exercise or conversion of the Other Securities) for a consideration per
share less than a price equal to the Warrant Exercise Price in effect
immediately prior to such issuance or sale, then immediately after such issue
or sale the Warrant Exercise Price then in effect shall be reduced to an
amount equal to the product of (x) the Warrant Exercise Price in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product of the Warrant Exercise Price in
effect immediately prior to such issuance or sale and the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue or sale, and
(II) the consideration, if any, received by the Company upon such issue or
sale, by (2) the product of (I) the Warrant Exercise Price in effect
immediately prior to such issuance or sale and (II) the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale. Upon
each such adjustment of the Warrant Exercise Price hereunder, the number of
shares of Common Stock acquirable upon exercise of this Warrant shall be
adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion
or exchange of any Convertible Securities issuable upon exercise of any
such Option is less than the Warrant Exercise Price in effect immediately
prior to such grant, then such share of Common Stock shall be deemed to
be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which
one share of Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" shall be
equal to the sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the
Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 8(b)(i)
to the extent that such adjustment is based solely on the fact that the
Convertible Securities issuable upon exercise of such Option are
convertible into or exchangeable for Common Stock at a price which varies
with the market price of the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Warrant Exercise Price in
effect immediately prior to such issuance or sale, then such share of
Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 8(b)(ii), the "lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon
the issuance or sale of the Convertible Security and upon conversion or
exchange of such Convertible Security. No further adjustment of the
Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Warrant Exercise
Price had been or are to be made pursuant to other provisions of this
Section 8(b), no further adjustment of the Warrant Exercise Price shall
be made by reason of such issue or sale. Notwithstanding the foregoing,
no adjustment shall be made pursuant to this Section 8(b)(ii) to the
extent that such adjustment is based solely on the fact that such
Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time,
the Warrant Exercise Price in effect at the time of such change shall be
adjusted to the Warrant Exercise Price which would have been in effect at
such time had such Options or Convertible Securities provided for such
changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold
and the number of shares of Common Stock acquirable hereunder shall be
correspondingly readjusted. For purposes of this Section 8(b)(iii), if
the terms of any Option or Convertible Security that was outstanding as
of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of
the date of such change. No adjustment pursuant to this Section 8(b)
shall be made if such adjustment would result in an increase of the
Warrant Exercise Price then in effect.
(iv) Expiration of Options or Convertible Securities. If the Warrant
Exercise Price was adjusted upon the issuance of Options or Convertible
Securities pursuant to Sections 8(b)(i) and/or (ii) above, then, upon the
expiration of any Options or any rights of conversion, exercise or
exchange under Convertible Securities which shall not have been
exercised, converted or exchanged, the Warrant Exercise Price 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 such expiration, be recomputed as if: (A) in the case of
Convertible Securities or Options for Common Stock, the only Common Stock
with respect to such Convertible Securities or Options were shares of
Common Stock, if any, actually issued upon the exercise of such Options
or exercise, conversion or exchange of such Convertible Securities and
the consideration actually received by the Company for the issue of all
such Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue of all such
Convertible Securities which were actually exercised, converted or
exchanged, plus any additional consideration, if any, actually received
by the Company upon such exercise, conversion or exchange, and (B) in the
case of Options for Convertible Securities, only the Convertible
Securities, if any, actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the consideration received by
the Company for the Common Stock deemed to have been issued was the
consideration actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have
received by the Company upon the issue of the Convertible Securities with
respect to which such Options were actually exercised.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration received
by the Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount of
consideration received by the Company will be the average of the Closing
Bid Prices of such securities for the five (5) consecutive trading days
immediately preceding the date of receipt. If any Common Stock, Options
or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by
the Company and the holders of Preferred Share Warrants representing a
majority of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding. If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five Business Days after the
tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of
Preferred Share Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding. The determination of such appraiser shall be final and
binding upon all parties, absent manifest error, and the fees and
expenses of such appraiser shall be borne jointly by the Company and the
holders of the Preferred Share Warrants.
(ii) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $.01.
(iii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so
owned or held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a dividend
or other distribution payable in Common Stock, Options or in Convertible
Securities or (2) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or Combination
of Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into
a greater number of shares, any Warrant Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced and the number of
shares of Common Stock obtainable upon exercise of this Warrant will be
proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, any Warrant Exercise Price in effect immediately
prior to such combination will be proportionately increased and the number of
shares of Common Stock obtainable upon exercise of this Warrant will be
proportionately decreased. Any adjustment under this Section 8(d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(i) any Warrant Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be
reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Warrant Exercise Price by a fraction
of which (A) the numerator shall be the Closing Bid Price on the trading
day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of
Directors) applicable to one share of Common Stock, and (B) the
denominator shall be the Closing Bid Price on the trading day immediately
preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal
to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied
by the reciprocal of the fraction set forth in the immediately preceding
clause (i), or (B) in the event that the Distribution is of common stock
of a company whose common stock is traded on a national securities
exchange or a national automated quotation system, then the holder of
this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant,
except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant
pursuant to the Distribution had the holder exercised this Warrant
immediately prior to such record date and with an exercise price equal to
the amount by which the exercise price of this Warrant was decreased with
respect to the Distribution pursuant to the terms of the immediately
preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of
this Warrant so as to protect the rights of the holders of the Preferred Share
Warrants; provided that no such adjustment will increase the Warrant Exercise
Price or decrease the number of shares of Common Stock obtainable as otherwise
determined pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of a Warrant Exercise Price, the
Company will give written notice thereof to the holder of this Warrant,
setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Organic Change (as defined below),
dissolution or liquidation, provided that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that
such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification, Consolidation,
Merger or Sale. (a) In addition to any adjustments pursuant to Section 8
above, if at any time after the date hereof the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant
will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person or other transaction in each case which is effected
in such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as "ORGANIC
CHANGE." Prior to the consummation of any (i) sale of all or substantially all
of the Company's assets to an acquiring Person or (ii) other Organic Change
following which the Company is not a surviving entity, the Company will secure
from the Person purchasing such assets or the successor resulting from such
Organic Change (in each case, the "ACQUIRING ENTITY") written agreement (in
form and substance satisfactory to the holders of Preferred Share Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Preferred Share Warrants then outstanding) to deliver to each holder of
Preferred Share Warrants in exchange for such Warrants, a security of the
Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Preferred Share Warrants (including, an adjusted warrant exercise price equal
to the value for the Common Stock reflected by the terms of such
consolidation, merger or sale, and exercisable for a corresponding number of
shares of Common Stock acquirable and receivable upon exercise of the
Preferred Share Warrants, if the value so reflected is less than any Warrant
Exercise Price in effect immediately prior to such consolidation, merger or
sale). Prior to the consummation of any other Organic Change, the Company
shall make appropriate provision (in form and substance satisfactory to the
holders of Preferred Share Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding) to insure that each of the holders of the Preferred Share
Warrants will thereafter have the right to acquire and receive in lieu of or
in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's
Preferred Share Warrants, such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant
so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) upon delivery by a nationally
recognized delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
Telephone: (516) 719-1800
Facsimile: (516) 719-1824
Attention: President, Chief Operating Officer
With copy to:
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
Telephone: (516) 719-1800
Facsimile: (516) 719-1824
Attention: Executive Vice President, Chief Financial Officer
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of
Buyers, or at such other address and facsimile as shall be delivered to the
Company upon the issuance or transfer of this Warrant. Each party shall
provide five days' prior written notice to the other party of any change in
address or facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the
first page of such transmission or (C) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
Section 12. Amendments. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by
the party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought.
Section 13. Date. The date of this Warrant is June _____, 1999. This Warrant,
in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Preferred Share Warrants 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 written consent of
the holders of Preferred Share Warrants representing a majority of the shares
of Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding; provided that no such action may increase the Warrant Exercise
Price of the Preferred Share Warrants or decrease the number of shares or
class of stock obtainable upon exercise of any Preferred Share Warrants
without the written consent of the holder of such Preferred Share Warrant.
Section 15. Descriptive Headings; Governing Law. The descriptive headings of
the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York, or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.
[SIGNATURE PAGE FOLLOWS]
ANDREA ELECTRONICS
CORPORATION
By:_________________________________
Name:
Title:
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
ANDREA ELECTRONICS CORPORATION
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Andrea
Electronics Corporation, a New York corporation (the "COMPANY"), evidenced by
the attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _______________
Warrant Shares (to theextent permitted by the terms of
the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares
to be issued pursuant hereto, the holder shall pay the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:__________________________
Name:
Title:
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Andrea Electronics Corporation, a
New York corporation, represented by warrant certificate no. _____, standing
in the name of the undersigned on the books of said corporation. The
undersigned does hereby irrevocably constitute and appoint ______________,
attorney to transfer the warrants of said corporation, with full power of
substitution in the premises.
Dated: _________, ____
------------------------------------
By: _____________________________
Its: _____________________________
<PAGE>
Exhibit 99.1
Andrea Electronics Corporation Announces $7.5 Million Private Placement
of Convertible Preferred Stock
MELVILLE, N.Y., June 22 -- Andrea Electronics Corporation (AMEX: AND)
announced today the private placement to an investor of $7.5 million of its
Series B Convertible Preferred Stock and a warrant covering 75,000 shares of
the Company's Common Stock. The Series B Convertible Preferred Stock becomes
convertible into the Company's Common Stock according to a vesting schedule,
with 12.5% of the shares becoming convertible on October 17, 1999 and an
additional 12.5% becoming convertible at the end of each succeeding 30-day
period, subject to acceleration upon the occurrence of certain events. Any
unconverted Series B Convertible Preferred Stock that remains outstanding on
June 18, 2004 will automatically convert into the Company's Common Stock. The
proceeds from the private placement will be used primarily for costs
associated with technology development, tooling costs, continued integration
of the Company's recently acquired information systems, payment of certain
debt obligations, maintaining and creating strategic alliances and other
general working capital requirements. During the six month period beginning
March 14, 2000, the Company, subject to certain conditions, may exercise an
option to sell up to an additional $7.5 million of its Series B Convertible
Preferred Stock, and warrants for up to an additional 75,000 shares of Common
Stock.
Each share of Series B Convertible Preferred Stock has a stated value of
$10,000 plus an additional amount of 4% per annum, which sum is convertible
into Common Stock at a conversion price equal to the lower of $8.775 and the
average of the two lowest closing bid prices of the Common Stock during the 15
consecutive trading days immediately preceding a conversion date, subject to
certain adjustments. The 4% additional amount may, at the option of the
Company, be paid in cash. The Series B Convertible Preferred Stock is
redeemable at the option of the Company upon certain events and at the option
of the holder upon certain events. The warrant has an exercise price of $8.775
per share and expires on June 18, 2004.
The issuance of the Series B Convertible Preferred Stock has not been and will
not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements
under the Securities Act. The Company has undertaken to seek to register under
the Securities Act the underlying Common Shares issuable upon conversion of
the Series B Convertible Preferred Stock and exercise of the related warrants.
Andrea Electronics Corporation designs, develops and manufactures audio
technologies and equipment for enhancing applications which require high
performance and high quality voice input. Applications for the Company's
technologies include: speech recognition programs, Internet telephony,
video/audio conferencing, automobile PCs, home automation systems, hand-held
devices and multiplayer online games, among others.
# # #
This press release may contain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. The words
"anticipates," "believes," "estimates," "expects," "intends," "plans,"
"seeks," variations of such words, and similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and involve matters that are subject to certain risks,
uncertainties and assumptions that are difficult to predict, including
economic, competitive, governmental, technological and other factors, that may
affect the business and prospects of Andrea Electronics Corporation. The
Company cautions investors about the following significant factors, which,
among others, have in some cases affected the Company's actual results and are
in the future likely to affect the Company's actual results and could cause
them to differ materially from those expressed in any forward- looking
statements: the rate at which Andrea Anti-Noise, DSDA, DFTA and other Andrea
technologies are accepted in the marketplace; the competitiveness of Andrea
Anti-Noise, DSDA, DFTA and other Andrea products in terms of technical
specifications, quality, price, reliability and service; the sufficiency of
the Company's funds for research and development, marketing and general and
administrative expenses; infringement and other disputes relating to patents
and other intellectual property rights held or licensed by the Company or
third parties; and the Company's continuing ability to enter and maintain
collaborative relationships with other manufacturers, software authoring and
publishing companies, and distributors. These and other similar factors are
discussed under the heading "Cautionary Statement Regarding Forward-looking
Statements" included in the Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form
10-K and in the Company's Annual Report to shareholders, and in documents
subsequently filed by the Company with the Securities and Exchange Commission.
"Andrea Anti-Noise", "DSDA" and "DFTA" are trademarks of Andrea Electronics
Corporation or an Andrea Electronics Corporation subsidiary.
To receive Andrea Electronics' latest news release and other corporate
documents via FAX -- no cost -- please dial 1-800-PRO-INFO and input the
Company's symbol AND.
