SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 7, 1996
NESTOR, INC.
(Exact name of registrant as specified in charter)
Delaware 0-12-965 13-3163744
(State of other jurisdiction (Commission IRS employer
of incorporation) file number) identification no.
One Richmond Square, Providence, Rhode Island 02906
(Address of principal executive offices)
Registrant's telephone number, including area code: 401-331-9640
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events.
Reference is made to a current report on Form 8-K dated
January 30, 1996 filed with the Commission on February 5, 1996
relating to an investment by Wand/Nestor Investments L.P. in the
Registrant. An additional investment in the amount of $777,000
was made on substantially the same terms and conditions as the
investment reported on January 30, 1996 by Wand/Nestor
Investments L. P. pursuant to a Securities Purchase Agreement
dated March 7, 1996, a copy of which is annexed as an exhibit
hereto.
EXHIBITS
The Following exhibit is filed herewith:
Exhibit No. Description
10 Securities
Purchase Agreement
dated as
of March 7, 1996 between the Registrant and
Wand/Nestor Investments L.P.
4 Amended
Certificate of Powers, Designations,
Preferences and Special Rights of Series G
Convertible Preferred Stock
10 Stock
Purchase Warrant dated as of March 7, 1996
between the Registrant and Wand/Nestor
Investments, L.P.
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 thereunto duly authorized.
Dated: March 21, 1996 NESTOR, INC.
(Registrant)
By:
/S/ Herbert S. Meeker
Secretary
EXHIBIT 1There is a
'blank' Footer B here to retain soft page breaks
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is
made as of the 7th day of March, 1996 by and among Nestor, Inc.,
a Delaware corporation (the "Company") and Wand/Nestor Invest
ments L.P., a Delaware limited partnership (the "Purchaser").
RECITALS
A. The Purchaser currently owns the following
securities of the Company: (1) common stock, par value $.01 per
share ("Company Common Stock"); (2) Series H Convertible Pre
ferred Stock, par value $1.00 per share ("Series H Preferred
Stock"); (3) Series D Convertible Preferred Stock, par value
$1.00 per share ("Series D Preferred Stock"); (4) Series F
Convertible Preferred Stock, par value $1.00 per share ("Series F
Preferred Stock"); (5) certain common stock purchase warrants to
purchase shares of Company Common Stock at various exercise
prices (the "Old Warrants").
B. The Company desires to sell to the Purchaser,
and the Purchaser desires to purchase from the Company, (1) 777
shares of a new class of convertible preferred stock of the
Company, par value $1.00 per share (the "Series G Preferred
Stock") having the terms set forth in the Company's Certificate
of Designation of the Terms of the Series G Preferred Stock in
the form set forth as Exhibit I, and (2) Warrants to purchase up
to an aggregate of 225,330 shares of Company Common Stock in the
form set forth as Exhibit II (the "New Warrants");
C. Concurrently herewith the Company, the
Purchaser and certain other parties are entering into the Amended
and Restated Registration Agreement, dated as of March 7, 1996,
in the form set forth as Exhibit III (the "Registration Rights
Agreement").
D. Concurrently with the consummation of this
Agreement the Company will enter into the amendments (the
"Revised Agreements") set forth on Exhibit IV hereto to certain
existing agreements and securities of the Company for the purpose
of conforming such agreements and securities to the terms of
securities to be issued pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants contained herein, and of other good and valuable consid
eration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, each intending to be legally
bound, do hereby agree as follows:
2. SALE AND PURCHASE OF COMPANY SECURITIES; OTHER TRANSACTIONS.
The Company has authorized the issuance and sale to the
Purchaser, (i) 777 shares (the "Series G Preferred Shares") of
the Series G Preferred Stock and (ii) the New Warrants. Subject
to the terms and conditions herein set forth, the Company will
issue and sell to the Purchaser, and the Purchaser will purchase
from the Company, at the Closing (as defined below) the Series G
Preferred Shares and the New Warrants. The aggregate purchase
price for the Series G Preferred Shares and New Warrant shall be
$777,000 in cash (the "Series G Purchase Price").
3. CLOSING.
(a) Subject to the applicable provisions of Sections
7, 8, and 9 hereof, the closing of the sale of the Series G
Preferred Shares and the New Warrants (the "Closing") shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, as soon as practicable
following the satisfaction or waiver of the applicable conditions
set forth in Sections 7, 8 and 9 hereof.
(b) At the Closing, (i) the Company shall deliver to
the Purchaser certificates evidencing the respective number of
Series G Preferred Shares and New Warrants to be purchased by the
Purchaser, (ii) the Purchaser shall deliver to the Company the
Series G Purchase Price by wire transfer of immediately available
funds to an account designated by the Company, and (iii) the
parties shall make such other deliveries as are contemplated
hereby.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Pur
chaser as follows:
(a) Organization, Standing and Power of the Company.
The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
The Company has all requisite power and authority to own, lease
and operate its properties, assets and business and to conduct
its business as now being conducted and is duly qualified to do
business as a foreign corporation in good standing in those juris
dictions, other than the state of its incorporation, in which the
nature of the business conducted or property owned by it makes
such qualification necessary, except for any failures so to
qualify which would not have, individually or in the aggregate, a
material adverse effect on the business, condition or results of
operations of the Company (a "Company Material Adverse Effect").
(b) Authority; Enforceability; No Conflict. The
Company has all requisite corporate power and authority to enter
into this Agreement, the Registration Rights Agreement, the New
Warrants and the Revised Agreements (such agreements other than
this Agreement are collectively referred to hereafter as the "Re
lated Agreements") to issue and sell the Series G Preferred
Shares and the New Warrants, and to carry out its obligations
hereunder and under the Related Agreements. The execution, deliv
ery and performance of this Agreement and the Related Agreements
by the Company and the issuance and sale of the Series G
Preferred Shares and the New Warrants by the Company have been
duly and validly authorized by all requisite corporate pro
ceedings on the part of the Company. This Agreement is, and the
Related Agreements when executed and delivered by the Company
will be, and when issued and sold each of the New Warrants will
be, a valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except that (i) such en
forcement may be subject to bankruptcy, insolvency, reorgani
zation, moratorium, rehabilitation, liquidation, conservatorship,
receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
Subject to the receipt of the consents or approvals set forth in
Section 3(b) of the disclosure schedule delivered by the Company
to the Purchasers concurrently with the execution and delivery of
this Agreement (the "Disclosure Schedule"), the execution and
delivery of this Agreement and each Related Agreement by the
Company do not, and the consummation by the Company of the
transactions contemplated hereby and thereby will not, the
issuance and sale of the Series G Preferred Shares and the New
Warrants will not, and the performance by the Company of its
obligations under the terms of the Preferred Shares and the New
Warrants will not, result in or constitute: (i) a default,
breach or violation of or under the Certificate of Incorporation
or the By-laws of the Company, or (ii) a default, breach or viola
tion of or under any mortgage, deed of trust, indenture, note,
bond, license, lease agreement or other instrument or obligation
to which the Company is a party or by which any of their proper
ties or assets are bound, except for any defaults, breaches or
violations which would not have, individually or in the
aggregate, a Company Material Adverse Effect, or (iii) a
violation of any statute, rule, regulation, order, judgment or
decree of any court, public body or authority by which the
Company or any of its properties or assets are bound, except for
any violations which would not have, individually or in the aggre
gate, a Company Material Adverse Effect, or (iv) an event which
(with notice or lapse of time or both) would permit any person to
terminate, accelerate the performance required by, or accelerate
the maturity of, any indebtedness or obligation of the Company
under any agreement or commitment to which the Company is a party
or by which the Company is bound or by which any of its proper
ties or assets are bound, except for any accelerations or termi
nations which would not have, individually or in the aggregate, a
Company Material Adverse Effect, or (v) the creation or imposi
tion of any lien, charge or encumbrance on any property of the
Company under any agreement or commitment to which the Company is
a party or by which the Company is bound or by which any of its
respective properties or assets are bound, except for any liens,
charges or encumbrances which would not have, individually or in
the aggregate, a Company Material Adverse Effect, or (vi) an
event which would require any consent under any agreement to
which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound,
except for any consents which, if not received, would not have,
individually or in the aggregate, a Company Material Adverse
Effect.
(c) Capitalization. The authorized capital stock of
the Company consists of (i) 30,000,000 shares of Common Stock,
par value $.01 per share, of which 7,958,786 shares (excluding
shares held in treasury) are outstanding and 10,000,000 shares of
preferred stock, par value $1.00 per share (the "Preferred
Stock"), of which (i) 452,064 shares of Series A Preferred Stock,
par value $1.00 per share (the "Series A Preferred Stock"), of
which 452,064 shares are outstanding; (ii) 2,290,000 shares of
Series B Preferred Stock, par value $1.00 per share, of which
2,290,000 shares are outstanding; (iii) 186,671 shares of Series
D Preferred Stock, par value $1.00 per share, (the "Series D Pre
ferred Stock"), of which 186,671 shares are outstanding; (iv)
1,444 shares of Series E Preferred Stock, of which 1,444 shares
are outstanding; (v) 599 shares of Series F Preferred Stock, of
which 599 shares are outstanding; (vi) 777 shares of Series G
Preferred Stock, of which no shares are outstanding; and (vii)
2,026 shares of Series H Preferred Stock, of which 2,026 shares
are outstanding. All of the outstanding shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series D Pre
ferred Stock, Series E Preferred Stock, Series F Preferred Stock
and Series H Preferred Stock have been duly authorized and valid
ly issued, and are fully paid and non-assessable. Immediately
following the Closing, (i) 7,958,786 shares of Common Stock will
be outstanding; (ii) 452,064 shares of Series A Preferred Stock
will be outstanding; (iii) 2,290,000 shares of Series B Preferred
Stock will be outstanding; (iv) no shares of Series C Preferred
Stock will be outstanding; (v) 186,671 shares of Series D Pre
ferred Stock will be outstanding; (vi) 1,444 shares of Series E
Preferred Stock will be outstanding; (vii) 599 shares of Series F
Preferred Stock will be outstanding; (viii) 777 shares of Series
G Preferred Stock will be outstanding, and (ix) 2,026 shares of
Series H Stock will be outstanding. Except for the outstanding
shares of Series A Preferred Stock, Series B Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Pre
ferred Stock and Series H Preferred Stock, and except as set
forth in Section 3(c) of the Disclosure Schedule, there are no
outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon the
Company for the purchase or acquisition of any shares of capital
stock of the Company or any other securities convertible into, ex
changeable for or evidencing the right to subscribe for any
shares of such capital stock. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of the Company
or any convertible securities, rights or options of the type de
scribed in the preceding sentence. The Company is not a party
to, and does not have knowledge of, any agreement expressly
restricting the transfer of any shares of the capital stock of
the Company.
(d) No Subsidiaries or Other Ventures. The Company
has no subsidiaries. Except as set forth in Section 3(d)(i) of
the Disclosure Schedule, the Company does not own, directly or
indirectly, any interest in any corporation, partnership, joint
venture, association or other entity.
(e) Status of Shares. The Preferred Shares to be
issued at the Closing have been duly authorized by all necessary
corporate action on the part of the Company. When issued and
paid for as provided in this Agreement, the Series G Preferred
Shares will be validly issued and outstanding, fully paid and
nonassessable, and the issuance of such Series G Preferred Shares
is not and will not be subject to preemptive rights of any other
stockholder of the Company. The shares of Common Stock to be
issued upon conversion of the Series G Preferred Shares and upon
exercise of the New Warrants have been duly authorized by all
necessary corporate action on the part of the Company and, as of
the Closing, will be duly reserved for issuance. When the shares
of Common Stock are issued upon conversion of the Series G
Preferred Shares and upon exercise of the New Warrants, such
shares will be validly issued and outstanding, fully paid and
nonassessable and the issuance of such shares will not be subject
to preemptive rights of any other stockholder of the Company.
(f) Financial Statements. (1) The Company has
heretofore delivered or made available to the Purchaser the
audited consolidated balance sheets at June 30, 1995, 1994 and
1993 of the Company and the related consolidated statements of
income, stockholders' equity and cash flows for the years then
ended, including the related notes and auditor's report thereon
(the "Financial Statements"). The Financial Statements (i)
present fairly the consolidated financial condition of the Compa
ny at the dates thereof and present fairly its consolidated
results of operations and cash flows for the years then ended and
(ii) have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied consistently with respect
to the immediately preceding fiscal year period except as set
forth in the notes to the Financial Statements or in the
auditor's report thereon.
(2) The Company has heretofore delivered or made avail
able to the Purchaser the unaudited consolidated balance sheet at
December 31, 1995 of the Company (the "December Balance Sheet")
and the related consolidated statements of income and cash flows
for the three months then ended (such December Balance Sheet and
related consolidated statements, collectively, the "December F
inancial Statements"), each of which (i) presents fairly, in all
material respects, the consolidated financial condition of the
Company at December 31, 1995, and presents fairly its consoli
dated results of operations and cash flows for the six months
then ended and (ii) has been prepared in compliance with all of
the requirements of Section 15(d) of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act") and the applicable
rules and regulations thereunder.
(g) SEC Reports. The Company has filed all reports,
statements, forms and documents with the Securities Exchange
Commission ("SEC") that it was required to file since December
31, 1990 (the "SEC Reports"), all of which have complied in all
material respects with all applicable requirements of the Securi
ties Act of 1933, as amended (the "Securities Act"), and the
Exchange Act. As of their respective dates, each such report,
statement, form or document, including without limitation any
financial statements or schedules included therein, did 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 under
which they were made, not misleading.
(h) Liabilities. As of the date hereof, except (i)
as set forth on the December Balance Sheet, (ii) as set forth in
Section 3(h) of the Disclosure Schedule or (iii) for liabilities
or obligations which were incurred after December 31, 1995 in the
ordinary course of business and consistent with past practices,
the Company has no liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, abso
lute, accrued, contingent or otherwise) that would be required to
be disclosed on a consolidated balance sheet of the Company
(including the notes thereto) in conformity with GAAP.
(i) Indebtedness of the Company. Section 3(i) of
the Disclosure Schedule sets forth all outstanding secured and
unsecured Indebtedness (as defined hereinafter) of the Company in
excess of $50,000 in any individual case, or for which the
Company has commitments, on the date of this Agreement. The
Company is not in default with respect to any such Indebtedness.
"Indebtedness" means at any time, (i) all indebtedness for
borrowed money, (ii) all obligations evidenced by bonds, deben
tures, notes or other similar instruments, (iii) all reimburse
ment obligations and other liabilities under letters of credit,
(iv) all obligations to pay the deferred purchase price of proper
ty or services, other than normal trade creditors in the ordinary
course, (v) all obligations in respect of capitalized leases,
(vi) all guarantees and contractual obligations of the Company,
contingent or otherwise, with respect to any indebtedness or
obligation of another, and (vii) all obligations of the Company
secured by any mortgage, pledge, lien, security interest or other
encumbrance on any asset or property of the Company, whether or
not such obligation has been assumed.
(j) Title to Properties; Liens. The Company does
not own any real property. Section 3(j) of the Disclosure Sched
ule correctly describes all real property leased by the Company,
together with a description of the lease payment obligations and
lease termination provisions relating thereto. The Company
enjoys peaceful and undisturbed possession under all leases
necessary in any material respect for the operation of its proper
ties and assets, and all such leases are valid and subsisting and
are in full force and effect.
(k) Actions Pending. There is no action, suit,
claim, investigation or proceeding pending or, to the knowledge
of the Company, threatened, against the Company which questions
the validity of this Agreement or the Related Agreements or any
action taken or to be taken pursuant hereto or thereto. There is
no action, suit, claim, investigation or proceeding pending or,
to the knowledge of the Company, threatened, against or involving
the Company or any of its properties or assets. There are no
outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against
the Company.
(l) Compliance with Law. The business of the
Company has been and is presently being conducted so as to comply
with all applicable federal, state, and local governmental laws,
rules, regulations and ordinances. The Company has all material
franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct
of its business as now being conducted by it, and the Company is
in compliance therewith except for any non-compliances which
would not, individually or in the aggregate, have a Company
Material Adverse Effect.
(m) No Violations. Except as disclosed in Section
3(m) of the Disclosure Schedule, the Company is not in violation
of or default under (i) any term of its Certificate of Incorpora
tion or By-Laws, (ii) any of its contracts or agreements or under
any instrument by which the Company is bound, or (iii) any out
standing indenture or other debt instrument or with respect to
the payment of principal of or interest on any outstanding obliga
tions for borrowed money.
(n) Taxes.
(i) The Company has duly and timely filed, or
caused to be filed, and will duly and timely file, or cause
to file, with the appropriate taxing authority all Tax Re
turns (as defined below) required to be filed on or before
the date hereof by or with respect to the Company and such
Tax Returns were or will be true, correct and complete in
all material respects when filed.
(ii) The Company has paid or caused to be paid in
full or has made adequate provision for on its balance sheet
all material Taxes (as defined below) shown to be due on
such Tax Returns. There are no liens for Taxes upon the
assets of either the Company except for statutory Liens for
current Taxes not yet due.
(iii) None of the Tax Returns filed by or on
behalf of the Company has been examined by the appropriate
taxing authorities.
(iv) Except as set forth in Schedule 3(n)(iv) here
to, the Company has not received any notice of deficiency or
assessment from any taxing authority with respect to
liabilities or obligations for Taxes with respect to the
Company which has not been fully paid or finally settled,
and any such deficiency or assessment shown in Schedule
3(n)(iv) hereto is being contested in good faith through
appropriate proceedings. The Company has not given any out
standing waivers or comparable consents extending the
application of the statute of limitations with respect to
any Taxes or Tax Returns with respect to the Company.
(v) The Company has complied in all material re
spects with all applicable laws, rules and regulations
relating to the payment and withholding of payroll and
employment taxes and have, within the time and in the manner
prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all material
payroll and employment taxes required to be so withheld and
paid over.
(vi) No audit or other administrative proceeding
or court proceeding which is material to the financial
condition of Company is presently pending with regard to any
Taxes or Tax Returns.
(vii) The amount and character of the tax loss
carryforwards as set forth in the Company's financial
statements for the year ending June 30, 1995 are materially
accurate and, to the Company's best knowledge, are not sub
ject to any "Section 382 limitation" under Section 382 of
the Code, and any regulations promulgated thereunder. To
the Company's best knowledge, at the Closing Date, the issu
ance of the Preferred Shares, the Warrants and the Fee
Warrants in accordance with the terms of this Agreement and
the Related Agreements will not result in an "ownership
change" under Section 382 of the Code, and any regulations
promulgated thereunder. As of the Closing Date, the Company
shall not have any plan or intention to take any action
after the Closing Date, which to its best knowledge would
result in an "ownership change" under Section 382 of the
Code and any regulations promulgated thereunder.
(viii) For purposes of this Agree
ment, "Taxes" shall mean any and all taxes, charges, fees,
levies or other like assessments (and all related interest,
additions to tax and penalties), including, but not limited
to, income, transfer, gains, gross receipts, excise,
inventory, property (real, personal or intangible), custom,
duty, sales, use, license, withholding, payroll, employment,
capital stock and franchise taxes, imposed by the United
States, or any state, local or foreign taxing authority,
whether computed on a unitary, combined or any other basis
and "Tax Return" shall mean any report, return or other
information filed with any taxing authority with respect to
Taxes imposed upon or attributable to the operations of the
Company.
(o) ERISA. Section 3(o) of the Disclosure Schedule
contains a true and complete list of each employee benefit plan,
as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any other bonus,
severance or termination pay, stock option or stock purchase,
incentive pay or other plan, program or arrangement covering
present or former employees of the Company which is maintained or
contributed to by the Company or any of its subsidiaries (the
"Plans"). None of the Plans is subject to the provisions of
Title IV of ERISA, and none of the Plans is a multiemployer Plan
as defined in Section 3(37) of ERISA (a "Multiemployer Plan").
The Company has not incurred (directly or indirectly) any liabili
ty to the Pension Benefit Guaranty Corporation or with respect to
a Multiemployer Plan. None of the Plans is subject to the
minimum funding standards set forth in Section 302 of ERISA or
Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code"). None of the Company or any of its officers or employees
has engaged in a "prohibited transaction" as defined in Section
406 of ERISA or Section 4975 of the Code with respect to any Plan
which would subject any of such parties to a civil penalty under
Section 502(i) of ERISA or an excise tax under Section 4975 of
the Code. Each of the Plans has been operated in all material
respects in accordance with applicable law, including ERISA and
the Code. None of the Plans is an employee welfare plan, as
defined in Section 3(1) of ERISA, which provides health or life
insurance benefits to employees of the Company following their
retirement (other than coverage mandated by applicable law).
Each Plan that is intended to be qualified under Section 401(a)
of the Code is so qualified.
(p) Absence of Specified Changes. Except as set
forth in Section 3(p) of the Disclosure Schedule, during the
period from June 30, 1995 to the date hereof, there has not been
any:
(1) material adverse change in the business,
condition or results of operations of the Company;
(2) transactions involving the Company except in
the ordinary course of business;
(3) change in accounting principles, methods or
practices of the Company;
(4) amendment to the Certificate of Incorporation
or By-Laws of the Company; or
(5) agreement or understanding to take any of the
actions described above in this paragraph.
(q) Certain Fees. No broker's, finder's or finan
cial advisory fees or commissions will be payable by the Company
with respect to the transactions contemplated by this Agreement
and the Related Agreements.
(r) Use of Proceeds. The Company will apply the
proceeds from the sale of the Series G Preferred Shares and the
New Warrants to general working capital purposes.
(s) Intellectual Property Rights.
(i) The Company is the owner of or has rights to
use (including the right to sue for past infringement) the
intellectual and similar property of every kind and nature
used at any time in or necessary for the conduct of its busi
ness, including without limitation, (A) Patents (meaning all
United States and foreign patents and patent applications,
patent disclosures and inventions, and all patents issued
upon said patent applications or based upon said disclosures
and inventions, including all reissues, divisions, continua
tions, continuations-in-part, substitutions, extensions or
renewals of any of the foregoing), (B) Trademarks (meaning
all United States, any political subdivision thereof, and
foreign trademarks, service marks, trade names, corporate
names, company names, business names, fictitious business
names, trade styles, logos, designs and general intangibles
of like nature, all registrations and recordings thereof,
and all applications in connection therewith, including
registrations, recordings and applications in the United
States Patent and Trademark Office (the "PTO"), any State of
the United States or any other country or jurisdiction or
any political subdivision thereof, and all goodwill symbol
ized thereby and/or associated therewith and all extensions
or renewals thereof,), (C) Copyrights (meaning all copy
rights, United States and foreign copyright registrations,
and applications to register copyrights), (D) inventions,
formulae, processes, designs, know-how, show-how or other
data or information, (E) confidential or proprietary techni
cal and business information, processes and trade secrets,
(F) computer software and databases (including all embodi
ments or fixations thereof and related documentation, regis
trations and franchises, and all additions, improvements, en
hancements, updated and accessions thereto), (G) all tech
nical manuals and documentation made or used in connection
with any of the foregoing, and (H) all licenses and rights
with respect to the foregoing or property of like nature, in
each case as any of the foregoing have been at any time used
in or necessary for the conduct of the business of the
Company (collectively, the "Intellectual Property Rights").
(ii) Section 3(s)(ii) of the Disclosure Schedule
sets forth a complete and accurate list of all Copyrights,
Patents, and Trademarks owned by or under obligation of as
signment to the Company. Each owner identified thereon is
listed in the records of the appropriate United States,
State or foreign agency as the sole owner of record.
(iii) Section 3(s)(iii) of the Disclosure
Schedule sets forth a complete and accurate list of (a) all
material agreements and (b) all other agreements entered
into since January 1, 1990, in each case between the Company
and any third party granting any right to use or practice
any rights under any Intellectual Property Right (col
lectively, the "Intellectual Property Licenses"), except for
single-user licenses granting the right to use on a single
personal computer a single copy of application software
incorporating any of the Company's Intellectual Property
Rights.
(iv) There is no restriction or limitation on the
right of the Company to transfer any of the Intellectual
Property Rights.
(v) No trade secret, formula, process, invention,
design, know-how, show-how or any other confidential
information relating to the Company's business has been dis
closed or authorized to be disclosed to any third party
unless any such third party has entered into, or is bound
by, a confidentiality agreement that is sufficient to
protect fully the Company's proprietary interest and right
in and to such Intellectual Property Right.
(vi) The use of the Intellectual Property Rights
by the Company is not in conflict with the rights of others.
There are no pending legal or governmental proceedings,
including oppositions, interferences, proceedings or suits,
relating to the Intellectual Property Rights, and, to the
best knowledge of the Company, no such proceedings are
threatened. To the best knowledge of the Company, the con
duct of the business of the Company and the exercise of the
Intellectual Property Rights does not infringe upon or other
wise violate, and the exercise of any rights granted to the
Company under any Intellectual Property License would not in
fringe upon or violate any intellectual property rights of
any third party. To the best knowledge of the Company,
except as set forth in Section 3(s)(vi), no person is in
fringing upon or otherwise violating any of the Intellectual
Property Rights. None of the Company or its affiliates has
received notice of any claims, and there are no pending
claims, of any persons relating to the scope, ownership or
use of any of the Intellectual Property Rights.
(vii) Each copyright registration, patent, and
registered trademark and application therefor listed in
Section 3(s)(ii) of the Disclosure Schedule is valid, sub
sisting and in proper form, and has been duly maintained, in
cluding the submission of all necessary filings in accor
dance with the legal and administrative requirements of the
appropriate jurisdictions. There have been no failures in
complying with such requirements. Except as provided in
Section 3(s)(ii) of the Disclosure Schedule, no such Copy
right, Patent or Trademark has lapsed and there has been no
cancellation or abandonment thereof.
(viii) With respect to each patent and patent
application listed in Section 3(s) of the Disclosure
Schedule, there are no defects of form in the preparation or
filing of the applications thereof. Each pending appli
cation is being diligently prosecuted. During the prose
cution of each Patent, (A) all pertinent prior art referenc
es known to the Company or its counsel was properly dis
closed to the PTO, and (B) neither such counsel nor the
Company made any misrepresentation to, or concealed any
material fact from, the PTO.
(ix) The execution and delivery of this Agreement
and the Related Agreements and the taking of the actions
contemplated hereby and thereby will not alter any of the
rights of the Company in or to the Intellectual Property
Rights.
(t) Environmental Matters. The Company is in
compliance with the provisions of all federal, state and local
laws relating to pollution or protection of the environment
applicable to it or to real property leased by it or to the use,
operation or occupancy thereof, except for violations or
liabilities which individually or in the aggregate could not
reasonably be expected to have a Company Material Adverse Effect.
The Company has not engaged in any activity in violation of any
provision of any federal, state or local law relating to
pollution or protection of the environment, which violation could
reasonably be expected to have a Company Material Adverse Effect.
The Company has no liability, absolute or contingent, under any
federal, state or local law relating to pollution or protection
of the environment, except for liabilities which individually or
in the aggregate could not reasonably be expected to have a
Company Material Adverse Effect.
(u) Registration Rights. Except as set forth in
Section 3(u) of the Disclosure Schedule, the Company is not a
party to any agreement granting registration rights to any person
with respect to any of its equity or debt securities.
(v) Agreements. Section 3(v) of the Disclosure
Schedule contains a list of each agreement or instrument (includ
ing any and all amendments thereto) to which the Company is a
party as of the date hereof and which is or, immediately
following the consummation of the transactions contemplated by
this Agreement, will be, material to the business, condition or
results of operations of the Company. Each such agreement or in
strument (including any and all amendments thereto) is in full
force and effect and constitutes a legal, valid and binding
obligation of (i) the Company and (ii) to the best knowledge of
the Company, the other respective parties thereto, and, to the
best knowledge of the Company, no person is in default or breach
of (with or without the giving of notice or the passage of time)
any such agreement or instrument.
(w) Availability of Documents. Section 3(w) of the
Disclosure Schedule contains a true, correct and complete copy of
the Company's Certificate of Incorporation, together with all
amendments thereto. The Company has also heretofore provided or
made available to the Purchaser an accurate copy of its by-laws
and has heretofore made available for inspection by the Purchaser
all written agreements, arrangements, commitments and documents
referred to herein or in the Disclosure Schedule, in each case,
together with all amendments and supplements thereto. The
Company has heretofore made available for inspection by the
Purchaser its corporate minute books. Such corporate minute
books contain the minutes of all the meetings of stockholders,
board of directors and any committees thereof which have been
held since the Company's date of incorporation and all written
consents to action executed in lieu thereof.
Business Relations. To the knowledge of the Company,
no client, customer or supplier will cease to do business with
the Company due to the consummation of the transactions
contemplated by this Agreement or the Related Agreements.
(y) Interest in Competitors, Suppliers, Customers,
etc. Except as set forth on Section 3(y) of the Disclosure
Schedule or with respect to the ownership of less than 1% of the
outstanding publicly traded securities of an entity, neither the
Company nor its officers, directors, or affiliates have any
ownership interest in any competitor, supplier, customer or fran
chisee of the Company.
(z) Private Offering. Assuming the accuracy of the
Purchaser's representations set forth in Section 4(c) herein, the
offer and sale of the Series G Preferred Shares and the New
Warrants hereunder is exempt from the registration and prospectus
delivery requirements of the Securities Act. Neither the Company
nor any person acting on behalf of it has taken or will take any
action which would subject the offering and issuance of any of
such securities to the provisions of Section 5 of the Securities
Act or to the provisions of any securities law, rule or
regulation of any applicable jurisdiction.
(aa) Disclosure. No representation or warranty to
Purchaser contained in this Agreement and no statement contained
in the Disclosure Schedule or any Officer's Certificate of the
Company furnished pursuant to the provisions hereof, contains any
untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein
not misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser represents and warrants, severally and
not jointly, to the Company as follows:
(a) Organization and Standing of the Purchasers.
The Purchaser is a partnership duly organized, validly existing
and in good standing (to the extent such concept exists) under
the laws of the jurisdiction of its organization.
(b) Authority; Enforceability; No Conflict. The
Purchaser has all requisite power and authority (corporate or
otherwise) to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance
of this Agreement by the Purchaser have been duly and validly
authorized by all requisite partnership proceedings on the part
of the Purchaser. This Agreement is a valid and binding obliga
tion of the Purchaser, enforceable against it in accordance with
its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, rehabili
tation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. The execution and
delivery of this Agreement by the Purchaser do not, and consumma
tion by the Purchaser of the transactions contemplated hereby
will not, result in or constitute (i) a default, breach or
violation of or under the organizational documents of the
Purchaser, or (ii) a default, breach or violation of or under any
mortgage, deed of trust, indenture, note, bond, license, lease
agreement or other instrument or obligation to which the
Purchaser is a party or by which any of its properties or assets
are bound, except for any defaults, breaches or violations which
would not, individually or in the aggregate, have a material
adverse effect on the Purchaser or prevent or materially delay
the consummation by the Purchaser of the transactions
contemplated hereby, or (iii) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body
or authority, except for any violations which would not,
individually or in the aggregate, have a material adverse effect
on the Purchaser or prevent or materially delay the consummation
by the Purchaser of the transactions contemplated hereby.
(c) Acquisition for Investment. The Purchaser is
either an "accredited investor," as that term is defined in
230.501(a) of the rules and regulations promulgated by the SEC
under the 1933 Act or a person described in 230.506(b)(ii) of
such rules and regulations. The Purchaser is acquiring the
Series G Preferred Shares and the New Warrants solely for its own
account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof, and has no
present intention or plan to effect any distribution of such
Series G Preferred Shares or the New Warrants. The Purchaser ac
knowledges that it is able to bear the financial risks associated
with an investment in the Series G Preferred Shares and New War
rants. The Series G Preferred Shares and New Warrants may bear a
legend to the following effect:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE IN RELIANCE
ON CERTAIN EXEMPTIONS FROM REGISTRATION
THEREUNDER. THE SALE, PLEDGE, HYPOTHECATION
OR OTHER TRANSFER OF SUCH SECURITIES IS
SUBJECT TO COMPLIANCE WITH APPLICABLE
SECURITIES LAWS AND REGULATIONS AND CERTAIN
RESTRICTIONS AND CONDITIONS CONTAINED IN A
CERTAIN SECURITIES PURCHASE AGREEMENT AND RE
LATED AGREEMENTS DATED AS OF MARCH 7, 1996.
THE HOLDER OF THIS CERTIFICATE BY ACCEPTANCE
HEREOF AGREES TO BE BOUND BY SUCH RESTRIC
TIONS AND CONDITIONS. A COPY OF THE
SECURITIES PURCHASE AND EXCHANGE AGREEMENT IS
ON FILE WITH THE SECRETARY OF THE COMPANY."
6. CONDUCT OF BUSINESS OF THE COMPANY.
Except as expressly contemplated by this Agreement or
the Related Agreements, during the period from the date hereof
through the Closing, the Company will conduct its operations ac
cording to its ordinary course of business and consistent with
past practice, and the Company will use its best efforts to pre
serve intact its business organization, to keep available the
services of its officers and employees and to maintain existing
relationships with customers and others having business relation
ships with it. Without limiting the generality of the foregoing,
and except as otherwise expressly contemplated by this Agreement
or the Related Agreements or as set forth in Section 5 of the Dis
closure Schedule, prior to the Closing, the Company will not,
without the prior written consent of the Purchaser:
(a) amend its Certificate of Incorporation or By-
Laws;
(b) (i) except in accordance with the existing terms
of the convertible securities, warrants, options and other
agreements disclosed on Section 3(c) of the Disclosure Schedule,
authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights
to purchase or otherwise) any securities of any class, or (ii)
amend in any respect any of the terms of any such securities
outstanding as of the date hereof, except to the extent required
by the express terms on the date hereof of such securities;
(c) split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock, or property or any
combination thereof) in respect of its capital stock (except for
dividends on the existing preferred stock in accordance with its
terms), or redeem, retire, repurchase or otherwise acquire,
directly or indirectly, any of its securities or adopt a plan of
complete or partial liquidation or resolutions providing for or
authorizing any such liquidation;
(d) incur any additional Indebtedness, except for
short-term borrowings or other Indebtedness incurred in the
ordinary course of business, or mortgage or pledge any of its
assets, tangible or intangible;
(e) acquire, sell, lease or dispose of any assets
outside the ordinary course of business;
make any change in any of the accounting principles
or practices, methods or practices or business policies used by
it;
(g) acquire (by merger, consolidation, or acqui
sition of stock or assets) any corporation, partnership or other
business organization or division thereof;
(h) pay, discharge or satisfy any claims, lia
bilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business consistent with past practice or,
in accordance with their terms, of liabilities reflected or
reserved against in the September Balance Sheet (or the notes
thereto) or incurred in the ordinary course of business
consistent with past practice;
(i) increase the compensation payable to the
officers and employees of the Company, except for increases in
salary or wages (a) in accordance with past practice or (b) in
conjunction with promotions or other changes in job status in the
ordinary course of business;
(j) pay, loan or advance any amounts to, transfer or
lease any properties or assets to or enter into any contract or
agreement with any officers, directors, employees or shareholders
of the Company, except with respect to directors' fees and compen
sation to officers and employees at rates in accordance with past
practice, and except with respect to reimbursable business
expenses of a nature and in amounts reasonably related to the
requirements of the business of the Company;
(k) waive or release any rights of material value or
terminate or fail to renew any material contract; or
(l) take, or agree in writing or otherwise to take,
directly or indirectly, any of the actions described in Sections
5(a) through 5(k).
ADDITIONAL AGREEMENTS.
(a) Access to Information; Confidentiality. From
the date hereof to the Closing, the Company shall afford the offi
cers, employees and agents of the Purchaser access during normal
business hours to the Company's officers, employees, agents, prop
erties, offices and all books and records of the Company, and
shall furnish the Purchaser with all financial, operating and
other data and information concerning the Company as the Purchas
er, through its officers, employees or agents, may request and
shall cooperate fully with the Purchaser and its representatives
in their examination of the Company.
The Purchaser will, and will cause its affiliates,
partners, directors, officers, employees, agents, representatives
and financial advisors (collectively, "Representatives") to, hold
in strict confidence all Confidential Information (as hereinafter
defined), and not disclose the same to any person without the
prior consent of the Company, unless compelled to disclose any
such Confidential Information by judicial or administrative
process or, in the written opinion of their counsel, by other
requirements of law. Prior to disclosing any Confidential
Information to any such person, the Purchaser will inform such
person and its representatives of the confidential nature thereof
and will obtain from such person its agreement to be bound by the
provisions of this paragraph as if references herein to the
Purchaser were references to such person. If this Agreement is
terminated, the Purchaser will promptly return to the Company or
destroy all documents (including all copies thereof) furnished by
the Company and received by the Purchaser or any of its
Representatives containing such Confidential Information. For
purposes hereof, "Confidential Information" shall mean all confi
dential nonpublic information concerning the Company that the
Purchaser obtains from the Company, or its representatives,
excluding any such information that subsequently becomes publicly
available (other than directly or indirectly through acts of the
Purchaser.)
(b) Best Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to
use its best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things reasonably necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by
this Agreement and the Related Agreements as promptly as practi
cable. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this
Agreement and the Related Agreements, the proper officers and
directors of each party hereto shall take all such necessary
action.
(c) Public Announcements. The Purchaser and the
Company will consult with each other before issuing any press
release or otherwise making any public statements with respect to
the transactions contemplated by this Agreement and the Related
Agreements, and shall not issue any such press release or make
any such public statement prior to such consultation, except as
may be required by applicable law. Except as may be required by
applicable law, the Company shall not disclose the identify of
the Purchaser in any such press release or other public statement
without the prior written consent of the Purchaser.
(d) Supplements to Disclosure Schedule. Prior to
the Closing, the Company will supplement or amend the Disclosure
Schedule with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have
been required to be set forth or described in the Disclosure
Schedule. No supplement or amendment of the Disclosure Schedule
made pursuant to this section shall be deemed to cure any breach
of any representation or warranty made in this Agreement unless
the Purchaser specifically agrees thereto in writing.
(e) Directors. For so long as the Purchaser and its
affiliates shall own, in the aggregate, Common Stock (or Pre
ferred Stock convertible into Common Stock) equal to or exceeding
five percent of the then outstanding Common Stock of the Company,
the Purchaser and its affiliates shall be entitled to propose two
candidates (the "Purchaser Designees") for election to the Board
of Directors of the Company. Subject to its fiduciary duties to
shareholders, the Company will recommend to its shareholders that
the Purchaser Designees be elected to the Company's Board of
Directors.
8. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO SELL THE PREFERRED SHARES AND WARRANTS AND OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES AND WARRANTS.
The respective obligations hereunder of the Company to
issue and sell the Series G Preferred Shares and New Warrants and
of the Purchaser to purchase the Series G Preferred Shares and
New Warrants are subject to the satisfaction, at or before the
Closing, of each of the following conditions set forth in
paragraphs (a) through (c) below.
(a) Consents. The consents and approvals set forth
in Section 3(b) of the Disclosure Schedule shall have been
obtained.
(b) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or enforced by any court or
governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this
Agreement.
(c) Related Agreements. The Related Agreements
shall have been executed and delivered by the parties thereto.
9. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO SELL THE PREFERRED SHARES AND WARRANTS.
The obligation hereunder of the Company to sell the
Series G Preferred Shares and New Warrants to the Purchaser is
further subject to the satisfaction, at or before the Closing, of
each of the following conditions set forth in paragraphs (a) and
(b) below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole
discretion.
Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser
shall be true and correct in all material respects as of the date
when made and as of the Closing as though made at that time
(except for representations and warranties that speak as of a
particular date).
(b) Performance by the Purchaser. The Purchaser
shall have performed, satisfied and complied in all material re
spects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the
Purchaser at or prior to the Closing.
10. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE PREFERRED SHARES AND
WARRANTS.
The obligation of the Purchaser hereunder to acquire
and pay for the Series G Preferred Shares and New Warrants is sub
ject to the satisfaction, at or before the Closing, of each of
the following conditions set forth in paragraphs (a) through (e)
below. These conditions are for the Purchaser's sole benefit and
may be waived by the Purchaser at any time in its sole
discretion.
(a) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
shall be true and correct in all material respects as of the date
when made and as of the Closing as though made at that time
(except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing.
Legal Opinions. The Purchaser shall have received
the opinion of Baer Marks & Upham, substantially in the form set
forth in Exhibit V hereto.
(d) Compliance with Securities Laws. The offering
and sale by the Company, at or prior to the Closing, of the
Series G Preferred Shares and New Warrants shall have been made
in compliance with all applicable requirements of federal and
state securities laws and each Purchaser shall have received
evidence thereof in form and substance reasonably satisfactory to
it.
(e) No Offerings. Neither the Company nor any of
its subsidiaries shall have offered, placed or sold, or caused or
agreed to be offered, placed or sold, any securities or other
obligations other than as part of the contemplated sale of the
Series G Preferred Shares and New Warrants and the capital struc
ture as reflected herein.
(f) Regulatory Approvals. All regulatory approvals
shall have been obtained by the Purchaser.
11. TERMINATION.
(a) Right To Terminate. Notwithstanding anything to
the contrary set forth in this Agreement, this Agreement may be
terminated and the transactions contemplated herein abandoned at
any time prior to the Closing:
(i) at any time by mutual written consent of the
Company and the Purchaser;
(ii) by either the Company or the Purchaser if
the Closing shall not have occurred by April 1, 1996; provided,
however, that the right to terminate this Agreement under this
Section 10(a)(ii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing to occur
on or before such date; or
(iii) by either the Company or the Purchaser if a
court of competent jurisdiction shall have issued an order,
decree or ruling permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become
final and nonappealable.
(b) Obligations to Cease. In the event that this
Agreement shall be terminated pursuant to Section 10(a) hereof,
all obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability of any party hereto to
any other party except that (i) the provisions of the second para
graph of Section 6(a), Section 11, and Section 12(g) shall
survive, and shall be and remain in full force and effect and
(ii) nothing herein will relieve any party from liability for any
willful breach of this Agreement.
12. INDEMNIFICATION.
(a) General Indemnity. The Company agrees to
indemnify and save harmless the Purchaser (and its directors,
officers, partners, affiliates, representatives, advisors,
successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (includ
ing, without limitation, interest, penalties, reasonable
attorneys' fees, charges and disbursements) incurred by the Pur
chaser as a result of (i) any breach of the representations, war
ranties or covenants made by the Company herein or in the Related
Agreements or (ii) any action, proceeding or claim commenced or
threatened by a third party in connection with this Agreement,
the Related Agreements and the transactions contemplated hereby
and thereby. The Purchaser agrees to indemnify and save harmless
the Company (and its directors, officers, partners, affiliates,
representatives, advisors, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, interest,
penalties, reasonable attorneys' fees, charges and disbursements)
incurred by the Company as a result of any breach of the
representations, warranties or covenants made by the Purchaser
herein or in the Related Agreements. No party shall be entitled
to indemnification hereunder unless and until the aggregate
amount of such party's indemnification claims exceeds $15,000 and
then to the full extent of such claims.
(b) Indemnification Procedure. Any party entitled
to indemnification under this Section 11 (an "indemnified party")
will give prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification promptly
after the discovery by such party of any matters giving rise to a
claim for indemnification; provided that the failure of any party
entitled to indemnification hereunder to give notice as provided
herein shall not relieve the indemnifying party of its obliga
tions under this Section 11 except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any action, proceeding or claim is brought
against an indemnified party in respect of which indemnification
is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the
indemnifying party may exist in respect of such action,
proceeding or claim, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party. In the event
that the indemnifying party advises an indemnified party that it
will contest such a claim for indemnification hereunder, or
fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any
time after it commences such defense), then the indemnified party
may, at its option, defend, settle or otherwise compromise or pay
such action or claim. In any event, unless and until the
indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the
indemnified party's costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or
proceeding shall be losses subject to indemnification hereunder.
The indemnified party 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 which relates to such action or claim. The
indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. If the indemni
fying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.
The indemnifying party shall not be liable for any settlement of
any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. Anything
in this Section 11 to the contrary notwithstanding, the
indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent
to entry of any judgment in respect thereof which imposes any
future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release
from all liability in respect of such claim. The indemnification
required by this Section 11 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 expense, loss, damage
or liability is incurred. The indemnity agreements contained
herein shall be in addition to (i) any cause of action or similar
right of the indemnified party against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be
subject to pursuant to the law.
13. MISCELLANEOUS.
(a) Brokers. The Company and the Purchaser
represent and warrant to each other that they have not taken any
action which will result in any liability of the other to pay any
broker's or finder's fee with respect to this Agreement or the
transactions contemplated hereby.
(b) Expenses. Each party hereto shall pay its own
fees and expenses incurred in connection with this Agreement
except that, simultaneously with the closing of the purchase of
the Series G Preferred Shares, the Company shall pay the reason
able out-of-pocket fees and expenses, up to a maximum amount of
$10,000, incurred by the Purchaser in connection with this Agree
ment, the Related Agreements and the transactions contemplated
hereby and thereby, including the reasonable fees and expenses of
Skadden, Arps, Slate, Meagher & Flom in its capacity as
Purchasers' legal counsel.
(c) Survival of Representations, Warranties and
Covenants. The representations and warranties set forth herein
shall survive the Closing until sixty days after the Company
shall have delivered to the Purchaser the audited financial
statements of the Company and its consolidated subsidiaries (if
any) for the fiscal year ended June 30, 1997, certified by the
Company's independent public accountants; provided that the repre
sentations and warranties shall survive such date to the extent
written notice of any breach thereof is given on or prior to such
date and representations and warranties relating to Taxes shall
survive until a date which is six months after the expiration of
the applicable statute of limitations. The covenants of the
Company set forth herein shall endure for so long as the
Purchaser shall continue as a stockholder of the Company or for
such shorter period as may be specified herein.
(d) Assignment and Binding Effect. Neither the
Company nor the Purchaser shall assign all or any part of this
Agreement without the prior written consent of the other;
provided, however, that the Purchaser, without such prior written
consent, may assign its rights hereunder to any entity or
entities directly or indirectly controlled by, or under common
control with, it; provided, further, that no such assignment
shall relieve the Purchaser of its obligations under this
Agreement. This Agreement shall be binding upon and inure to the
benefit of the permitted successors and assigns of the parties
pursuant to this paragraph.
(e) Headings. Subject headings are included for
convenience only and shall not affect the interpretation of any
provisions of this Agreement.
(e)
(f) Notices. Any notice, demand, request, waiver,
or other communication under this Agreement shall be in writing
and shall be deemed to have been duly given on the date of
service if personally served or on the third day after mailing if
mailed to the party to whom notice is to be given, by first class
mail, registered, return receipt requested, postage prepaid and
addressed as follows:
To the Company: Nestor, Inc.
One Richmond Square
Providence, Rhode Island 02906
Attention: Chief Executive Officer
With copies to: Baer Marks & Upham
805 Third Avenue
New York, NY 10022-7513
Attention: Herbert S. Meeker, Esq.
To the Wand (Nestor) Inc.
Purchaser: c/o Wand Partners Inc.
630 Fifth Avenue
Suite 2435
New York, New York 10111
Attention: Bruce W. Schnitzer
With a copy to: Skadden,
Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10022-
3897
Attention: Nancy L. Henry, Esq.
(g) Governing Law. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF DELAWARE AS APPLIED TO CONTRACTS MADE AND TO BE PER
FORMED ENTIRELY IN THE STATE OF DELAWARE.
(h) Entire Agreement. This Agreement, including the
Exhibits and Schedules hereto, sets forth the entire under
standing and agreement of the parties hereto relating to the
matters set forth herein and supersedes any and all other under
standings, negotiations or agreements between the parties hereto
relating to the matters set forth herein.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all
of which together shall constitute a single agreement.
(j) Severability. In the event that any one or more
of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable, the same
shall not affect any other provision of this Agreement, but this
Agreement shall be construed in a manner which, as nearly as
possible, reflects the original intent of the parties.
(k) Words in Singular and Plural Form. Words used
in the singular form in this Agreement shall be deemed to import
the plural, and vice versa, as the sense may require.
(l) Amendment and Modification. This Agreement may
be amended or modified only by written agreement executed by all
parties hereto.
(m) Waiver. At any time prior to the Closing, any
party hereto may (i) extend the time for the performance of any
of the obligations or other acts of any other party hereto, (ii)
waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto,
and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party
granting such waiver but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or future failure.
(n) Specific Enforcement. The Purchaser and the
Company acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the
United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be enti
tled at law or equity.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first set forth above.
NESTOR, INC.
By: /s/ David Fox
Name: David Fox
Title: President and Chief
Executive Officer
WAND/NESTOR INVESTMENTS L.P.
By: WAND (NESTOR) INC.
as General Partner
By: /s/ Malcolm P. Appelbaum
Name: Malcolm P. Appelbaum
Title: Vice President
[155176.03 s2a]
SCHEDULE I
SECURITIES TO BE PURCHASED BY WAND/NESTOR INVESTMENTS L.P.
Security Purchase Price
777 Shares of Series G Pre $777,000
ferred Stock (together with
detachable Warrants to pur
chase 225,330 shares of Common
Stock)
EXHIBIT 3There is a 'blank' Footer B here to retain soft page
breaks
NESTOR, INC.
AMENDED
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND SPECIAL RIGHTS
OF SERIES G CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
* * * * * *
Nestor, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of
Delaware, does hereby certify that pursuant to the provisions of
Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company, by action taken
on March 5, 1996, adopted the following resolution, which
resolution remains in full force and effect as of the date
hereof;
WHEREAS, the Company filed a Certificate of Powers, Designations,
Preferences and Special Rights with the Secretary of State of the
State of Delaware on January 30, 1996, designating 401 shares of
the Company's authorized preferred stock as "Series G Convertible
Preferred Stock"; and
WHEREAS, none of the shares of the Series G Convertible Preferred
Stock have been issued; and
WHEREAS, it is the desire of the Board of Directors, pursuant to
its aforesaid authority, to amend the terms of the Series G
Convertible Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, that the Company's Certificate of
Powers, Designations, Preferences and Special Rights of the
Series G Convertible Preferred Stock is hereby amended and
restated, to have the terms and provisions set forth below:
Designation, Amount and Rank. Seven hundred seventy-seven (777)
shares of a convertible preferred stock, $1.00 par value per
share, shall constitute a series of such preferred stock
designated as "Series G Convertible Preferred Stock" (the "Series
G Preferred Stock"). With respect to dividend rights, redemption
rights and rights on liquidation, winding up and dissolution, the
Series G Preferred Stock shall rank pari passus with the Series F
Preferred Stock and shall rank prior to the Series A Preferred
Stock, the Series B Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock, the Series H Preferred
Stock, the Common Stock and any other class of capital stock or
series of preferred stock hereafter created. The Series G
Preferred Stock shall be issued pursuant to the following
additional terms and conditions:
1. Series G Preferred Stock.
2.
1 Definitions.
As used herein, unless the context otherwise
requires, the following terms have the following meanings:
1 "Additional Director" means any director whom holders of
shares of Series F Preferred Stock and Series G Preferred Stock
shall be entitled to elect by virtue of the provisions of Section
1.4.2 hereof.
2 "Additional Shares of Common Stock" means all shares
(including treasury shares) of Common Stock issued or sold (or,
pursuant to Sections 1.7.3 or 1.7.4, deemed to be issued) by the
Company after the date hereof, whether or not subsequently
reacquired or retired by the Company other than (a) the issuance
of shares upon conversion of the Preferred Stock; (b) shares
issued upon the exercise of the Currently Outstanding Warrants;
(c) shares issued upon the exercise of the Warrants; (d) shares
to be issued pursuant to Company sponsored employee benefit and
compensation arrangements, but not to exceed 2,000,000 (subject
to equitable adjustment in the event of any combination,
reclassification, stock split, dividend or recapitalization of
the Company); and (e) such additional number of shares, if any,
as may become issuable upon the conversion or exercise of any of
the securities referred to in the foregoing clauses (a) through
(d) and by reason of adjustments required pursuant to anti-
dilution provisions applicable to such Preferred Stock as in
effect on the date hereof, but only if and to the extent that
such adjustments are required as the result of the original
issuance of such Series F Preferred Stock.
3 "Book Value Event" means the end of any fiscal quarter of
the Company if the fully diluted book value per share of Common
Stock of the Company determined in accordance with generally
accepted accounting principles exceeds $.70.
4 "Business Day" means any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in the
City of New York are authorized by law or other governmental
action to be closed. Any reference to "days" (unless Business
Days are specified) shall mean calendar days.
5 "Common Stock" means the Company's Common Stock, $.01 par
value, such term to include any stock into which such Common
Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any
class or classes (however designated) of the Company the holders
of which have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
6 "Conversion Price" means (a) $1.25, subject to adjustment
pursuant to Sections 1.7 and 1.9 hereof or (b) if the Company has
not on or before July 31, 1996 entered into a definitive
agreement with a party with which it is currently negotiating,
such agreement to contemplate an ongoing revenue stream to the
Company, based on commercial exploitation of the Company's fraud
detection technology or intelligent character recognition technol
ogy, and to require a non-refundable payment to the Company upon
execution of at least $500,000 (if the transaction involves the
Company's fraud detection technology), or $1.2 million (if the
transaction involves the Company's intelligent character
recegnition technology), any such payment to be not primarily in
consideration of any requirement that the Company render servic
es, then the Conversion Price shall automatically be reduced to
$.75, subject to adjustment pursuant to Sections 1.7 and 1.9
hereof. For purposes of this paragraph 1.1.6, any prepaid
royalty relating to the use of the Company's fraud-detection
technology shall not be deemed to be a refundable payment.
7 "Convertible Securities" means any evidences of
indebtedness, shares of stock (other than Common Stock) or other
securities directly or indirectly convertible into or
exchangeable for additional shares of Common Stock.
8 "Current Market Price" means on any date specified herein,
the average daily Market Price during the period of the most
recent twenty (20) days, ending on such date, on which the
national securities exchanges were open for trading, except that
if no Common Stock is then listed or admitted to trading on any
national securities exchange or quoted in the over-the-counter
market, the Current Market Price shall be the Market Price on
such date.
9 "Currently Outstanding Warrants" means the common stock
purchase warrants and non-qualified options listed below for the
purchase of an aggregate of 3,315,650 shares (subject to
adjustment as provided in such Warrants) of the Common Stock
(based on the current capitalization of the Company):
(A) Outstanding warrants to Purchase 689,375
shares of the Common Stock of the Company at $3.00 per share
expiring at various times in 1996;
(B) Other outstanding warrants and non-quali
fied options to purchase 206,000 shares of the Common Stock of
the Company at prices between $1.00 per share and $4.625 per
share expiring in 1996, 1997 and 1999;
(C) Warrant No. W-D, dated August 11, 1994,
respecting 210,000 shares of Common Stock;
(D) Warrant No. W-F, dated August 11, 1994,
respecting 15,000 shares of Common Stock;
(E) Warrant No. W-G, dated August 11, 1994,
respecting 15,000 shares of Common Stock;
(F) Warrant No. W-H, dated August 11, 1994,
respecting 5,000 shares of Common Stock;
(G) Warrant No. W-I, dated August 11, 1994,
respecting 5,000 shares of Common Stock;
(H) Warrant No. W-E, dated August 11, 1994,
respecting 130,000 shares of Common Stock;
(I) Warrant No. W-J, dated August 11, 1994,
respecting 15,000 shares of Common Stock;
(J) Warrant No. W-K, dated August 11, 1994,
respecting 5,000 shares of Common Stock;
(K) Warrant No. W-N, dated October 5, 1995,
respecting 928,000 shares of Common Stock;
(L) Warrant No. W-O, dated October 5, 1995,
respecting 72,000 shares of Company Common Stock;
(M) Warrant No. W-P, dated August 11, 1994,
respecting 215,000 shares;
(N) Warrant No. W-Q, dated October 5, 1995,
respecting 649,600 shares of Company Common Stock;
(O) Warrant No. W-R, dated October 5, 1995,
respecting 50,400 shares of Company Common Stock; and
(P) Warrants to purchase 105,275 shares of Common
Stock at an exercise price of $2.00 per share, expiring September
1998.
10 "Dividend Payment Date" means March 31, June 30, September
30 and December 31 of each year, commencing March 31, 1996.
11 "Dividend Period" means each of the periods commencing
January 1 and ending March 31 of any year, commencing April 1 and
ending June 30 of any year, commencing July 1 and ending
September 30 of any year and commencing October 1 and ending
December 31 of any year.
12 "Four-Dividend Default" means any time when the Company is
in default in the payment of cash dividends on the Series F
Preferred Stock and Series G Preferred Stock for any four (4)
consecutive Dividend Periods occurring after the date on which
the Restricted Period ends or for any four Dividend Periods
within any eight (8) consecutive Dividend Periods after such
date.
13 "Lender Default" means any time when (i) the Company shall
violate the provisions of or be in default under the terms of any
loan or other agreement relating to indebtedness of the Company
or its subsidiaries or (ii) a judgement shall be entered against
the Company or any of its subsidiaries, in an amount exceeding
$50,000 for failure to pay trade creditors or indebtedness and
such judgment shall remain unpaid for more than sixty days.
14 "Mandatory Redemption Date" means the Mandatory Redemption
Date stated in Section 1.5.2 hereof.
15 "Market Price" means on any date specified herein, the
amount per share of the Common Stock, equal to (a) the last sale
price of such Common Stock, regular way, on such date or, if no
such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange
on which such Common Stock is then listed or admitted to trading,
or (b) if such Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as
a national market system security by the NASD, the last trading
price of the Common Stock on such date, or (c) if there shall
have been no trading on such date or if the Common Stock is not
so designated, the average of the closing bid and asked prices of
the Common Stock on such date as shown by the NASD automated
quotation system, or (d) if such Common Stock is not then listed
or admitted to trading on any national securities exchange or
quoted in the over-the-counter market, the value as determined by
any firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (and approved
by the holders of a majority of the outstanding shares of Series
F Preferred Stock and Series G Preferred Stock) as of the last
day of any month ending within thirty (30) days preceding the
date as of which the determination is to be made.
16 "Options" means rights, options or warrants to subscribe
for, purchase or otherwise acquire either Additional Shares of
Common Stock or Convertible Securities.
17 "Other Securities" means any stock (other than Common
Stock) and other securities of the Company or any other Person
(corporate or otherwise) which the holders of Preferred Stock at
any time shall be entitled to receive, or shall have received,
upon the conversion of Preferred Stock, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common
Stock or Other Securities.
18 "Person" means a corporation, an association, a
partnership, an organization, a business, an individual, a
government or political subdivision thereof or a governmental
agency.
19 "Preferred Stock" means, collectively, the Series A
Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock, the Series F
Preferred Stock, the Series G Preferred Stock and the Series H
Preferred Stock.
20 "Redemption Date" means any date fixed for redemption of
shares of Series F Preferred Stock and Series G Preferred Stock
pursuant to the provisions of Section 1.5 hereof.
21 "Redemption Notice" means the written notice of redemption
contemplated by Section 1.5.5 hereof.
22 "Restricted Period" shall mean the period beginning on the
date of original issue of any shares of Series G Preferred Stock
and ending on September 30, 1997.
23 "Securities Act" means the Securities Act of 1933, as
amended.
24 "Series A Preferred Stock" means the Series A Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to a Certificate of Designation filed August 30, 1990 with the
Secretary of State of the State of Delaware.
25 "Series B Preferred Stock" means the Series B Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to a Certificate of Designation filed June 10, 1992 with the
Secretary of State of the State of Delaware.
26 "Series D Preferred Stock" means the Series D Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to a Certificate of Designation filed August 9, 1995 with the
Secretary of State of the State of Delaware.
27 "Series E Preferred Stock" means the Series E Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to a Certificate of Designation filed January 30, 1996 with the
Secretary of State of the State of Delaware.
28 "Series F Preferred Stock" means the Series F Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to a Certificate of Designation filed January 30, 1996 with the
Secretary of State of the State of Delaware.
29 "Series G Preferred Stock" means the Series G Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to the Amended Certificate of Designation filed March 6, 1996
with the Secretary of State of the State of Delaware.
30 "Series H Preferred Stock" means the Series H Convertible
Preferred Stock, $1.00 par value, of the Company created pursuant
to a Certificate of Designation filed January 30, 1996 with the
Secretary of State of the State of Delaware.
31 "Special Redemption Event" has the meaning set forth in
Section 1.5.3.
32 "Special Series G Voting Rights" means the special voting
rights which holders of the Series G Preferred Stock are entitled
to exercise by virtue of the provisions of Section 1.4.2 hereof.
33 "Stated Value" per share means (i) with respect to the
Series A Preferred Stock, two dollars ($2.00), (ii) with respect
to the Series B Preferred Stock, one dollar ($1.00), (iii) with
respect to the Series D Preferred Stock, one dollar and fifty
cents ($1.50), (iv) with respect to the Series E Preferred Stock,
One Thousand Dollars ($1,000) plus all accumulated and unpaid
dividends, if any, added thereto and minus all amounts paid in
cash in respect of such previously accumulated and unpaid
dividends that were originally added to Stated Value, (v) with
respect to the Series F Preferred Stock, One Thousand Dollars
($1,000) plus all accumulated and unpaid dividends, if any, added
thereto pursuant to Section 1.2.2 and minus all amounts paid in
cash in respect of such previously accumulated and unpaid
dividends that were originally added to such Stated Value
pursuant to Section 1.2.2., (vi) with respect to the Series G
Preferred Stock, One Thousand Dollars ($1,000) plus all
accumulated and unpaid dividends, if any, added thereto pursuant
to Section 1.2.2 and minus all amounts paid in cash in respect of
such previously accumulated and unpaid dividends that were
originally added to such Stated Value pursuant to Section 1.2.2,
and (vii) with respect to the Series H Preferred Stock, One
Thousand Dollars ($1,000) plus all accumulated and unpaid divi
dends, if any, added thereto and minus all amounts paid in cash
in respect of such previously accumulated and unpaid dividends
that were originally added to Stated Value.
34 "Two-Dividend Default" means any time when the Company is
in default in the payment of cash dividends on the Series F
Preferred Stock and the Series G Preferred Stock for any two (2)
consecutive Dividend Periods occurring after the date on which
the Restricted Period ends or for any two Dividend Periods within
any six (6) consecutive Dividend Periods occurring after such
date.
35 "Unpaid Dividends" means all dividends with respect to the
Series F Preferred Stock and Series G Preferred Stock which have
accrued but which have not been either paid in cash or added to
the Stated Value thereof pursuant to Section 1.2.2.
36 "Warrants" means common stock purchase warrants to acquire
an aggregate of 399,040 shares (subject to adjustment as provided
in such warrants) issued in connection with the purchase of the
Series G Preferred Stock and Series F Preferred Stock.
2 Dividends.
1 The holder of each issued and outstanding share of Series
F Preferred Stock and the Series G Preferred Stock shall be
entitled to receive, out of the funds of the Company legally
available for such purpose, when, as and if declared by the Board
of Directors of the Company, before any dividend shall be
declared, paid or set aside, or any other distribution shall be
declared or made, upon the Common Stock or any other class or
series of stock of the Company, dividends in cash at a dividend
rate of nine percent (9.0%) per annum of the Stated Value per
share of Series F Preferred Stock and Series G Preferred Stock,
calculated on a daily basis, for each Dividend Period or portion
thereof during which such Series F Preferred Stock and Series G
Preferred Stock are outstanding. Notwithstanding the foregoing,
the Company may pay dividends in the form of Common Stock (with
fractional shares to be paid in cash) pursuant to the terms of
the Series D Preferred Stock.
2 Notwithstanding anything to the contrary herein
provided, in the event that any portion of the quarterly dividend
for a Dividend Period on the Series F Preferred Stock and Series
G Preferred Stock is not declared and paid in cash on any
Dividend Payment Date, the amount of such accrued dividend which
is not so paid shall be accumulated and shall automatically be
added to the Stated Value of such share on such date.
Accumulated dividends on shares of Series F Preferred Stock and
Series G Preferred Stock that have previously been added to the
Stated Value thereof pursuant to the terms hereof may not
thereafter be paid in cash except upon redemption by the Company.
Unpaid dividends shall not bear interest but, to the extent
accumulated and added to the Stated Value, shall continue to
accrue dividends on a daily basis. Accumulated dividends on any
share of Series F Preferred Stock and Series G Preferred Stock
which are added to the Stated Value thereof pursuant to the terms
hereof shall not be deemed to be in arrears for any purpose
whatsoever. Any dividends that have accrued on the Series F
Preferred Stock and Series G Preferred Stock but have not yet
been added to the Stated Value thereof shall constitute Unpaid
Dividends. Notwithstanding anything to the contrary herein
provided, no cash dividends shall be paid with respect to the
Common Stock, the Series A Preferred Stock, the Series B Pre
ferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock or the Series H Preferred Stock at any time when
there are Unpaid Dividends with respect to the Series F Preferred
Stock and the Series G Preferred Stock.
3 Dividends payable with respect to the Series F Preferred
Stock and the Series G Preferred Stock shall be calculated on the
basis of a 360-day year consisting of twelve (12) months of
thirty (30) days each and shall be payable on each Dividend
Payment Date to the holders of record of the Series F Preferred
Stock and the Series G Preferred Stock at the close of business
on the date specified by the Board of Directors of the Company;
provided, however, that no such record date shall be more than
thirty (30) days nor less than ten (10) days prior to the
respective Dividend Payment Date. Dividends on shares of Series
F Preferred Stock and the Series G Preferred Stock shall accrue
from the date of original issue of such shares of Series F
Preferred Stock or Series G Preferred Stock. Such dividends will
accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Company legally
available for the payment of dividends. The date on which the
Company originally issues any share of Series F Preferred Stock
or Series G Preferred Stock will be deemed to be its "date of
original issue" regardless of the number of times transfer of
such share is made on the stock records maintained by or for the
Company.
4 All dividends paid or added to Stated Value, as the case
may be, with respect to shares of the Series F Preferred Stock or
Series G Preferred Stock shall be paid or added to Stated Value,
as the case may be, ratably (based on the respective Stated
Values plus Unpaid Dividends of the Series F Preferred Stock and
Series G Preferred Stock) with respect to such shares to the
holders entitled thereto.
5 So long as any shares of the Series F Preferred Stock or
Series G Preferred Stock are outstanding, the Company shall not
declare, pay or set apart for payment any dividend or other
distribution on any of the Company's Common Stock, or Preferred
Stock (other than the Series F Preferred Stock, Series G
Preferred Stock, Series E Preferred Stock and Series H Preferred
Stock) or make any payment on account of, or set apart for
payment money for a sinking fund or other similar fund for the
purchase, redemption or other retirement of, any of the Common
Stock, or Preferred Stock (other than the Series F Preferred
Stock or Series G Preferred Stock) or any warrants, rights, calls
or options exercisable for any of the Common Stock or make any
distribution in respect thereof, either directly or indirectly,
and whether in cash, obligations or shares of the Company or
other property (other than distributions or dividends in stock to
the holders of such stock), and shall not permit any Person
directly or indirectly controlled by the Company to purchase or
redeem any of the Common Stock or Preferred Stock (other than the
Series F Preferred Stock and Series G Preferred Stock) or any
warrants, rights, calls or options exercisable for any of the
Common Stock, unless prior to or concurrently with such
declaration, payment, setting apart for payment, purchase or
distribution, as the case may be, all funds then required for the
mandatory redemption of shares of the Series F Preferred Stock
and Series G Preferred Stock pursuant to Section 1.5.2 hereof,
shall have been paid or be paid, and all Unpaid Dividends on
shares of the Series F Preferred Stock and Series G Preferred
Stock not paid in cash, shall have been paid in cash or be paid
in cash. Notwithstanding the foregoing, the Company may declare
and pay dividends in the form of Common Stock (with fractional
shares to be paid in cash) pursuant to the terms of the Series D
Preferred Stock.
3 Rights on Liquidation, Dissolution or Winding-Up.
1 In the event of any liquidation, dissolution or winding-up
of the Company (including, without limitation, a liquidation or
reorganization under Chapter 7 or 11 of Title 11 of the United
States Code, as amended), the holders of shares of the Series F
Preferred Stock and Series G Preferred Stock then issued and out
standing shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders, before
any payment shall be made to the holders of Common Stock or of
shares of any other class or series of stock of the Company, an
amount equal to the Stated Value per share, plus an amount equal
to any Unpaid Dividends to and including the date of distribution
with respect to such shares. If, upon any liquidation, disso
lution or winding-up of the Company (including, without
limitation, a liquidation or reorganization under Chapter 7 or 11
of Title 11 of the United States Code, as amended), the assets of
the Company available for distribution to its stockholders shall
be insufficient (a "Liquidation Insufficiency") to pay the
holders of shares of the Series F Preferred Stock and the Series
G Preferred Stock the full amounts to which they shall
respectively be entitled, the holders of shares of the Series F
Preferred Stock and the Series G Preferred Stock shall be
entitled to receive all the assets of the Company available for
distribution and each such holder of shares of the Series F
Preferred Stock and the Series G Preferred Stock shall share in
any distribution in the proportion which the aggregate Stated
Values of the shares of the Series F Preferred Stock (plus all
Unpaid Dividends thereon) and the Series G Preferred Stock (plus
all Unpaid Dividends thereon) held by such holder of the Series F
Preferred Stock or Series G Preferred Stock bears to the
aggregate Stated Values of all shares of the Series F Preferred
Stock (plus all Unpaid Dividends thereon) and Series G Preferred
Stock (plus all Unpaid Dividends thereon) then outstanding. If
there is no Liquidation Insufficiency and payment shall have been
made to the holders of shares of the Series F Preferred Stock and
Series G Preferred Stock of the full amount to which they shall
be entitled, then the holders of shares of the Series F Preferred
Stock and Series G Preferred Stock shall be entitled to receive
no further distributions thereon and the holders of shares of the
Series A Preferred Stock, the Series E Preferred Stock and the
Series H Preferred Stock shall be entitled to receive an amount
equal to the Stated Value (plus all Unpaid Dividends thereon) per
share thereof. After payment shall have been made to the holders
of shares of the Series A Preferred Stock, the Series E Preferred
Stock and the Series H Preferred Stock of the full amounts to
which they shall be entitled, the holders of shares of the Common
Stock and of shares of any other class of stock of the Company,
if any, shall be entitled to share, according to their respective
rights and preferences, in all remaining assets of the Company
available for distribution to its stockholders.
4 Voting Power.
1 Except as otherwise expressly provided herein or as
required by law, (i) each holder of
Series G Preferred Stock shall be entitled to vote
on all matters as to which stockholders of the Company are
entitled to vote, and (ii) each holder of Series G Preferred
Stock shall be entitled to cast a number of votes equal to the
greatest number of whole shares of Common Stock into which such
holder's shares of Series G Preferred Stock could be converted,
pursuant to the provisions of Section 1.6 hereof, at the record
date for the determination of stockholders entitled to vote on
such matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is
solicited. Except as otherwise expressly provided herein or as
required by law, the holders of shares of Series B Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series
F Preferred Stock, Series G Preferred Stock, Series H Preferred
Stock and Common Stock shall be entitled to vote together as a
class with respect to all matters as to which such stockholders
of the Company are entitled to vote.
2 In the event that at any time there shall occur a Two-
Dividend Default, then immediately upon the happening of such Two-
Dividend Default and until such Two-Dividend Default and all
defaults in the payment of quarterly dividends on the Series F
Preferred Stock and Series G Preferred Stock subsequent to and
occurring while such Two-Dividend Default exists shall be cured,
the number of directors constituting the Board of Directors of
the Company shall, without further action, be increased by two
and the holders of Series F Preferred Stock and Series G
Preferred Stock shall have, in addition to the other voting
rights set forth herein, the exclusive right, voting together
separately as a single class, to elect two directors of the
Company to fill such newly created directorship, the remaining
directors to be elected by the class or classes of stock
(including the Series F Preferred Stock and Series G Preferred
Stock) entitled to vote therefor, at each meeting of stockholders
held for the purpose of electing directors. In the event that at
any time there shall occur a Four-Dividend Default or a Lender
Default, then immediately on the happening of such Four-Dividend
Default or Lender Default and until such Lender Default or Four-
Dividend Default and all defaults in the payment of quarterly
dividends on the Series F Preferred Stock and Series G Preferred
Stock subsequent to and occurring while such Four-Dividend
Default exists shall be cured, then the number of directors
constituting the Board of Directors of the Company shall, without
further action, be further increased by four in the case of a
Four Dividend Default or in the case of a Lender Default, and the
holders of Series F Preferred Stock and Series G Preferred Stock
shall have, in addition to the other voting rights set forth
herein, the exclusive right, voting together separately as a
single class, to elect directors of the Company to fill such
newly created directorships, the remaining directors to be
elected by the class or classes of stock (including the Series G
Preferred Stock) entitled to vote therefor, at each meeting of
stockholders held for the purpose of electing directors. During
the existence of a Four Dividend Default, a majority of the
Directors not elected by the holders of the Series F Preferred
Stock and Series G Preferred Stock (or their affiliates) shall
have the right to declare and pay dividends on the Series F Pre
ferred Stock and Series G Preferred Stock out of funds legally
available for the payment of such dividends. Notwithstanding the
foregoing provisions of this Section 1.4.2, upon payment in full
of all quarterly dividends on the Series F Preferred Stock and
Series G Preferred Stock coming due subsequent to a Four-Dividend
Default and the dividend which resulted in the Four-Dividend
Default, so that no more than three consecutive quarterly
dividends on the Series F Preferred Stock and Series G Preferred
Stock remain in default, the Special Series G Voting Rights of
the holders of Series F Preferred Stock and Series G Preferred
Stock shall be reduced so that they have the right, voting
separately as a class, to elect two Additional Directors of the
Company. Notwithstanding the foregoing provisions of this
Section 1.4.2, upon payment in full of (i) all quarterly
dividends on the Series F Preferred Stock and Series G Preferred
Stock coming due subsequent to a Two-Dividend Default and the
dividend which resulted in the Two-Dividend Default, (ii) upon
payment in full of all quarterly dividends on the Series F
Preferred Stock and Series G Preferred Stock coming due
subsequent to a Four-Dividend Default and three of the dividends
which resulted in a Four-Dividend Default, so that, in each case,
no more than one quarterly dividend remains in default, and (iii)
upon payment in full or cure of any Lender Defaults, the Special
Series G Voting Rights shall terminate. Upon any termination of
the aforesaid Special Series G Voting Rights, the term of office
of each director elected by the holders of the Series F Preferred
Stock and Series G Preferred Stock pursuant to this Section 1.4.2
then in office shall thereupon terminate and upon such
termination the number of directors constituting the Board of
Directors shall, by resolution of the Board of Directors, be
reduced accordingly, subject always to the subsequent increase of
the number of directors from time to time pursuant to this
Section 1.4.2 in the event of the periodic future vesting of the
right of the holders of the Series F Preferred Stock and Series G
Preferred Stock to elect Additional Directors. The term of
office of any director elected by the holders of the Series F
Preferred Stock and Series G Preferred Stock pursuant to this
Section 1.4.2 shall terminate upon the earlier of the termination
of the Special Series G Voting Rights and the election of a
successor to such director at any meeting of holders of the
Series F Preferred Stock and Series G Preferred Stock for the
purpose of electing directors.
3 Special Series G Voting Rights may be exercised either at
a special meeting of holders of the Series F Preferred Stock and
Series G Preferred Stock, or at any annual or special meeting of
stockholders of the Company, or may be exercised by the written
consent of holders of the Series F Preferred Stock and Series G
Preferred Stock pursuant to the Delaware General Corporation Law.
4 At any time when Special Series G Voting Rights pursuant
to Section 1.4.2 above shall have vested in holders of the Series
F Preferred Stock and Series G Preferred Stock, and if such
rights shall have not already been initially exercised, a proper
officer of the Company shall, upon the written request of any
holder of record of the Series F Preferred Stock and Series G
Preferred Stock then outstanding, addressed to the secretary of
the Company, call a special meeting of holders of the Series F
Preferred Stock and Series G Preferred Stock for the purpose of
electing directors. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of
the stockholders at the place for holding annual meetings of the
stockholders of the Company or, if none, at a place designated by
the secretary of the Company. If such a meeting shall not be
called by the proper officer of the Company within ten (10) days
after the personal service of such written request upon the
secretary of the Company, or within ten (10) days after mailing
the same within the United States, by first-class registered
mail, addressed to the secretary of the Company at the Company's
principal office (such mailing to be evidenced by registry
receipt issued by the postal authorities), then the holders of
record of ten percent (10%) of the shares of the Series F
Preferred Stock or Series G Preferred Stock then outstanding may
designate in writing a holder of Series F Preferred Stock or
Series G Preferred Stock to call such meeting at the expense of
the Company, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided in this Section 1.4.4. Any holder of Series F Preferred
Stock and Series G Preferred Stock shall have access to the stock
books of the Company for the purpose of causing a meeting of
holders of Series F Preferred Stock and Series G Preferred Stock
to be called pursuant to the provisions hereof.
5 At any meeting held for the purpose of electing directors
at which the holders of Series F Preferred Stock and Series G
Preferred Stock shall have the right to elect directors as
provided herein, the presence in person or by proxy of the
holders of twenty-five percent (25%) of the then outstanding
shares of Series F Preferred Stock and Series G Preferred Stock
shall be required and shall be sufficient to constitute a quorum
of such class for the election of directors by such series. In
the absence of a quorum of the holders of Series F Preferred
Stock and Series G Preferred Stock entitled to vote for the
election of directors, a majority of the holders present in
person or by proxy of such Series shall have the power to adjourn
the meeting for the election of directors which the holders of
such Series are entitled to elect, from time to time, without
notice other than announcement at the meeting, until a quorum
shall be present.
6 Unless the vote of the holders of a greater number of
shares of this Series G Preferred Stock shall then be required by
law, the consent of the holders of at least 66-2/3% of all of the
shares of this Series G Preferred Stock at the time outstanding,
voting together as a separate class, shall be necessary for
authorizing, effecting or validating any of the following:
1 the creation, authorization or issue of any shares of any
class or series of stock of the Company ranking prior to, or pari
passu with, the shares of this Series G Preferred Stock as to
dividends or upon liquidation or otherwise, or the
reclassification of any authorized stock of the Company into any
such prior shares, or the creation, authorization or issue of any
obligation or security convertible into or evidencing the right
to purchase any such prior shares;
2 the amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation or of any
certificate amendatory thereof or supplemental thereto so as to
affect adversely the preferences, rights, powers or privileges of
this Series G Preferred Stock; and
3 the issuance or assumption of any debt greater than
$250,000 (provided, however, if the Company has previously
redeemed a portion of the Series F Preferred Stock and the Series
G Preferred Stock, then this amount may be increased up to a
maximum amount obtained by multiplying $250,000 by a fraction
that is the inverse of the percentage of the Series F Preferred
Stock and Series G Preferred Stock that remains outstanding after
such redemption).
5 Redemption.
1 Optional Redemption. The Company shall have the right to
redeem all or part of the Series G Preferred Stock upon not less
than ten (10) days prior written notice to the holders of the
Series G Preferred Stock.
No shares of Series G Preferred Stock shall be
redeemed pursuant to this Section 1.5.1 unless concurrently
therewith shares of Series F Preferred Stock are redeemed on a
pro rata basis (based on the respective Stated Values plus Unpaid
Dividends of the Series F Preferred Stock and the Series G
Preferred Stock) and no shares of Series F Preferred Stock shall
be redeemed unless concurrently therewith shares of Series G Pre
ferred Stock are redeemed on a pro rata basis (based on the
respective Stated Values plus Unpaid Dividends of the Series F
Preferred Stock and the Series G Preferred Stock).
In the event of optional redemption by the Company
within sixty days following any occurrence of a Book Value Event
shares of Series F Preferred Stock and Series G Preferred Stock
shall be redeemed at a redemption price equal to the Stated Value
per share, plus all Unpaid Dividends payable with respect to such
shares as of the date fixed for redemption, without interest. In
the event of optional redemption by the Company prior to August
1, 2004 in the absence of the existence of a Book Value Event,
shares of Series F Preferred Stock and Series G Preferred Stock
shall be redeemed at a redemption price equal to 109% of the
Stated Value per share, plus all Unpaid Dividends payable with
respect to such shares as of the date fixed for redemption
without interest. In either circumstance, such redemption price
shall be paid in cash.
2 Mandatory Redemption. The Company shall redeem all (but
not less than all) shares of Series F Preferred Stock and the
Series G Preferred Stock on August 1, 2004 (the "Mandatory
Redemption Date") at a cash redemption price equal to the Stated
Value per share of such Series F Preferred Stock and Series G
Preferred Stock, plus all Unpaid Dividends on each such share up
to and including the date of redemption.
Payment shall be applied to the redemption of the
shares of Series F Preferred Stock and the Series G Preferred
Stock, pro rata (based on the respective Stated Values plus
Unpaid Dividends) among the holders of all outstanding shares of
the Series F Preferred Stock and the Series G Preferred Stock on
the Mandatory Redemption Date and shall be paid to each such
holder upon surrender of the certificate or certificates
evidencing such shares to be redeemed to the secretary of the
Company.
3 Special Redemption. (a) Upon the occurrence of any
Special Redemption Event (as hereinafter defined, each holder of
Series F Preferred Stock and Series G Preferred Stock shall have
the right to require that the Company redeem, to the extent the
Company lawfully may do so, all or a portion of the shares of
Series F Preferred Stock and Series G Preferred Stock held by
such holder, at a redemption price in cash equal to the Stated
Value per share (plus all Unpaid Dividends thereon to the
redemption date). No shares of Series F Preferred Stock shall be
redeemed pursuant to this Section 1.5.3 unless concurrently
therewith shares of Series G Preferred Stock are redeemed on a
pro rata basis (based on the respective Stated Values plus Unpaid
Dividends of the Series F Preferred Stock and the Series G
Preferred Stock) and no shares of Series G Preferred Stock shall
be redeemed pursuant to this Section 1.5.3 unless concurrently
therewith shares of Series F Preferred Stock are redeemed on a
pro rata basis (based on the respective Stated Values plus Unpaid
Dividends of the Series F Preferred Stock and the Series G
Preferred Stock).
(b) Within five Business Days following any
Special Redemption Event (as hereinafter defined), the Company
will mail to each holder of Series F Preferred Stock and Series G
Preferred Stock a notice (the "Special Redemption Event Notice")
(i) stating that a Special Redemption Event has occurred; (ii)
setting forth a purchase date (the "Special Redemption Date"),
which shall be no earlier than 20 Business Days nor later than 30
Business Days from the date the Special Redemption Event Notice
is mailed; (iii) setting forth the Conversion Price then in
effect with respect to such shares of Series F Preferred Stock
and Series G Preferred Stock, pursuant to the provisions of
Section 1.6 hereof; and (iv) setting forth the instructions
reasonably determined by the Company, consistent with this
Section 1.5.3 and applicable law, that a holder must follow in
order to require the redemption of his Series F Preferred Stock
and Series G Preferred Stock. Holders of Series F Preferred
Stock and Series G Preferred Stock seeking to require that the
Company redeem their shares will be required to surrender their
shares to the Company prior to the close of business on the third
Business Day prior to the Special Redemption Date.
(c) Immediately prior to the redemption of any
shares of Series F Preferred Stock and Series G Preferred Stock
pursuant to this Section 1.5.3., the Company shall declare and
pay a cash dividend on all outstanding shares of Series F
Preferred Stock and Series G Preferred Stock in an amount equal
to the aggregate amount of all accumulated and unpaid dividends
that have been added to the Stated Value thereof and all accrued
Unpaid Dividends thereon to the Special Redemption Date. Upon
the Special Redemption Date, the redemption price of such shares
shall be payable to the order of the person whose name appears on
the certificate or certificates representing such shares as the
owner thereof and each surrendered certificate shall be
cancelled. From and after the date the Company shall irrevocably
deposit an amount equal to the redemption price of the shares of
Series F Preferred Stock and Series G Preferred Stock to be
redeemed in trust for the holders of such shares with a bank
having capital and surplus in excess of $100 million, which bank
shall be named in the Special Redemption Event Notice, all rights
of the holders of the Series F Preferred Stock and Series G
Preferred Stock, except the right to receive such redemption
price without interest upon surrender of their certificate or
certificates, shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose
whatsoever.
(d) "Special Redemption Event" shall mean:
1 consummation of any merger, reorganization or
consolidation transaction involving the Company;
2 the acquisition by purchase or otherwise of a controlling
interest in the business or assets of, or the stock or other
evidence of beneficial ownership of, any other Person if
consummation of such transaction results in a transfer of
ownership of a majority of the voting securities of the Company
to such other Person or its stockholders;
3 except in connection with the execution of the agreement
contemplated by Section 1.1.6(b) hereof, the sale, lease,
conveyance, transfer, exchange, encumbrance or other disposition,
in one transaction or a series of related transactions, of more
than 25% of the assets of the Company; or
4 the sale or other disposition of voting securities of the
Company, in a transaction or a series of related transactions, if
consummation of such transaction or transactions results in a
transfer of ownership of a majority of the voting securities of
the Company.
4 With respect to any optional redemption of Series G
Preferred Stock, each redemption of Series G Preferred Stock
shall be made so that the number of shares of Series G Preferred
Stock held by each registered holder thereof shall be reduced in
an amount which shall bear the same ratio to the total number of
shares of Series G Preferred Stock being so redeemed as the
number of shares of Series G Preferred Stock then held by such
holder bears to the aggregate number of shares of Series G
Preferred Stock then outstanding.
5 Except as otherwise provided herein, at least twenty (20)
days before any Redemption Date (ten (10) days if such redemption
is in connection with a Book Value Event), a Redemption Notice
shall be mailed, postage prepaid, to each holder of record of the
Series F Preferred Stock and Series G Preferred Stock which is to
be redeemed, at its address shown on the records of the Company;
provided, however, that the Company's failure to give such
Redemption Notice shall in no way affect its obligation to redeem
the shares of Series F Preferred Stock and Series G Preferred
Stock as provided herein. The Redemption Notice shall set forth:
1 the number of shares of Series G Preferred Stock held by
the holder which shall be redeemed by the Company, and the total
number of shares of Series F Preferred Stock and Series G
Preferred Stock held by all holders of such series to be so
redeemed;
2 the Redemption Date and the redemption price;
3 that the holder is to surrender to the Company, at the
place designated therein, its certificate or certificates
representing the shares of Series F Preferred Stock and Series G
Preferred Stock to be redeemed;
4 the Conversion Price then in effect with respect to such
shares of Preferred Stock, pursuant to the provisions of Section
1.6 hereof; and
5 that the conversion rights of shares of Series F Preferred
Stock and Series G Preferred Stock to be redeemed shall terminate
at the close of business on the date prior to the Redemption
Date.
6 Each holder of shares of Series F Preferred Stock and
Series G Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares to the
Company at the place designated in the Redemption Notice and
thereupon the applicable redemption price for such shares shall
be paid to the order of the Person whose name appears on such
certificate or certificates and each surrendered certificate
shall be cancelled and retired.
7 From and after the Redemption Date, no shares of Series F
Preferred Stock and Series G Preferred Stock thereupon subject to
redemption shall be entitled to any further accrual of any
dividends pursuant to Section 1.2 hereof or to the conversion
provisions set forth in Section 1.6 hereof; provided, however,
that sufficient funds for payment of the redemption price for the
shares of Series F Preferred Stock and Series G Preferred Stock
to be redeemed are deposited or held and set apart for that
purpose at the place of payment on or prior to the Redemption
Date.
8 If the Redemption Notice shall have been mailed as
provided herein, and if on or before the Redemption Date
specified in such notice the consideration necessary for such
redemption shall have been set apart so as to be available
therefor, then on and after the close of business on the
Redemption Date the shares of Series F Preferred Stock and Series
G Preferred Stock called for redemption, notwithstanding that any
certificate therefor shall not have been surrendered for cancel
lation, shall no longer be deemed outstanding, and all rights
with respect to such shares shall forthwith cease and terminate,
except only the right of the holders thereof to receive upon
surrender of their certificates the consideration payable upon
redemption thereof. In case fewer than all the shares
represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
6 Conversion Rights.
1 After June 30, 1996, each holder of the shares of Series G
Preferred Stock shall have the right, at the election of such
holder, exercised at any time and from time to time, to convert,
subject to the terms and provisions hereof, all or any portion of
such shares of Series G Preferred Stock into fully paid and non-
assessable shares of Common Stock of the Company or any capital
stock or other securities into which such Common Stock shall have
been changed or any capital stock or other securities resulting
from a reclassification thereof. Such conversion of Series G
Preferred Stock to shares of Common Stock shall be made at the
Conversion Price, subject to adjustment from time to time as set
forth herein. Series G Preferred Stock may be converted by the
holder thereof during normal business hours on any Business Day
by surrender of the required number of shares of Series G
Preferred Stock, accompanied by written evidence of the holder's
election to convert such holder's Series G Preferred Stock or
portion thereof, to the Company at its principal executive
offices. Payment of the Conversion Price for the shares of
Common Stock specified in such election shall be made by applying
shares of Series G Preferred Stock, valued at the Stated Value
per share. Payment of Unpaid Dividends, if any, applicable to
such converted shares of Series F Preferred Stock shall be made
in accordance with Section 1.6.4.
2 Upon the conversion of Series G Preferred Stock, the
holders of such Series G Preferred Stock shall surrender the
certificates representing such shares at the office of the
Company. The Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
such conversion (or to pay any Unpaid Dividends in connection
with such conversion) unless certificates evidencing such shares
of Series G Preferred Stock being converted are either delivered
to the Company or the holder notifies the Company that such
certificates have been lost, stolen, or destroyed and delivers to
the Company an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection therewith.
3 Each conversion of Series G Preferred Stock shall be
deemed to have been effected immediately prior to the close of
business on the Business Day on which such Series G Preferred
Stock shall have been surrendered to the Company as provided
herein, and such conversion shall be at the Conversion Price in
effect at such time. On each such day that the conversion of
shares of Series G Preferred Stock is deemed effected, the person
or persons in whose name or names any certificate or certificates
for shares of Common Stock are issuable upon such conversion
shall be deemed to have become the holder or holders of record
thereof.
4 As promptly as practical after the conversion of shares
of Series G Preferred Stock, in whole or in part, and in any
event within five (5) Business Days thereafter, the Company at
its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes and other than
any taxes arising by reason of issuance of shares of Common Stock
to any person other than such holder) will cause to be issued in
the name of and delivered to the holder thereof or as such holder
may direct, (i) a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled
upon such conversion plus, in lieu of any fractional shares to
which such holder would otherwise be entitled, cash in an amount
equal to the same fraction of the Current Market Price per share
of Common Stock and (ii) Unpaid Dividends, if any, applicable as
of the time of conversion to those shares of Preferred Stock
which are converted. Such Unpaid Dividends shall be paid in
cash, without interest. In case fewer than all the shares of
Series G Preferred Stock represented by any surrendered certifi
cate are converted into Common Stock, a new certificate
representing the shares of Series G Preferred Stock not converted
shall be issued without cost to the holder thereof.
7 Anti-Dilution Adjustments. The number of shares of Common
Stock issuable upon any conversion provided for in Section 1.6
shall be subject to adjustment, from time to time, in accordance
with the following provisions:
1 Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date
hereof shall issue or sell Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Section 1.7.3 or 1.7.4) without consideration or for
a consideration per share less than the Conversion Price in
effect immediately prior to such issue or sale, then, in each
such case, subject to Section 1.7.8, such Conversion Price shall
be reduced, concurrently with such issue or sale, to a price
(calculated to the nearest .001 of a cent) equal to the
consideration per share paid for such additional shares of Common
Stock.
2 Adjustment of Conversion Price Upon Extraordinary
Dividends and Distributions. In case the Company at any time or
from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or
other securities or property or Options by way of dividend or
spin-off, reclassification, recapitalization or similar corporate
rearrangement) on the Common Stock, other than a dividend payable
in Additional Shares of Common Stock, then, and in each such
case, subject to Section 1.7.8, the Conversion Price in effect
immediately prior to the close of business on the record date
fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be re
duced, effective as of the close of business on such record date,
to a price (calculated to the nearest .001 of a cent) determined
by multiplying such Conversion Price by a fraction
1 the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-
dividend trading, less the amount of such dividend or
distribution (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common
Stock,
2 the denominator of which shall be such Current Market
Price,
provided that, in the event that the amount of such dividend
as so determined is equal to or greater than 25% of such Current
Market Price or in the event that such fraction is less than
three fourths (3/4), in lieu of the foregoing adjustment,
adequate provision shall be made so that the holders of the
Series G Preferred Stock shall receive, in the same form and at
the same time such dividend is payable to holders of Common
Stock, a pro rata share of such dividend based upon the maximum
number of shares of Common Stock at the time issuable to such
holders upon conversion of such Series G Preferred Stock.
3 Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date
hereof shall issue, sell, grant or assume, or shall fix a record
date for the determination of holders of any class of securities
entitled to receive, any Options or Convertible Securities, then
and in each such case, the maximum number of Additional Shares of
Common Stock (as set forth in the instrument relating thereto,
without regard to any provisions contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed,
as of the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined
pursuant to Section 1.7.5) of such shares would be less than the
Conversion Price in effect on the date of and immediately prior
to such issue, sale, grant or assumption or immediately prior to
the close of business on such record date (or, if the Common
Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional
Shares of Common Stock are deemed to be issued
1 no further adjustment of the Conversion Price shall be
made upon the subsequent issue or sale of Convertible Securities
or shares of Common Stock upon the exercise of such Options or
the conversion or exchange of such Convertible Securities;
2 if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase
in the consideration payable to the Company, or decrease in the
number of Additional Shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof (by change of rate or
otherwise), the Conversion Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence
of the record date, or date prior to the commencement of ex-
dividend trading, as the case may be, with respect thereto), and
any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options, or
the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
3 upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not
have been exercised or the expiration of any rights of conversion
or exchange under any such Convertible Securities which shall not
have been exercised (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of
conversion or exchange under which shall not have been
exercised), the Conversion Price computed upon the original
issue, sale, grant or assumption (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration
(or such cancellation or retirement, as the case may be), be
recomputed as if:
1 in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually
received by the Company for the issue, sale, grant or assumption
of all such Options, whether or not exercised, plus the consider
ation actually received by the Company upon such exercise, or for
the issue or sale of all such Convertible Securities which were
actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
2 in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon
the exercise of such Options were issued at the time of the
issue, sale, grant or assumption of such Options, and the
consideration received by the Company for the Additional Shares
of Common Stock deemed to have then been issued was the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration deemed to have been received by
the Company (pursuant to Section 1.7.5) upon the issue or sale of
such Convertible Securities with respect to which such Options
were actually exercised;
4 no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Conversion Price by an
amount in excess of the amount of the adjustment thereof
originally made in respect of the issue, sale, grant or
assumption of such Options or Convertible Securities; and
5 in the case of any such Options which expire by their
terms not more than thirty (30) days after the date of issue,
sale, grant or assumption thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in
the manner provided in subdivision (c) above.
4 Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date
hereof shall declare or pay any dividend on the Common Stock
payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then, and in each such
case, Additional Shares of Common Stock shall be deemed to have
been issued (a) in the case of any such dividend, immediately
after the close of business on the record date for the
determination of holders of any class of securities entitled to
receive such dividend, or (b) in the case of any such
subdivision, at the close of business on the date immediately
prior to the day upon which such corporate action becomes
effective.
5 Computation of Consideration. For the purposes of this
Section 1.7,
1 the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
1 insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any
expenses paid or incurred by the Company or any commissions or
compensation paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in
connection with such issue or sale,
2 insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the
time of such issue or sale, as determined in good faith by the
Board of Directors of the Company (subject to confirmation by a
firm of independent certified public accountants of recognized
standing approved by the holders of a majority of the Series F
Preferred Stock and Series G Preferred Stock), and
3 in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be the portion
of such consideration so received, computed as provided in
clauses (i) and (ii) above, allocable to such Additional Shares
of Common Stock, all as determined in good faith by the Board of
Directors of the Company (subject to confirmation by a firm of
independent certified public accountants of recognized standing
approved by the holders of a majority of the Series F Preferred
Stock and Series G Preferred Stock);
2 Additional Shares of Common Stock deemed to have been
issued pursuant to Section 1.7.3, relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
1 the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption
of the Options or Convertible Securities in question, plus the
minimum aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration to protect against dilution) payable to the Company
upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of
Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such consideration
as provided in the foregoing subdivision (a),
by
2 the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provi
sion contained therein for a subsequent adjustment of such number
to protect against dilution) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities; and
3 Additional Shares of Common Stock deemed to have been
issued pursuant to Section 1.7.4, relating to stock dividends,
stock splits, etc., shall be deemed to have been issued for no
consideration.
6 Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Price in effect
immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
7 Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to
issue or sale upon the conversion or exchange of any stock (or
Other Securities) of the Company (or any issuer of Other
Securities or any other Person referred to in Section 1.8) or to
subscription, purchase or other acquisition pursuant to any
Options issued or granted by the Company (or any such other
issuer or Person) for a consideration such as to dilute, on a
basis consistent with the standards established in the other
provisions of this Section 1.7, the conversion rights granted to
holders of Series G Preferred Stock, then, and in each such case,
the computations, adjustments and readjustments provided for in
this Section 1.7 with respect to the Conversion Price shall be
made as nearly as possible in the manner so provided and applied
to determine the amount of Other Securities from time to time
receivable upon the conversion of the shares of Series G
Preferred Stock, so as to protect the holders of the Series G
Preferred Stock against the effect of such dilution.
8 Minimum Adjustment of Conversion Price. If the amount of
any adjustment of the Conversion Price required pursuant to this
Section 1.7 would be less than one-half of one percent (1%) of
the Conversion Price in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward,
shall aggregate at least one-half of one percent (1%) of such
Conversion Price.
8 Consolidation, Merger, etc.
1 Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof
(a) shall consolidate with or merge into any other Person and
shall not be the continuing or surviving corporation of such
consolidation or merger, or (b) shall permit any other Person to
consolidate with or merge into the Company and the Company shall
be the continuing or surviving Person but, in connection with
such consolidation or merger, the Common Stock or Other
Securities shall be changed into or exchanged for stock or other
securities of any Other Person or cash or any other property, or
(c) shall transfer all or substantially all of its properties or
assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other
Securities (other than a capital reorganization or
reclassification resulting in the issue of Additional Shares of
Common Stock for which adjustment in the Conversion Price is
provided in subsection 1.7.1 or 1.7.2), then, and in the case of
each such transaction, proper provision shall be made so that,
upon the basis and the terms and in the manner provided herein,
the holders of shares of Series G Preferred Stock, upon the
conversion thereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate
Conversion Price in effect at the time of such consummation for
all Common Stock or Other Securities issuable upon such exercise
immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to
such consummation, the highest amount of securities, cash or
other property to which such holder would actually have been
entitled as a stockholder upon such consummation if such holder
had exercised the conversion rights pertaining to the Series G
Preferred Stock immediately prior thereto.
2 Assumption of Obligations. Notwithstanding anything to
the contrary herein provided, the Company will not effect any of
the transactions described in subsections (a) through (d) of
Section 1.8.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver
any stock, securities, cash or property upon the conversion of
shares of Series G Preferred Stock as provided herein shall
assume, by written instrument delivered to, and reasonably
satisfactory to, the holders of the Series G Preferred Stock (a)
the obligations of the Company with respect to the Series G
Preferred Stock (and if the Company shall survive the
consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any
continuing obligations of the Company with respect to the Series
G Preferred Stock), and (b) the obligation to deliver to such
holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this Section 1.8,
such holder may be entitled to receive, and such Person shall
have similarly delivered to such holders of Series G Preferred
Stock an opinion of counsel for such Person, which counsel shall
be reasonably satisfactory to such holders, stating that the
rights and privileges of the Series G Preferred Stock shall
thereafter continue in full force and effect and the terms
thereof (including, without limitation, all of the provisions of
this Section 1.8) shall be applicable to the stock, securities,
cash or property which such Person may be required to deliver
upon any conversion of shares of Series G Preferred Stock or the
exercise of any rights pursuant hereto.
9 Other Dilutive Events. In case any event shall occur as
to which the provisions of Section 1.7 or Section 1.8 are not
strictly applicable but the failure to make any adjustment would
not fairly protect the conversion rights pertaining to shares of
Series G Preferred Stock in accordance with the essential intent
and principles of such sections, then, in each such case, the
Company shall appoint a firm of independent certified public
accountants of recognized national standing (such firm to be
subject to the approval of the holders of a majority of the
Series F Preferred Stock and the Series G Preferred Stock), which
shall give their opinion regarding the adjustment, if any, on a
basis consistent with the essential intent and principles
established in Sections 1.7 and 1.8, necessary to preserve,
without dilution, the conversion rights of the Series F Preferred
Stock and the Series G Preferred Stock. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to each
holder of Series F Preferred Stock and the Series G Preferred
Stock and shall make the adjustments described therein.
10 No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or by-laws or
through any consolidation, merger, reorganization, transfer of
assets, 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 of the Series G Preferred Stock,
but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
holders of shares of Series G Preferred Stock against dilution or
other impairment. Without limiting the generality of the
foregoing, the Company (a) will not permit the par value of any
shares of stock receivable upon the conversion of Series G
Preferred Stock to exceed the amount payable therefor upon such
exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock on the
conversion of the shares of Series G Preferred Stock from time to
time outstanding, and (c) will not take any action which results
in any adjustment of the Conversion Price if the total number of
shares of Common Stock (or Other Securities) issuable after the
action upon the conversion of all of the outstanding shares of
Series G Preferred Stock would exceed the total number of shares
of Common Stock (or Other Securities) then authorized by the
Company's certificate of incorporation and available for the
purpose of issue upon such exercise.
11 Accountants' Report as to Adjustments. In each case of
any adjustment or readjustment in the shares of Common Stock (or
Other Securities) issuable upon the conversion of shares of
Series G Preferred Stock, the Company at its expense will
promptly compute such adjustment or readjustment in accordance
with the terms hereof and cause independent certified public
accountants of recognized standing (such firm to be subject to
the approval of the holders of a majority of the outstanding
Series F Preferred Stock and Series G Preferred Stock) selected
by the Company to verify such computation and prepare a report
setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or to be received by
the Company for any Additional Shares of Common Stock issued or
sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the
Conversion Price in effect immediately prior to such issue or
sale and as adjusted and readjusted (if required by Section 1.7)
on account thereof. The Company will forthwith mail a copy of
each such report to each holder of shares of Series F Preferred
Stock and Series G Preferred Stock and will, upon the written
request at any time of any holder of shares of Series F Preferred
Stock and Series G Preferred Stock, furnish to such holder a like
report setting forth the Conversion Price at the time in effect
and showing in reasonable detail how it was calculated. The
Company will also keep copies of all such reports at its
principal office and will cause the same to be available for
inspection at such office during normal business hours by any
holder of Series F Preferred Stock and Series G Preferred Stock
or any prospective purchaser of Series F Preferred Stock or
Series G Preferred Stock designated by the holder thereof.
12 Notices of Corporate Action. In the event of
1 any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other
than dividends payable with respect to the Series F Preferred
Stock and Series G Preferred Stock) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
2 any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and
any other Person or any transfer of all or substantially all of
the assets of the Company to any other Person, or
3 any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of shares of Series F
Preferred Stock and Series G Preferred Stock a notice specifying
(i) the date or expected date on which any such record is to be
taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or
right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to
be fixed, as of which the holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution,
liquidation or winding-up.
13 Retirement of Converted or Redeemed Shares. No share or
shares of Series G Preferred Stock acquired by the Company by
reason of optional or mandatory redemption, purchase, conversion
or otherwise shall be re-issued and all such shares shall be
cancelled, retired and eliminated from the shares which the
Company shall be authorized to issue. The Company may from time
to time take such appropriate corporate action as may be neces
sary to reduce the authorized number of shares of Series G
Preferred Stock accordingly.
FURTHER RESOLVED, that, before the Company shall issue any
shares of Series G Preferred Stock, a certificate pursuant to
Section 151 of the DGCL shall be made, executed, acknowledged,
filed, and recorded in accordance with the provisions of Section
103 and 151 of the DGCL, and the proper officers of the Company
be, and they hereby are, authorized and directed to do all acts
and things which may be necessary or proper in their opinion to
carry into effect the purposes and intent of this and the
foregoing resolutions.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name and on its behalf and attested on this
6th day of March, 1996 by duly authorized officers of this
Corporation.
NESTOR, INC.
By: /s/ David Fox
Name: David Fox
Title: President and Chief
Executive Officer
[155151.03 2a]
EXHIBIT 4There is a 'blank' Footer B here to retain soft page
breaks
Wand I Regular Warrant (No. 2)
NESTOR, INC.
Common Stock Purchase Warrant
New York, New York
No. W-Y March 7, 1996
Nestor, Inc. (the "Company"), a Delaware corporation,
for value received, hereby certifies that Wand/Nestor Investments
L.P. ("Wand"), or registered assigns, is entitled to purchase
from the Company 225,330 duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company at the purchase price
per share of $1.25 (provided, however, if the Company has not on
or before July 31, 1996 entered into a definitive agreement with
a party with which it is currently negotiating, such agreement to
contemplate an ongoing revenue stream to the Company, based on
commercial exploitation of the Company's fraud detection
technology or intelligent character recognition technology, and
to require a non-refundable payment to the Company upon execution
of at least $500,000 (if the transaction involves the Company's
fraud detection technology) or $1.2 million (if the transaction
involves the Company's intelligent character recognition technolo
gy), any such payment to be not primarily in consideration of any
requirement that the Company render services, then the purchase
price shall automatically be reduced to $.75), at any time or
from time to time prior to 5:00 P.M., New York City time, on
August 1, 2004 (or such later date as may be determined pursuant
to section 19), all subject to the terms, conditions and
adjustments set forth below in this Warrant. For purposes of
this paragraph, any prepaid royalty relating to the use of the
Company's fraud-detection technology shall not be deemed to be a
refundable payment.
This Warrant is being issued by the Company in
consideration of Wand's performance of its obligations pursuant
to the Securities Purchase Agreement dated as of March 7, 1996 by
and between the Company and Wand (the "Purchase and Exchange
Agreement"). Certain capitalized terms used in this Warrant are
defined in section 14; references to an "Exhibit" are, unless
otherwise specified, to one of the Exhibits attached to this
Warrant and references to a "section" are, unless otherwise
specified, to one of the sections of this Warrant.
Exercise of Warrant.
Manner of Exercise. This Warrant may be exercised
after June 30, 1996 by the holder hereof, in whole or in part,
during normal business hours on any Business Day, by surrender of
this Warrant to the Company at its principal office, accompanied
by a subscription substantially in the form attached to this
Warrant (or a reasonable facsimile thereof) duly executed by such
holder and accompanied by payment, in cash, by certified or
official bank check payable to the order of the Company, or in
the manner provided in Section 1.5, in the amount obtained by
multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment thereof) designated in such
subscription by (b) $1.25 (provided, however, if the Company has
not on or before July 31, 1996 entered into a definitive agree
ment with a party with which it is currently negotiating, such
agreement to contemplate an ongoing revenue stream to the
Company, based on commercial exploitation of the Company's fraud
detection technology or intelligent character recognition
technology, and to require a non-refundable payment to the
Company upon execution of at least $500,000 (if the transaction
involves the Company's fraud detection technology) or $1.2
million (if the transaction involves the Company's intelligent
character recognition technology), any such payment to be not
primarily in consideration of any requirement that the Company
render services, then the purchase price shall automatically be
reduced to $.75), and such holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock (or Other Securities)
determined as provided in sections 2 through 4. For purposes of
this paragraph 1.1, any prepaid royalty relating to the use of
the Company's fraud-detection technology shall not be deemed to
be a refundable payment.
When Exercise Effective. Each exercise of this
Warrant shall be deemed to have been effected immediately prior
to the close of business on the Business Day on which this
Warrant shall have been surrendered to the Company as provided in
section 1.1, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common
Stock (or Other Securities) shall be issuable upon such exercise
as provided in section 1.3 shall be deemed to have become the
holder or holders of record thereof.
Delivery of Stock Certificates, etc. As soon as
practicable after each exercise of this Warrant, in whole or in
part, and in any event within five Business Days thereafter, the
Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of
and delivered to the holder hereof or, subject to section 9, as
such holder (upon payment by such holder of any applicable
transfer taxes) may direct,
a certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassess
able shares of Common Stock (or Other Securities) to which
such holder shall be entitled upon such exercise plus, in
lieu of any fractional share to which such holder would
otherwise be entitled, cash in an amount equal to the same
fraction of the Market Price per share on the Business Day
next preceding the date of such exercise, and
in case such exercise is in part only, a new
Warrant or Warrants of like tenor, calling in the aggregate
on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment
thereof) to the number of such shares called for on the face
of this Warrant minus the number of such shares designated
by the holder upon such exercise as provided in section 1.1.
Company to Reaffirm Obligations. The Company will,
at the time of each exercise of this Warrant, upon the request of
the holder hereof, acknowledge in writing its continuing
obligation to afford to such holder all rights (including,
without limitation, any rights to registration, pursuant to the
Registration Rights Agreement referred to in section 8, of the
shares of Common Stock or Other Securities issued upon such
exercise) to which such holder shall continue to be entitled
after such exercise in accordance with the terms of this Warrant,
provided that if the holder of this Warrant shall fail to make
any such request, such failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
Payment by Application of Shares Otherwise Issuable.
Upon any exercise of this Warrant, the holder hereof may, at its
option, instruct the Company, by written notice accompanying the
surrender of this Warrant at the time of such exercise, to apply
to the payment required by section 1.1 such number of the shares
of Common Stock otherwise issuable to such holder upon such
exercise as shall be specified in such notice, in which case an
amount equal to the excess of the aggregate Current Market Price
of such specified number of shares on the date of exercise over
the portion of the payment required by section 1.1 attributable
to such shares shall be deemed to have been paid to the Company
and the number of shares issuable upon such exercise shall be
reduced by such specified number.
Adjustment of Common Stock Issuable Upon Exercise.
General; Warrant Price. The number of shares of
Common Stock which the holder of this Warrant shall be entitled
to receive upon each exercise hereof shall be determined by
multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this section 2) be issuable
upon such exercise, as designated by the holder hereof pursuant
to section 1.1, by the fraction of which (a) the numerator is the
price then applicable pursuant to section 1.1(b) of this Warrant
and (b) the denominator is the Warrant Price in effect on the
date of such exercise. The "Warrant Price" shall initially be
$1.25 per share, provided, however, if the Company has not on or
before July 31, 1996 entered into a definitive agreement with a
party with which it is currently negotiating, such agreement to
contemplate an ongoing revenue stream to the Company, based on
commercial exploitation of the Company's fraud detection
technology or intelligent character recognition technology, and
to require a non-refundable payment to the Company upon execution
of at least $500,000 (if the transaction involves the Company's
fraud detection technology) or $1.2 million (if the transaction
involves the Company's intelligent character recognition
technology), any such payment to be not primarily in
consideration of any requirement that the Company render
services, then the Warrant Price shall automatically be reduced
to $.75. The Warrant Price shall be adjusted and readjusted from
time to time as further provided in this section 2 and, as so
adjusted or readjusted, shall remain in effect until a further
adjustment or readjustment thereof is required by this section 2.
For purposes of this paragraph 2.1, any prepaid royalty relating
to the use of the Company's fraud-detection technology shall not
be deemed to be a refundable payment.
Adjustment of Warrant Price.
Issuance of Additional Shares of Common Stock. In
case the Company at any time or from time to time after the date
hereof shall issue or sell Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to section 2.3 or 2.4) without consideration or for a
consideration per share less than the Warrant Price in effect
immediately prior to such issue or sale, then, and in each such
case, subject to section 2.8, such Warrant Price shall be
reduced, concurrently with such issue or sale, to a price
(calculated to the nearest .001 of a cent) equal to the
consideration per share paid for such Additional Shares of Common
Stock.
Extraordinary Dividends and Distributions. In case
the Company at any time or from time to time after the date
hereof shall declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of
other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the
Common Stock, other than a dividend payable in (a) Additional
Shares of Common Stock or (b) cash dividends during any fiscal
year of the Company that do not exceed twenty percent (20%) of
the after tax earnings per share of the Common Stock for the
immediately preceding fiscal year of the Company, then, and in
each such case, subject to section 2.8, the Warrant Price in
effect immediately prior to the close of business on the record
date fixed for the determination of holders of any class of
securities entitled to receive such dividend or distribution
shall be reduced, effective as of the close of business on such
record date, to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Warrant Price by a fraction
(x) the numerator of which shall be the Current Market
Price in effect on such record date or, if the Common Stock
trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading, less the amount of such
dividend or distribution (as determined in good faith by the
Board of Directors of the Company, subject to confirmation
by a firm of independent certified public accountants of
recognized national standing approved by Wand/Nestor
Investments L.P.) applicable to one share of Common Stock,
and
(y) the denominator of which shall be such Current
Market Price.
Treatment of Options and Convertible Securities. In
case the Company at any time or from time to time after the date
hereof shall issue, sell, grant or assume, or shall fix a record
date for the determination of holders of any class of securities
entitled to receive, any Options or Convertible Securities, then,
and in each such case, the maximum number of Additional Shares of
Common Stock (as set forth in the instrument relating thereto,
without regard to any provisions contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed,
as of the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined
pursuant to section 2.5) of such shares would be less than the
Warrant Price in effect on the date of and immediately prior to
such issue, sale, grant or assumption or immediately prior to the
close of business on such record date (or, if the Common Stock
trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional
Shares of Common Stock are deemed to be issued
no further adjustment of the Warrant Price shall
be made upon the subsequent issue or sale of Convertible
Securities or shares of Common Stock upon the exercise of
such Options or the conversion or exchange of such Con
vertible Securities;
if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or
decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof
(by change of rate or otherwise), the Warrant Price computed
upon the original issue, sale, grant or assumption thereof
(or upon the occurrence of the record date, or date prior to
the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights
of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
upon the expiration (or purchase by the Company
and cancellation or retirement) of any such Options which
shall not have been exercised or the expiration of any
rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancella
tion or retirement of any such Convertible Securities the
rights of conversion or exchange under which) shall not have
been exercised, the Warrant Price computed upon the original
issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation
or retirement, as the case may be), be recomputed as if:
in the case of Options for Common Stock
or Convertible Securities, the only Additional Shares
of Common Stock issued or sold were the Additional
Shares of Common Stock, if any, actually issued or sold
upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by
the Company upon such exercise, or for the issue or
sale of all such Convertible Securities which were
actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company
upon such conversion or exchange, and
in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued or sold upon the exercise of such
Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consider
ation received by the Company for the Additional Shares
of Common Stock deemed to have then been issued was the
consideration actually received by the Company for the
issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed
to have been received by the Company (pursuant to
section 2.5) upon the issue or sale of such Convertible
Securities with respect to which such Options were
actually exercised;
no readjustment pursuant to subdivision (b) or (c)
above shall have the effect of increasing the Warrant Price
by an amount in excess of the amount of the adjustment
thereof originally made in respect of the issue, sale, grant
or assumption of such Options or Convertible Securities; and
in the case of any such Options which expire by
their terms not more than 30 days after the date of issue,
sale, grant or assumption thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made
in the manner provided in subdivision (c) above.
Treatment of Stock Dividends, Stock Splits, etc. In
case the Company at any time or from time to time after the date
hereof shall declare or pay any dividend on the Common Stock
payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then, and in each such
case, Additional Shares of Common Stock shall be deemed to have
been issued (a) in the case of any such dividend, immediately
after the close of business on the record date for the
determination of holders of any class of securities entitled to
receive such dividend, or (b) in the case of any such
subdivision, at the close of business on the day immediately
prior to the day upon which such corporate action becomes
effective.
Computation of Consideration. For the purposes of
this section 2,
the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the
accounting treatment of such consideration,
insofar as it consists of cash, be computed
at the net amount of cash received by the Company,
without deducting any expenses paid or incurred by the
Company or any commissions or compensation paid or
concessions or discounts allowed to underwriters,
dealers or others performing similar services in
connection with such issue or sale,
insofar as it consists of property (includ
ing securities) other than cash, be computed at the
fair value thereof at the time of such issue or sale,
as determined in good faith by the Board of Directors
of the Company (subject to confirmation by a firm of
independent certified public accountants of recognized
standing approved by Wand/Nestor Investments L.P.), and
in case Additional Shares of Common Stock
are issued or sold together with other stock or
securities or other assets of the Company for a
consideration which covers both, be the portion of such
consideration so received, computed as provided in
clauses (i) and (ii) above, allocable to such
Additional Shares of Common Stock, all as determined in
good faith by the Board of Directors of the Company
(subject to confirmation by a firm of independent
certified public accountants of recognized standing
approved by Wand/Nestor Investments L.P.);
Additional Shares of Common Stock deemed to have
been issued pursuant to section 2.3, relating to Options and
Convertible Securities, shall be deemed to have been issued
for a consideration per share determined by dividing
the total amount, if any, received and
receivable by the Company as consideration for the
issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such consideration to protect
against dilution) payable to the Company upon the exer
cise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case
of Options for Convertible Securities, the exercise of
such Options for Convertible Securities and the conver
sion or exchange of such Convertible Securities, in
each case computing such consideration as provided in
the foregoing subdivision (a),
by
the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein for a subsequent adjustment of such number to
protect against dilution) issuable upon the exercise of
such Options or the conversion or exchange of such
Convertible Securities; and
Additional Shares of Common Stock deemed to have
been issued pursuant to section 2.4, relating to stock divi
dends, stock splits, etc., shall be deemed to have been
issued for no consideration.
Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Warrant Price in effect
immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
Dilution in Case of Other Securities. In case any
Other Securities shall be issued or sold or shall become subject
to issue or sale upon the conversion or exchange of any stock (or
Other Securities) of the Company (or any issuer of Other
Securities or any other Person referred to in section 3) or to
subscription, purchase or other acquisition pursuant to any
Options issued or granted by the Company (or any such other
issuer or Person) for a consideration such as to dilute, on a
basis consistent with the standards established in the other
provisions of this section 2, the purchase rights granted by this
Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this section 2 with
respect to the Warrant Price shall be made as nearly as possible
in the manner so provided and applied to determine the amount of
Other Securities from time to time receivable upon the exercise
of the Warrants, so as to protect the holders of the Warrants
against the effect of such dilution.
Minimum Adjustment of Warrant Price. If the amount
of any adjustment of the Warrant Price required pursuant to this
section 2 would be less than one percent (1%) of the Warrant
Price in effect at the time such adjustment is otherwise so
required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall
aggregate at least one percent (1%) of such Warrant Price.
Consolidation, Merger, etc.
Adjustments for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Company after the date
hereof (a) shall consolidate with or merge into any other Person
and shall not be the continuing or surviving corporation of such
consolidation or merger, or (b) shall permit any other Person to
consolidate with or merge into the Company and the Company shall
be the continuing or surviving Person but, in connection with
such consolidation or merger, the Common Stock or Other Securi
ties shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or
(c) shall transfer all or substantially all of its properties or
assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other
Securities (other than a capital reorganization or
reclassification resulting in the issue of Additional Shares of
Common Stock for which adjustment in the Warrant Price is
provided in section 2.2.1 or 2.2.2), then, and in the case of
each such transaction, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this
Warrant, the holder of this Warrant, upon the exercise hereof at
any time after the consummation of such transaction, shall be
entitled to receive (at the aggregate Warrant Price in effect at
the time of such consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such
consummation), in lieu of the Common Stock or Other Securities
issuable upon such exercise prior to such consummation, the
highest amount of securities, cash or other property to which
such holder would actually have been entitled as a shareholder
upon such consummation if such holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in
sections 2 through 4.
Assumption of Obligations. Notwithstanding anything
contained in the Warrants or in the Purchase Agreement to the
contrary, the Company will not effect any of the transactions
described in clauses (a) through (d) of section 3.1 unless, prior
to the consummation thereof, each Person (other than the Company)
which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein
shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holder of this Warrant, (a) the obligations
of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from,
any continuing obligations of the Company under this Warrant),
(b) the obligations of the Company under the Registration Rights
Agreement and (c) the obligation to deliver to such holder such
shares of stock, securities, cash or property as, in accordance
with the foregoing provisions of this section 3, such holder may
be entitled to receive, and such Person shall have similarly
delivered to such holder an opinion of counsel for such Person,
which counsel shall be reasonably satisfactory to such holder,
stating that this Warrant shall thereafter continue in full force
and effect and the terms hereof (including, without limitation,
all of the provisions of this section 3) shall be applicable to
the stock, securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the
exercise of any rights pursuant hereto.
Other Dilutive Events. In case any event shall occur
as to which the provisions of section 2 or section 3 are not
strictly applicable but the failure to make any adjustment would
not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles of
such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized
national standing (such firm to be subject to the approval of
Wand/Nestor Investments L.P.), which shall give their opinion
regarding the adjustment, if any, on a basis consistent with the
essential intent and principles established in sections 2 and 3,
necessary to preserve, without dilution, the purchase rights
represented by this Warrant. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein.
No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any
consolidation, merger, reorganization, transfer of assets,
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 of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of this Warrant
to exceed the amount payable therefor upon such exercise, (b)
will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of the Warrants
from time to time outstanding, and (c) will not take any action
which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock (or Other Securities) issuable
after the action upon the exercise of all of the Warrants would
exceed the total number of shares of Common Stock (or Other
Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such
exercise.
Accountants' Report as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock
(or Other Securities) issuable upon the exercise of this Warrant,
the Company at its expense will promptly compute such adjustment
or readjustment in accordance with the terms of this Warrant and
cause independent certified public accountants of recognized
standing (such firm to be subject to the approval of Wand/Nestor
Investments L.P.) selected by the Company to verify such
computation and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or
readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to
have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant
Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by section 2) on account
thereof. The Company will forthwith mail a copy of each such
report to each holder of a Warrant and will, upon the written
request at any time of any holder of a Warrant, furnish to such
holder a like report setting forth the Warrant Price at the time
in effect and showing in reasonable detail how it was calculated.
The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for
inspection at such office during normal business hours by any
holder of a Warrant or any prospective purchaser of a Warrant
designated by the holder thereof.
Notices of Corporate Action. In the event of
any taking by the Company of a record of the
holders of any class of securities for the purpose of deter
mining the holders thereof who are entitled to receive any
dividend (other than a regular periodic dividend payable in
cash out of earned surplus in an amount not exceeding the
amount of the immediately preceding cash dividend for such
period) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive
any other right, or
any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of
the Company or any consolidation or merger involving the
Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other
Person, or
any voluntary or involuntary dissolution, liquida
tion or winding-up of the Company,
the Company will mail to each holder of a Warrant a notice
specifying (i) the date or expected date on which any such record
is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on
which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange
their shares of Common Stock (or Other Securities) for the
securities or other property deliverable upon such
reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 45 days prior
to the date therein specified.
Registration of Common Stock. If any shares of
Common Stock required to be reserved for purposes of exercise of
this Warrant require registration with or approval of any
governmental authority under any federal or state law (other than
the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously
as possible, use its best efforts to cause such shares to be duly
registered or approved, as the case may be. The shares of Common
Stock (and Other Securities) issuable upon exercise of this
Warrant (or upon conversion of any shares of Common Stock issued
upon such exercise) shall constitute Registrable Securities (as
such term is defined in the Registration Rights Agreement). Each
holder of this Warrant shall be entitled to all of the benefits
afforded to a holder of any such Registrable Securities under the
Registration Rights Agreement and such holder, by its acceptance
of this Warrant, agrees to be bound by and to comply with the
terms and conditions of the Registration Rights Agreement
applicable to such holder as a holder of such Registrable
Securities. At any such time as Common Stock is listed on any
national securities exchange, the Company will, at its expense,
obtain promptly and maintain the approval for listing on each
such exchange, upon official notice of issuance, the shares of
Common Stock issuable upon exercise of the then outstanding
Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national
securities exchange, will register under the Exchange Act and
will maintain such listing of, any Other Securities that at any
time are issuable upon exercise of the Warrants, if and at the
time that any securities of the same class shall be listed on
such national securities exchange by the Company.
Restrictions on Transfer.
Restrictive Legends. Except as otherwise permitted
by this section 9, each Warrant (including each Warrant issued
upon the transfer of any Warrant) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE WARRANT REPRESENTED BY THIS CERTIFICATE (AND
THE SHARES OF COMMON STOCK OR OTHER SECURITIES ISSUABLE
UPON EXERCISE OF SUCH WARRANT) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE IN RELIANCE ON CERTAIN
EXEMPTIONS FROM REGISTRATION THEREUNDER. THE SALE,
PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF SUCH WARRANT
(AND OF SUCH SHARES OF COMMON STOCK OR OTHER
SECURITIES) IS SUBJECT TO COMPLIANCE WITH APPLICABLE
SECURITIES LAWS AND REGULATIONS AND CERTAIN
RESTRICTIONS AND CONDITIONS CONTAINED IN A CERTAIN
SECURITIES PURCHASE AGREEMENT AND RELATED AGREEMENTS
DATED AS OF MARCH 7, 1996. THE HOLDER OF THIS CERTIFI
CATE BY ACCEPTANCE HEREOF AGREES TO BE BOUND BY SUCH
RESTRICTIONS AND CONDITIONS. A COPY OF THE PURCHASE
AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPA
NY."
Except as otherwise permitted by this section 9, each certificate
for Common Stock (or Other Securities) issued upon the exercise
of any Warrant, and each certificate issued upon the transfer of
any such Common Stock (or Other Securities), shall be stamped or
otherwise imprinted with a legend in substantially the following
form:
"THE SHARES OF STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE IN RELIANCE ON CERTAIN EXEMPTIONS
FROM REGISTRATION THEREUNDER. THE SALE, PLEDGE,
HYPOTHECATION OR OTHER TRANSFER OF SUCH SHARES IS
SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS
AND REGULATIONS AND CERTAIN RESTRICTIONS AND CONDITIONS
CONTAINED IN A CERTAIN SECURITIES PURCHASE AND EXCHANGE
AGREEMENT DATED AS OF MARCH 7, 1996. THE HOLDER OF
THIS CERTIFICATE BY ACCEPTANCE HEREOF AGREES TO BE
BOUND BY SUCH RESTRICTIONS AND CONDITIONS. A COPY OF
THE SECURITIES PURCHASE AND EXCHANGE AGREEMENT IS ON
FILE WITH THE SECRETARY OF THE COMPANY."
Availability of Information. The Company shall
timely file the reports required to be filed by it under the
Securities Act and the Exchange Act (including but not limited to
the reports under sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c) of Rule 144 adopted by the
Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, will, upon the
request of any holder of Registrable Securities, make publicly
available other information) and will take such further action as
any holder of Registrable Securities may reasonably request, all
to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided
by (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any
holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied
with the requirements of this section 10.
Reservation of Stock, etc. The Company will at all
times reserve and keep available, solely for issuance and
delivery upon exercise of the Warrants, the number of shares of
Common Stock (or Other Securities) from time to time issuable
upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon
exercise of any Warrants shall be duly authorized and, when
issued upon such exercise, shall be validly issued and, in the
case of shares, fully paid and nonassessable with no liability on
the part of the holders thereof.
Registration and Transfer of Warrants, etc.
Warrant Register; Ownership of Warrants. The Company
will keep at its principal office a register in which the Company
will provide for the registration of Warrants and the
registration of transfers of Warrants. The Company may treat the
Person in whose name any Warrant is registered on such register
as the owner thereof for all other purposes, and the Company
shall not be affected by any notice to the contrary, except that,
if and when any Warrant is properly assigned in blank, the
Company may (but shall not be obligated to) treat the bearer
thereof as the owner of such Warrant for all purposes. Subject
to section 9, a Warrant, if properly assigned, may be exercised
by a new holder without a new Warrant first having been issued.
Transfer and Exchange of Warrants. Upon surrender of
any Warrant for registration of transfer or for exchange to the
Company at its principal office, the Company at its expense will
(subject to compliance with section 9, if applicable) execute and
deliver in exchange therefor a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (upon payment
by such holder of any applicable transfer taxes) may direct,
calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces
of the Warrant or Warrants so surrendered.
Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction of any Warrant, upon delivery of
an indemnity bond in such reasonable amount as the Company may
determine or, in the case of any such mutilation, upon the surren
der of such Warrant for cancellation to the Company at its princi
pal office, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
Registration Rights. The Purchaser or any assignee
of this Warrant shall be entitled to all rights and benefits
regarding the registration of Common Stock and Registrable
Securities set forth in the Registration Rights Agreement.
Definitions. As used herein, unless the context
otherwise requires, the following terms have the following
respective meanings:
Additional Shares of Common Stock: All shares
(including treasury shares) of Common Stock issued or sold (or,
pursuant to section 2.3 or 2.4, deemed to be issued) by the
Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
the issuance of shares upon conversion of the
Company's Series A, Series B, Series D, Series E, Series F,
Series G and Series H Convertible Preferred Stock,
Shares issued upon the exercise of the common
stock purchase warrants and non-qualified options listed in
Exhibit A hereto, providing for the purchase of an aggregate
of 1,000,650 shares of Common Stock (based on the current
capitalization of the Company);
shares issued upon the exercise of the Warrants,
not to exceed 2,000,000 shares (subject to
equitable adjustment in the event of any combination,
reclassification, stock split, dividend or recapitalization
of the Company) issued upon the exercise of options granted
or to be granted under the Company's stock option plans as
in effect on the date hereof or under any other employee
stock option, compensation or purchase plan or plans
adopted or assumed after such date,
such additional number of shares as may become
issuable upon the exercise of any of the securities referred
to in the foregoing clauses (a) through (d) by reason of
adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date
hereof, but only if and to the extent that such adjustments
are required as the result of the original issuance of the
Warrants, and
such additional number of shares as may become
issuable upon the exercise or conversion of any of the
securities referred to in the foregoing clauses (a) through
(d) by reason of adjustments required pursuant to anti-
dilution provisions applicable to such securities as in
effect on the date hereof, in order to reflect any
subdivision or combination of Common Stock, by
reclassification or otherwise, or any dividend on Common
Stock payable in Common Stock.
Business Day: Any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in the
City of New York are authorized by law to be closed. Any
reference to "days" (unless Business Days are specified) shall
mean calendar days.
Commission: The Securities and Exchange Commission or
any other federal agency at the time administering the Securities
Act.
Common Stock: As defined in the introduction to this
Warrant, such term to include any stock into which such Common
Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any
class or classes (however designated) of the Company the holders
of which have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
Company: As defined in the introduction to this
Warrant, such term to include any corporation which shall succeed
to or assume the obligations of the Company hereunder in
compliance with section 3.
Convertible Securities: Any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for
Additional Shares of Common Stock.
Current Market Price: On any date specified herein,
the average daily Market Price during the period of the most
recent 20 days, ending on such date, on which the national
securities exchanges were open for trading, except that if no
Common Stock is then listed or admitted to trading on any
national securities exchange or quoted in the over-the-counter
market, the Current Market Price shall be the Market Price on
such date.
Exchange Act: The Securities Exchange Act of 1934, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time.
Market Price: On any date specified herein, the amount
per share of the Common Stock, equal to (a) the last sale price
of such Common Stock, regular way, on such date or, if no such
sale takes place on such date, the average of the closing bid and
asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which
such Common Stock is then listed or admitted to trading, or (b)
if such Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national
market system security by the NASD, the last trading price of the
Common Stock on such date, or (c) if there shall have been no
trading on such date or if the Common Stock is not so designated,
the average of the closing bid and asked prices of the Common
Stock on such date as shown by the NASD automated quotation
system, or (d) if such Common Stock is not then listed or
admitted to trading on any national exchange or quoted in the
over-the-counter market, the value as determined by a firm of
independent public accountants of recognized standing selected by
the Board of Directors of the Company, and approved by
Wand/Nestor Investments L.P., as of the last day of any month
ending within 30 days preceding the date as of which the determi
nation is to be made.
NASD: The National Association of Securities Dealers,
Inc.
Options: Rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities.
Other Securities: Any stock (other than Common Stock)
and other securities of the Company or any other Person
(corporate or otherwise) which the holders of the Warrants at any
time shall be entitled to receive, or shall have received, upon
the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 3 or otherwise.
Person: A corporation, an association, a partnership,
an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
Purchase and Exchange Agreement: The Securities
Purchase and Exchange Agreement, dated as of January 31, 1996, by
and among the Company, Wand and certain affiliates of Wand.
Registrable Securities: As defined in Section 3 of the
Registration Rights Agreement.
Registration Rights Agreement: The Amended and
Restated Registration Rights Agreement dated as of January 31,
1996, substantially in the form of Exhibit IX to the Purchase and
Exchange Agreement, as further amended as of March 7, 1996.
Securities Act: The Securities Act of 1933, or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time.
Securities Purchase Agreement: The Securities Purchase
Agreement, dated as of March 7, 1996, by and between Wand and the
Company.
Transfer: Any sale, assignment, pledge or other
disposition of any security, or of any interest therein, which
could constitute a "sale" as that term is defined in section 2(3)
of the Securities Act.
Wand: As defined in section 1, and its successors and
assigns.
Warrant Price: As defined in section 2.1.
Warrants: (a) Those certain Common Stock Purchase
Warrants, initially providing for the acquisition of an aggregate
of 400,000 shares of Common Stock, originally issued pursuant to
the Letter of Engagement, dated April 26, 1994, among the
Company, Hill & Partners and Wand Partners Inc. (and any warrants
issued in substitution therefor), (b) those certain Common Stock
Purchase Warrants, initially providing for the acquisition of
1,700,000 shares of Common Stock, originally issued to
Wand/Nestor Investments L.P. and Wand/Nestor Investments II L.P.
as the "New Warrant" and the "Fee Warrant" pursuant to the
Revised Standby Agreement (and any warrants issued in
substitution therefor) and (c) those certain Common Stock
Purchase Warrants, initially providing for the acquisition of
399,040 shares of Common Stock, originally issued in connection
with sale of the Series F Convertible Preferred Stock and Series
G Convertible Preferred Stock of the Company pursuant to the
Purchase and Exchange Agreement (and any warrants issued in
substitution therefor) and the Securities Purchase Agreement (and
any warrants issued in substitution therefor).
Remedies. The Company stipulates that the remedies
at law of the holder of this Warrant in the event of any default
or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or
otherwise.
No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be construed as conferring upon
the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any
securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or
liabilities are asserted by the Company or by creditors of the
Company.
Notices. All notices and other communications under
this Warrant shall be in writing and shall be delivered, or
mailed by registered or certified mail, return receipt requested,
by a nationally recognized overnight courier, postage prepaid,
addressed (a) if to any holder of any Warrant, at the registered
address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if to the Company, to the
attention of its President at its principal office, provided that
the exercise of any Warrant shall be effective in the manner
provided in section 1.
Amendments. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought.
Expiration. The Company will give the holder of this
Warrant not less than six weeks nor more than two months notice
of the expiration of the right to exercise this Warrant. The
right to exercise this Warrant shall expire at 5:00 p.m., New
York City time, on August 1, 2004, unless the Company shall fail
to give such notice as aforesaid, in which event the right to
exercise this Warrant shall not expire until a date six weeks
after the date on which the Company shall give the holder hereof
notice of the expiration of the right to exercise this Warrant.
20. Descriptive Headings. The headings in this
Agreement are for purposes of reference only and shall not limit
or otherwise affect the meaning hereof.
21. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES
SHALL BE GOVERNED BY, THE LAW OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
22. Judicial Proceedings; Waiver of Jury. Any judi
cial proceeding brought against the Company with respect to this
Warrant may be brought in any court of competent jurisdiction in
the State of New York or of the United States of America for the
Southern District of New York and, by execution and delivery of
this Agreement, the Company (a) accepts, generally and uncondi
tionally, the nonexclusive jurisdiction of such courts and any
related appellate court, and irrevocably agrees to be bound by
any judgment rendered thereby in connection with this Warrant,
subject to any rights of appeal, and (b) irrevocably waives any
objection the Company may now or hereafter have as to the venue
of any such suit, action or proceeding brought in such a court or
that such court is an inconvenient forum. The Company hereby
waives personal service of process and consents, that service of
process upon it may be made by certified or registered mail,
return receipt requested, at its address specified or determined
in accordance with the provisions of section 17, and service so
made shall be deemed completed on the third Business Day after
such service is deposited in the mail or, if earlier, when
delivered. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the
right of any holder of any Warrant to bring proceedings against
the Company in the courts of any other jurisdiction. THE COMPANY
HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY, OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS WARRANT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
NESTOR, INC.
By: /s/ David Fox
Title: President and
Chief Executive
Officer
[155178.03/2a]
EXHIBIT A
CURRENTLY OUTSTANDING WARRANTS
The Company has currently outstanding: (a) warrants to Purchase
299,375 shares of the Common Stock of the Company at $3.00 per
share expiring on March 31, 1996, (b) other warrants to purchase
105,275 shares of Common Stock of the Company at $2.00 per share
expiring in 1998, and (c) other warrants and non-qualified
options to purchase 138,000 shares of the Common Stock of the
Company at prices between $1.20 per share and $4.625 per share
expiring in 1996, 1997 and 1999. These warrants are issued as
follows:
Underlying Exercise Price
Shares of per Share of
Warrant Holders Common Stock Common Stock Expiration
Purchasers of
Series B
Convertible
Preferred Stock 299,375 $3.00 Aug. 31, 1996
Purchasers of
Series D
Convertible
Preferred Stock 105,275 $2.00 Sept. 28, 1998
Assignees of
Reich & Co.
Inc.
James Gerson 38,667 $1.20 June 30, 1997
Todd Macklin 5,800 $1.20 June 30, 1997
One Hundred
Pearl Ltd. 71,533 $1.20 June 30, 1997
Hampshire
Securities Corp 2,000 $1.20 June 30, 1997
Officer and
Directors of
Nestor, Inc.
Sam Albert 10,000 $4.625 April 30, 1996
Sam Albert 10,000 $1.30 Feb. 23, 1997
Total: 541,850
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To NESTOR, INC.;
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder,
______* shares of Common Stock of Nestor, Inc. and herewith makes
payment of $ therefor, and requests that the
certificates for such shares be issued in the name of, and
delivered to , whose address is .
Dated:
(Signature must conform
in all respects to name of holder as
specified on the face of Warrant)
(Street Address)
(City)(State)(Zip Code)
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the
within Warrant hereby sells, assigns and transfers unto
the right represented by such Warrant to purchase shares
of Common Stock of Nestor, Inc. to which such Warrant relates,
and appoints Attorney to make such transfer on the
books of Nestor, Inc. maintained for such purpose, with full
power of substitution in the premises.
Dated:
(Signature must conform
in all respects to name of holder as
specified on the face of Warrant)
(Street Address)
(City)(State)(Zip Code)
Signed in the presence of:
Wand I Regular Warrant (No. 2)
________________________________________________________
NESTOR, INC.
Common Stock Purchase Warrant
Dated as of March 7, 1996
_________________________________________________________
[This Warrant and any shares acquired upon the exercise of
this Warrant have not been registered under the Securities
Act of 1933, as amended, and may not be transferred, sold or
otherwise disposed of except while a registration under such
Act is in effect or pursuant to an exemption therefrom under
such Act. This Warrant and such shares may be transferred
only in compliance with the conditions specified in this
Warrant.]
TABLE OF CONTENTS
1. Exercise of Warrant 2
1.1. Manner of Exercise 2
1.2. When Exercise Effective 2
1.3. Delivery of Stock Certificates, etc. 3
1.4. Company to Reaffirm Obligations 3
1.5. Payment by Application of Shares
Otherwise Issuable 3
2. Adjustment of Common Stock Issuable Upon
Exercise 4
2.1. General; Warrant Price 4
2.2. Adjustment of Warrant Price 5
2.2.1
Issuance of Additional Shares of Common Stock
5
2.2.2
Extraordinary Dividends and Distributions
5
2.3. Treatment of Options and Convertible
Securities 6
2.4.Treatment of Stock Dividends, Stock Splits, etc.
8
2.5. Computation of Consideration 9
2.6. Adjustments for Combinations, etc. 10
2.7. Dilution in Case of Other Securities 10
2.8. Minimum Adjustment of Warrant Price 11
3. Consolidation, Merger, etc 11
3.1.Adjustments for Consolidation, Merger, Sale of
Assets, Reorganization, etc. 11
3.2. Assumption of Obligations 12
4. Other Dilutive Events 13
5. No Dilution or Impairment 13
6. Accountants' Report as to Adjustments 14
7. Notices of Corporate Action 14
8. Registration of Common Stock 15
9. Restrictions on Transfer 16
9.1. Restrictive Legends 16
10. Availability of Information 17
11. Reservation of Stock, etc. 17
12. Registration and Transfer of Warrants, etc. 18
12.1. Warrant Register; Ownership of Warrants 18
12.2. Transfer and Exchange of Warrants 18
12.3. Replacement of Warrants 18
13. Registration Rights 19
14. Definitions 19
15. Remedies 23
16. No Rights or Liabilities as Stockholder. 23
17. Notices 23
18. Amendments 24
19. Expiration 24
20. Descriptive Headings 24
21. Governing Law 24
22. Judicial Proceedings; Waiver of Jury 24
EXHIBIT A 26
FORM OF SUBSCRIPTION 27
FORM OF ASSIGNMENT 28
_______________________________
* Insert here the number of shares called for on the face of
this Warrant (or, in the case of a partial exercise, the
portion thereof as to which this Warrant is being
exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or
other securities or property or cash which, pursuant to the
adjustment provisions of this Warrant, may be delivered upon
exercise. In the case of partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the
unexercised portion of the Warrant, to the holder
surrendering the Warrant.
