SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 30, 1999
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CYBER DIGITAL, INC.
(Exact name of registrant as specified in its charter)
New York 0-13992 11-2644640
(State or other jurisdiction of (Commission file number) (I.R.S. employer
incorporation or organization) identification no.)
400 Oser Avenue, Suite 1650
Hauppauge, New York 11788
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 231-1200
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Item 5. Other Events.
Cyber Digital, Inc., a New York corporation (the "Company"), entered into
a Securities Purchase Agreement (the "Agreement"), dated as of September 30,
1999, with the Purchaser named therein (the "Purchaser") (attached hereto as
Exhibit 10.1).
In connection with the Agreement, the Company authorized a new series of
its Preferred Stock, par value $0.05 per share, called the Series D1 Convertible
Preferred Stock (the "Preferred Stock"). As set forth in the Company's
Certificate of Amendment to its Certificate of Incorporation for the Preferred
Stock (the "Certificate of Amendment") (included as part of the Company's
Composite Amended & Restated Certificate of Incorporation attached hereto as
Exhibit 3.1), the Preferred Stock is convertible into shares of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), at a price that is
equal to the amount obtained by multiplying 100% (subject to adjustment) by
either (i) that price of the Common Stock which shall be computed as the
arithmetic average of the three lowest Closing Sales Prices (as defined in the
Certificate of Amendment) of the Common Stock during the twenty consecutive
trading days immediately preceding the date of such determination and (ii) the
Closing Bid Price (as defined in the Certificate of Amendment) on such date,
whichever is lower. Such amount shall not, in any case, exceed $5.43 subject to
certain adjustments as set forth in the Certificate of Amendment.
Pursuant to the Agreement, the Purchaser has purchased an aggregate of
3,000 shares of the Company's Series D1 Preferred Stock, par value $0.05 per
share (the "Preferred Stock"), and a warrant to purchase 190,678 shares of the
Company's Common Stock (the "Warrant") for an aggregate purchase price of
$3,000,000 (attached hereto as Exhibit 4.1). The price at which the Warrant is
exercisable is $5.70.
Subject to certain conditions as set forth in the Agreement, the Purchaser
is also required to buy and the Company is required to sell (i) an additional
2,000 shares of Preferred Stock and (ii) warrants to purchase a number of shares
of Common Stock based on a formula set forth in the Agreement.
Contemporaneously with the execution and delivery of the Agreement, the
parties also executed a Registration Rights Agreement, pursuant to which the
Company has agreed to provide to the Purchaser certain registration rights under
the federal securities laws and the rules and regulations promulgated thereunder
(attached hereto as Exhibit 4.2).
In connection with the transaction as set forth in the Agreement, the
Zanett Securities Corporation, financial advisor to the Company, has been issued
a warrant to purchase 30,000 shares of the Company's Common Stock (the "Zanett
Warrant") in partial consideration for services rendered to the Company. The
Zanett Warrant is in a form substantially the same as the Warrant issued to the
Purchaser and attached hereto as Exhibit 4.1.
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The Company has described the events set forth herein in a press release
dated the date hereof (attached hereto as Exhibit 99.1).
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Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits
Exhibit List
Exhibit 10.1 Securities Purchase Agreement, dated as of September 30,
1999, by and among Cyber Digital, Inc., a New York corporation
("the Company") and the Purchaser named therein.
Exhibit 3.1 Composite Amended & Restated Certificate of Incorporation,
including the Certificate of Amendment to the Company's
Certificate of Incorporation, filed with the Secretary of
State of New York on October 4, 1999 regarding the Series D1
Preferred Stock.
Exhibit 4.1 Warrant Agreement.
Exhibit 4.2 Registration Rights Agreement, dated as of September 30,
1999, by and among the Company and the Purchaser named
therein.
Exhibit 99.1 Press Release.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant, Cyber Digital, Inc., has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: October 7, 1999 CYBER DIGITAL, INC.
By: /s/ J.C. Chatpar
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Name: J.C. Chatpar
Title: President
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of September 30, 1999, (this
"Agreement") by and among Cyber Digital, Inc., a New York corporation, with
headquarters located at 400 Oser Avenue, Suite 1650, Hauppaupge, New York 11788
(the "Company"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. The Company has authorized the following new series of its Preferred
Stock, par value $0.05 per share which shall be called the Company's Series D1
Convertible Preferred Stock (the "Preferred Stock"), which shall be convertible
into shares of the Company's common stock, par value $0.01 per share (the
"Common Stock") (as converted, the "Conversion Shares"), in accordance with the
terms of the Company's Certificate of Amendment to its Certificate of
Incorporation for the Preferred Stock, substantially in the form attached hereto
as Exhibit A (the "Certificate of Amendment ");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially (i) an aggregate of 3,000 shares of the Preferred
Stock (the "Initial Preferred Shares") in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers, and (ii) warrants to
purchase up to a number of shares of Common Stock (as exercised, collectively,
the "Initial Warrant Shares") for each share of Preferred Stock purchased equal
to the quotient of (A) 300, divided by (B) the average of the Closing Bid Price
(as defined in the Certificate of Amendment) of the Common Stock on the three
trading days immediately preceding the Initial Closing Date (as defined below),
such warrants to be substantially in the form attached hereto as Exhibit B (the
"Initial Warrants");
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers will be required to buy and the Company will be required to sell (i) an
aggregate of 2,000 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares) (the "Mandatory Preferred Shares" and, collectively
with the Initial Preferred Shares, the "Preferred Shares") and (ii) warrants to
purchase up to a number of shares of Common Stock (as exercised, collectively,
the "Mandatory
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Warrant Shares" and, collectively with the Initial Warrant Shares, the "Warrant
Shares") for each share of Preferred Stock purchased equal to the quotient of
(A) 300, divided by (B) the average of the Closing Bid Price of the Common Stock
on the three trading days immediately preceding the Mandatory Closing Date (as
defined below), such warrants to be substantially in the form attached hereto as
Exhibit B (the "Mandatory Warrants" and, collectively with the Initial Warrants,
the "Warrants");
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company (i) an aggregate of 3,000 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers, and (ii)
Initial Warrants to purchase up to a number of shares of Common Stock for each
Initial Preferred Share purchased equal to the quotient of (A) 300, divided by
(B) the average of the Closing Bid Price of the Common Stock on the three
trading days immediately preceding the Initial Closing Date (the "Initial
Closing"). Subject to the satisfaction (or waiver) of the conditions set forth
in Sections 1(c), 6(b) and 7(b) below, the Company shall issue and sell and each
Buyer shall purchase (i) that number of Mandatory Preferred Shares equal to such
Buyer's pro rata portion of an aggregate of 2,000 Mandatory Preferred Shares
(based on the number of Initial Preferred Shares such Buyer purchased in
relation to the total number of Initial Preferred Shares issued and sold), and
(ii) Mandatory Warrants to purchase up to a number of shares of Common Stock for
each Mandatory Preferred Share purchased equal to the quotient of (A) 300,
divided by (B) the average of the Closing Bid Price of the Common Stock on the
three trading days immediately preceding the Mandatory Closing Date (the
"Mandatory Closing"). The Initial Closing and the Mandatory Closing collectively
are referred to in this Agreement as the "Closings". The aggregate purchase
price (the "Purchase Price") of each Preferred Share and related Warrant at each
of the Closings shall be $1,000.
b. The Initial Closing Date . The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Chicago Time, within
three (3) business days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin & Zavis, 525 West Monroe
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Street, Suite 1600, Chicago, Illinois 60661-3693.
c. The Mandatory Closing Date. The date and time of the
Mandatory Closing (the "Mandatory Closing Date") shall be 10:00 a.m. Chicago
Time, on the tenth (10th) business day following the Mandatory Share Notice Date
(as defined below), subject to satisfaction (or waiver) of the conditions to the
Mandatory Closing set forth in Sections 6(b) and 7(b) and the conditions set
forth in this Section 1(c) (or such later date as is mutually agreed to by the
Company and the Buyers). The Company shall deliver written notice (the
"Mandatory Share Notice") to each Buyer on a date (the "Mandatory Share Notice
Date") as soon as reasonably practicable, but in no event later than the first
business day, following the date that the Initial Registration Statement (as
defined in the Registration Rights Agreement) registering the Initial
Registrable Securities (as defined in the Registration Rights Agreement) has
been declared effective by the SEC in accordance with the terms of the
Registration Rights Agreement, which date shall not be later than 90 days after
the Initial Closing Date. The Mandatory Share Notice shall set forth (x) each
Buyer's pro rata portion (based on the number of Initial Preferred Shares such
Buyer purchased in relation to the total number of Initial Preferred Shares
purchased by all of the Buyers) of the aggregate number of the Mandatory
Preferred Shares (which aggregate number shall be 2,000 Preferred Shares), which
such Buyer is required to purchase at such Mandatory Closing, (y) the aggregate
Purchase Price for such Buyer's Mandatory Preferred Shares and (z) the date of
the Mandatory Closing Date. Notwithstanding the foregoing, no Buyer shall be
required to purchase the Mandatory Preferred Shares unless each of the following
conditions is satisfied: (i) during the period beginning on the Mandatory Share
Notice Date and ending on and including the Mandatory Closing Date, the Initial
Registration Statement covering the resale of the Initial Registrable Securities
at all times has been effective and available for the sale of no less than 200%
of the Conversion Shares issuable upon conversion of the Initial Preferred
Shares and the Mandatory Preferred Shares (as if the Mandatory Preferred Shares
were issued and outstanding and without regard to any limitations on
conversions) and 100% of the Warrant Shares issuable upon exercise of the
Initial Warrants and the Mandatory Warrants (as if the Mandatory Warrants were
issued and outstanding and without regard to any limitations on Exercises); (ii)
during the period beginning on the Initial Closing Date and ending on and
including the Mandatory Closing Date there shall not have occurred (A) an event
constituting a Change of Control (as defined in Section 4(b) of the Certificate
of Amendment), including an agreement to consummate a Change of Control, (B) a
Triggering Event (as defined in Section 3(b) of the Certificate of Amendment) or
an event that with the passage of time would constitute a Trigger Event assuming
it were not cured, or (C) the announcement of a pending Change of Control which
has not been abandoned or terminated; (iii) at all times during the period
beginning on the Mandatory Share Notice Date and ending on and including the
Mandatory Closing Date, the Common Stock shall have been designated for
quotation on the Nasdaq National Market or The Nasdaq SmallCap Market or listed
on The New York Stock Exchange, Inc. ("NYSE") or The American Stock Exchange,
Inc. ("AMEX") and shall not have been suspended from trading on such exchanges
or
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quotation or reporting systems nor shall delisting or suspension by such
exchanges or quotation or reporting systems have been threatened either (A) in
writing by such exchanges or quotation or reporting systems or (B) by falling
below the minimum listing maintenance requirements of such exchanges or
quotation or reporting systems; (iv) during the period beginning on the Initial
Closing Date and ending on and including the Mandatory Closing Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
on a timely basis as set forth in Section 2(d)(ii) of the Certificate of
Amendment and otherwise shall have been in compliance with and shall not have
breached any provision of the Transaction Documents (as defined below) and the
Certificate of Amendment; (v) either (I) on each day during the period beginning
on the Mandatory Share Notice Date and ending on and including the Mandatory
Closing Date, the Proxy Condition Trigger (as defined below) is less than or
equal to 10% or (II) the Company shall have received the approval of the
Company's shareholders, pursuant to Section 4(l), to issue the Conversion Shares
upon the conversion of the Preferred Shares and the Warrant Shares upon exercise
of the Warrants in excess of the Exchange Cap (as defined in the Certificate of
Amendment); and (vi) the Company shall not have previously delivered a Mandatory
Share Notice. The "Proxy Condition Trigger" means the quotient of (A) the sum of
(y) the number of Conversion Shares issuable upon conversion of the Initial
Preferred Shares and the Mandatory Preferred Shares on the date of determination
(as if the Mandatory Preferred Shares were issued and outstanding and without
regard to any limitations on conversions) and (z) the number of the Warrant
Shares issuable upon exercise of the Initial warrants and the Mandatory Warrants
on the date of determination (as if the Mandatory Warrants were issued and
outstanding and without regard to any limitations on exercises) divided by (B)
the number of shares of Common Stock outstanding on the Initial Closing Date.
The Mandatory Closing shall occur on the Mandatory Closing Date at the offices
of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693. The Initial Closing Date and the Mandatory Closing Date collectively
are referred to in this Agreement as the "Closing Dates".
d. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares and
the related Warrants to be issued and sold to such Buyer at the respective
Closing, by wire transfer of immediately available funds in accordance with the
Company's written wire instructions, and (ii) the Company shall deliver to each
Buyer, stock certificates (in the denominations as such Buyer shall request)
(the "Stock Certificates") representing such number of the Preferred Shares
which such Buyer is then purchasing along with the related Warrants, duly
executed on behalf of the Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire
<PAGE>
the Warrant Shares issuable upon exercise thereof (the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares, collectively are
referred to herein as the "Securities"), for its own account for investment only
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein,
subject to certain restrictions set forth in Section 2(g) of the Certificate of
Amendment, such Buyer does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk and might involve the loss of such
buyer's entire investment. Such Buyer has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of
<PAGE>
counsel, in a form reasonably satisfactory to the Company, to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule thereto)("Rule 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act),
may require compliance with some other exemption under the 1933 Act or the rules
and regulations of the SEC thereunder; and (iii) neither the Company nor any
other person is under any obligation to register such Securities under the 1933
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN FORM REASONABLY SATISFACTORY TO THE
COMPANY COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a form reasonably satisfactory to the Company, to the
effect that a public sale, assignment or transfer of such Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with assurances reasonably acceptable to the
<PAGE>
Company that such Securities can be sold pursuant to Rule 144. Such Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a majority of the capital stock or
holds an equivalent equity or similar interest) are corporations duly organized
and validly existing in good standing under the laws of the jurisdiction in
which they are incorporated, and have the requisite corporate power and
authorization to own properties and to carry on their business as now being
conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations or
financial condition of the Company and its Subsidiaries taken as a whole, or on
the transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below) or the Certificate of Amendment. A complete list of entities in which the
Company, directly or indirectly owns capital stock or holds an equity or similar
interest is set forth in Schedule 3(a).
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5), the Warrants and
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each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the execution and filing of the Certificate of
Amendment by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including without limitation, the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) this Agreement and the
Registration Rights Agreement and, when executed and delivered, the other
Transaction Documents, constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies, and (v) prior to the Closing Date, the Certificate of
Amendment will have been filed with Secretary of State of the Sate of New York
and will be in full force and effect.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 30,000,000 shares of Common Stock, of which as of the date
hereof 18,467,283 shares were issued and outstanding, 2,228,500 shares were
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 1,261,723 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 10,000,000 shares of preferred stock of the Company, par value $0.05 per
share, of which as of the date hereof, 805 shares were designated as Series A
Preferred Stock of which 0 were issued and outstanding, 8060 shares were
designated Series B Preferred Stock of which 0 were issued and outstanding and
1,000 shares were designated Series C Preferred Stock of which 310 were issued
and outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities issued by the Company; (iii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any
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of its Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries; (iv) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (v) there are no outstanding securities of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
d. Issuance of Securities . The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Amendment. At least 2,100,000
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants.
Upon conversion or exercise in accordance with the Certificate of Amendment or
the Warrants, as the case may be, the Conversion Shares and the Warrant Shares
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock. Assuming the
representation and warranties of the Buyers contained in Section 2 are true and
correct, the issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Amendment and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
and issuance of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of the Certificate of Incorporation, any Certificate of
Amendment, Preferences and Rights of any outstanding series of preferred stock
of the Company or the By-laws; (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party; or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
<PAGE>
securities laws and regulations and the rules and regulations of any principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of (i) its Certificate of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or (ii) any statute, rule or regulation
applicable to the Company or its Subsidiaries and neither the Company nor its
Subsidiaries is in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order, except where
such violation would not either individually or in the aggregate have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity, except where such violation would not
either individually or in the aggregate have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and except such as have been
obtained as of the date hereof, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Certificate of Amendment in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might reasonably be
expected to give rise to any of the foregoing. The Company complies with and is
not in violation of the listing requirements of or shall maintain the
requirements to be accepted for trading on, as the case may be, the Principal
Market (as defined below) as in effect on the date hereof and on the Closing
Date and has no actual knowledge of any facts which would reasonably lead to
delisting, suspension or the rejection for trading of the Common Stock by the
Principal Market in the foreseeable future. For purposes of this Agreement, the
"Principal Market" means the securities or trading market upon which the Common
Stock is listed, quoted or reported provided that such market is one of the
following: the Over the Counter Bulletin Board (the "OTCBB"), the Nasdaq
National Market, The Nasdaq SmallCap Market, NYSE or AMEX.
f. SEC Documents; Financial Statements. Since March 31, 1998,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act, (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC Documents"). A complete list of the Company's SEC
Documents is set forth on the EDGAR database. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue
<PAGE>
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information. If the Common Stock was designated for
quotation on the Nasdaq SmallCap Market, the Company would meet the requirements
for the use of Form S-3 for registration of the resale of the Registrable
Securities (as defined in the Registration Rights Agreement) by each Buyer.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since March 31, 1999 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities or results of operations of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any knowledge of any fact which would reasonably lead a creditor
to do so.
h. Absence of Litigation. Except as disclosed in Schedule
3(h), there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as expressly set forth
in Schedule 3(h). Except as set forth in Schedule 3(h), to the knowledge of the
Company none of the directors or officers of the Company have been involved in
securities related litigation during the past five years.
i. Acknowledgment Regarding the Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Certificate of Amendment and the transactions contemplated
thereby. The Company further acknowledges that Buyer is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the
<PAGE>
Transaction Documents and the Certificate of Amendment and the transactions
contemplated thereby and any advice given by any of the Buyers or any of their
respective representatives or agents in connection with the Transaction
Documents and the Certificate of Amendment and the transactions contemplated
thereby is merely incidental to such Buyer's purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Shares and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
issuance of any of the Securities under the 1933 Act or cause this offering of
Securities to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Nasdaq SmallCap
Market, nor will the Company or any of its Subsidiaries take any action or steps
that would require registration of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
their relationship with the Company, neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified
the Company's Board of Directors that such officer intends to leave the Company
or otherwise terminate such officer's employment with the Company.
<PAGE>
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted, except where such failure would not have either
individually or in the aggregate a Material Adverse Effect. Except as set forth
on Schedule 3(n), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement, except
where such expiration or termination would not have either individually or in
the aggregate a Material Adverse Effect. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademarks, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade
secrets or other similar rights of others, or of any such development of similar
or identical trade secrets or technical information by others and, except as set
forth on Schedule 3(n), no claim, action or proceeding has been made or brought
against, or to the Company's knowledge, has been threatened against, the Company
or its Subsidiaries regarding trademarks, trade name rights, patents, patent
rights, inventions, copyrights, licenses, service names, service marks, service
mark registrations, trade secrets or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
o. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
p. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
q. Tax Status. The Company and each of its Subsidiaries has
made
<PAGE>
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on
Schedule 3(r) and in the SEC Documents filed at least ten days prior to the date
hereof and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Amendment and
its obligation to issue the Warrant Shares in accordance with this Agreement and
the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
t. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the Buyers and the Company fulfilling their obligations under the
Transaction Documents and the Certificate of Amendment, including, without
limitation, the Company's issuance of the Securities and the Buyers' ownership
of the Securities.
u. Rights Agreement. As of the date hereof, the Company has
not adopted a shareholder rights plan or similar arrangement relating to
accumulation of
<PAGE>
beneficial ownership of Common Stock or a change in control of the Company.
v. Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiary's business and
operations that could be materially adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Company or
any of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on the foregoing, the Company believes that the
computer applications that are currently material to its or any Subsidiary's
business and operations are reasonably expected to be able to perform properly
data-sensitive functions for all dates before and after January 1, 2000.
w. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance in all material respects with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in com-pliance in all material
respects with all terms and conditions of any such permit, license or approval.
x. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
y. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiaries has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
<PAGE>
z. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyer relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
aa. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the applicable Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Buyers at the Closing pursuant to
this Agreement under applicable securities or "Blue Sky" laws of the states of
the United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
c. Reporting Status. Until the later of (i) the date which is
one year after the date on which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares and (B) none of
the Preferred Shares or Warrants is outstanding (the "Reporting Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
<PAGE>
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Reporting Period: (i) within two (2) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K or Form 10-KSB, its
Quarterly Reports on Form 10-Q or Form 10-QSB, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; and (ii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the sum of (A) 200% the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and (B) 100% the
number of shares of Common Stock needed to provide for the issuance of the
Warrant Shares (without regard to any limitations on conversions or exercise
thereof).
g. Right of Participation. Subject to the exceptions described
below, during the period beginning on the date hereof and ending on, and
including, the date which is one year after the date the Registration Statement
registering the Registrable Securities is declared effective by the SEC the
Company and its Subsidiaries shall not negotiate or contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities of the Company or any Subsidiary or securities
convertible into or exchangeable for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("Future Offerings"), unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "Future Offering Notice")
describing the proposed Future Offering, including the size, terms and
conditions thereof, and providing each Buyer an option to purchase up to its
Aggregate Percentage (as defined below) of the securities to be issued in such
Future Offering, as of the date of delivery of the Future Offering Notice, in
the Future Offering (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising Limitations"). For purposes of
this Section 4(g), "Aggregate Percentage" at any time with respect to any Buyer
shall mean the percentage obtained by multiplying (I) 50% by (II) the quotient
of (i) the aggregate number of the Preferred Shares issued to such Buyer on the
Closing Date by (ii) the aggregate number of the Preferred Shares issued to all
the Buyers on the Closing Date. A Buyer can exercise its option to participate
in a Future Offering by delivering written notice thereof to participate to the
Company within three (3) business days after receipt of a Future Offering
Notice, which notice shall state the quantity of securities being offered in the
Future Offering that such Buyer will purchase, up to its Aggregate Percentage,
and that number of securities it is willing to purchase in excess of its
Aggregate Percentage. In the event that one or more Buyers fail to elect to
purchase up to each such Buyer's Aggregate
<PAGE>
Percentage of the Future Offering, then each Buyer which has indicated that it
is willing to purchase a number of securities in such Future Offering in excess
of its Aggregate Percentage shall be entitled to purchase up to its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more of the Buyers have
not elected to purchase. In the event the Buyers fail to elect to fully
participate in the Future Offering within the periods described in this Section
4(g), the Company shall have 45 days thereafter to sell the securities of the
Future Offering that the Buyers did not elect to purchase, upon terms and
conditions, no more favorable to the purchasers thereof than specified in the
Future Offering Notice. In the event the Company has not sold such securities of
the Future Offering within such 45 day period, the Company shall not thereafter
issue or sell such securities without first offering such securities to the
Buyers in the manner provided in this Section 4(g). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank, (ii) the
Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital) or (C) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof provided the terms of such securities are not
amended after the date hereof, (v) the grant of additional options or warrants,
or the issuance of additional securities, under any Company stock option plan,
restricted stock plan or stock purchase plan for the benefit of the Company's
employees, officers or directors for services provided to the Company. The
Buyers shall not be required to participate or exercise their right of first
refusal with respect to a particular Future Offering in order to exercise their
right of first refusal with respect to later Future Offerings.
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Certificate of Amendment. The Company shall maintain the Common Stock's
authorization for listing, quotation or reporting on the OTCBB, The Nasdaq
SmallCap Market, the Nasdaq National Market, AMEX or NYSE. Neither the Company
nor any of its Subsidiaries shall take any action which may result in the
discontinuance of quotation or reporting of the Common Stock on the OTCBB (other
than to switch listings from the OTCBB to The Nasdaq SmallCap Market, the Nasdaq
National Market, AMEX or NYSE). The Company shall promptly, and in no event
later than the following business day, offer to provide to such Buyer copies of
any notices it receives from The Nasdaq SmallCap Market, the Nasdaq National
Market, AMEX or NYSE regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange, provided that
such
<PAGE>
notices shall not contain any material non-public information. The Company shall
pay all fees and expenses in connection with satisfying its obligations under
this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Initial
Closing, the Company shall pay a non-accountable expense allowance of $45,000 to
the Buyers or their designees.
j. Transactions With Affiliates. So long as (i) any Preferred
Shares or Warrants are outstanding or (ii) any Buyer owns Conversion Shares or
Warrant Shares with a market value of $500,000 the Company shall not, and shall
cause each of its Subsidiaries not to, enter into, amend, modify or supplement,
or permit any Subsidiary to enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, person who were officers or directors at any
time during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a "Related
Party"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company or
(c) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
k. Filing of Form 8-K. On or before the third business day
following the Initial Closing Dates and the first business day following each of
the Mandatory Share Notice Date, the Mandatory Closing Date, the Additional
Share Notice Dates and the Additional Closing Dates the Company shall file a
Form 8-K with the SEC describing the terms of the transaction contemplated by
the Transaction Documents and consummated at such Closing, in each case in the
form required by the 1934 Act.
l. Proxy Statement. The Company shall provide each shareholder
entitled to vote at the next meeting of shareholders of the Company, which
meeting shall occur on or before January 31, 1999 (the "Shareholder Meeting
Deadline"), a proxy statement, which has been previously reviewed by the Buyers
and a counsel of their choice, soliciting each such shareholder's affirmative
vote at such shareholder
<PAGE>
meeting for approval of the Company's issuance of all of the Securities as
described in this Agreement, and the Company shall use its best efforts to
solicit its shareholders' approval of such issuance of the Securities and cause
the Board of Directors of the Company to recommend to the shareholders that they
approve such proposal. If the Company fails to hold a meeting of its
shareholders by the Shareholder Meeting Deadline, then, as partial relief (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of Preferred Shares an amount in
cash per Preferred Share equal to the product of (i) $1,000; multiplied by (ii)
0.02; multiplied by (iii) the quotient of (x) the number of days after the
Shareholder Meeting Deadline that a meeting of the Company's shareholders is not
held, divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five (5) days of the earlier of (I) the
holding of the meeting of the Company's shareholders, the failure of which
resulted in the requirement to make such payments, and (II) the last day of each
30-day period beginning on the Shareholder Meeting Deadline. In the event the
Company fails to make such payments in a timely manner, such payments shall bear
interest at lower of the rate of 2.0% per month or the maximum rate allowable
under New York law (pro rated for partial months) until paid in full.
m. Corporate Existence. So long as any Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on The
Nasdaq SmallCap Market, the Nasdaq National Market or NYSE.
n. Nasdaq Listing. The Company shall use its best efforts to,
on or before the date which is 45 days after the date of this Agreement, have
all the shares of Common Stock, including the Conversion Shares and the Warrant
Shares listed on the NYSE, the Nasdaq National Market or The Nasdaq SmallCap
Market.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (in the form attached hereto as Exhibit E, the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions
<PAGE>
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
the Warrant Shares, prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act) will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section 5 shall affect in
any way each Buyer's obligations and agreements set forth in Section 2(g) to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Securities. If a Buyer provides the Company with an opinion of counsel,
in a form reasonably satisfactory to the Company, that registration of a resale
by such Buyer of any of such Securities is not required under the 1933 Act or
such Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares and the Initial
Warrants to each Buyer at the Initial Closing is subject to the satisfaction, at
or before the Initial Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents and delivered the same to the Company.
(ii) The Certificate of Amendment shall have been filed with
the Secretary of State of the State of New York.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Initial Preferred Shares and the Initial
Warrants being purchased by such Buyer at the Initial Closing by wire
transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true
<PAGE>
and correct as of the date when made and as of the Initial Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Initial Closing Date.
The Company shall have received a certificate, executed by an
authorized signatory for such Buyer, dated as of the Initial Closing
Date, to the foregoing effect.
(v) No statute, rule regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
b. Mandatory Closing Date. The obligation of the Company
hereunder to issue and sell the Mandatory Preferred Shares and the Mandatory
Warrants to each Buyer at the Mandatory Closing is subject to the satisfaction,
at or before the Mandatory Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Mandatory Preferred Shares and the related
Mandatory Warrants being purchased by such Buyer at the Mandatory
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Mandatory
Closing Date. The Company shall have received a certificate, executed
by an authorized signatory for such Buyer, dated as of the Initial
Closing Date, to the foregoing effect.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares and the Initial Warrants at
the Initial Closing is subject to the satisfaction, at or before the Initial
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
<PAGE>
(i) The Company shall have executed each of this Agreement and
the Registration Rights Agreement, and delivered the same to such
Buyer.
(ii) The Certificate of Amendment, shall have been filed with
the Secretary of State of the State of New York, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Buyer.
(iii) The Common Stock shall be designated for quotation on
the Nasdaq National Market or The Nasdaq SmallCap Market or listed on
AMEX or NYSE, and shall not have been suspended from trading on or
delisted from such exchanges or quotation or reporting systems nor
shall delisting or suspension by such exchanges or quotation or
reporting systems have been threatened either (A) in writing by such
exchanges or quotation or reporting systems or (B) by falling below the
minimum listing maintenance requirements of such exchanges or quotation
or reporting systems and all of the Conversion Shares and the Warrant
Shares issuable upon conversion or exercise of the Initial Preferred
Shares and the related Warrants, as the case may be, to be sold at the
Initial Closing shall be listed upon or available for quotation on The
Nasdaq SmallCap Market, the Nasdaq National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents or the Certificate
of Amendment to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Initial Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Kramer Levin
Naftalis & Frankel LLP dated as of the Initial Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Initial Warrants and the Stock Certificates (in such
denominations as such Buyer shall request) for the Initial Preferred
Shares being purchased by such Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
<PAGE>
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares and
exercise of the Warrants, at least 2,100,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) By-laws, each as in effect at the
Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of New York within ten days of the
Initial Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five (5) days of the
Initial Closing Date.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably
request upon reasonable advance notice.
b. Mandatory Closing Date . The obligation of each Buyer
hereunder to purchase the Mandatory Preferred Shares and the Mandatory Warrants
at the Mandatory Closing is subject to the satisfaction, at or before the
Mandatory Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(c).
(ii) The Certificate of Amendment, shall be in full force and
effect and shall not have been amended since the Initial Closing Date,
and a copy thereof certified by the Secretary of State of the State of
New York shall have been
<PAGE>
delivered to such Buyer.
(iii) The Common Stock shall be designated for quotation on
the Nasdaq National Market or The Nasdaq SmallCap Market or listed on
AMEX or NYSE or reported on the OTCBB, and shall not have been
suspended from trading on or delisted from such exchanges or quotation
or reporting systems nor shall delisting or suspension by such
exchanges or quotation or reporting systems have been threatened either
(A) in writing by such exchanges or quotation or reporting systems or
(B) by falling below the minimum listing maintenance requirements of
such exchanges or quotation or reporting systems and all of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Mandatory Preferred Shares and the related Warrants, as
the case may be, to be sold at the Mandatory Closing shall be listed
upon or available for quotation or reported on the OTCBB, The Nasdaq
SmallCap Market, the Nasdaq National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents or the Certificate
of Amendment to be performed, satisfied or complied with by the Company
at or prior to the Mandatory Closing Dates. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Mandatory Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the Mandatory
Closing Date regarding the representation contained in Section 3(c)
above.
(v) Such Buyer shall have received the opinion of Kramer Levin
Naftalis & Frankel LLP dated as of the Mandatory Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Mandatory Warrants and the Stock Certificates (in such
denominations as such Buyer shall request) for the Mandatory Preferred
Shares being purchased by such Buyer at the Mandatory Closing.
(vii) The Board of Directors of the Company shall not have
amended the Resolutions.
(viii) As of the Mandatory Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares
<PAGE>
of Common Stock equal to at least 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the
then outstanding Preferred Shares (without regard to any limitations on
conversions and as if the Mandatory Preferred Shares were issued and
outstanding) and 100% of the number of shares of Common Stock which
would be issuable upon exercise in full of the then outstanding
Warrants (without regard to any limitations on exercises and as if the
Mandatory Warrants were issued and outstanding).
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent and shall be in
effect as of the Mandatory Closing Date.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Mandatory Closing
Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of New York within ten days of the
Mandatory Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) By-laws, each as in effect at the
Mandatory Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Mandatory
Closing Date.
(xiv) During the period beginning on the Mandatory Share
Notice Date and ending on and including the Mandatory Closing Date, the
Registration Statement covering the resale of the Conversion Shares and
the Warrant Shares has been declared effective by the SEC and at all
times has been effective and available for the sale of no less than
200% of the Conversion Shares issuable upon conversion of the Initial
Preferred Shares and the Mandatory Preferred Shares (as if the
Mandatory Preferred Shares were issued and outstanding and without
regard to any limitations on conversions) and 100% of the Warrant
Shares issuable upon exercise of the Initial warrants and the Mandatory
Warrants (as if the Mandatory Warrants were issued and outstanding and
without regard to any limitations on Exercises)
(xv) The Initial Registration Statement has been declared
effective by the SEC in accordance with the terms of the Registration
Rights Agreement on or before the date which is 90 days after the
Initial Closing Date.
<PAGE>
(xvi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request upon
reasonable advance notice.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Amendment, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities
and all of their shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Amendment or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the Certificate of Amendment or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Indemnitee (other
than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) not a shareholder derivative suit) and arising out of or
resulting (i) from the execution, delivery, performance or enforcement of the
Transaction Documents or the Certificate of Amendment, (ii) from any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (iii) solely from the status of
such Buyer or holder of the Securities as an investor in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS .
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws
of the State of New York shall govern all issues concerning the relative rights
of the Company and its shareholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive
<PAGE>
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers which purchased at least two-thirds (2/3) of the Initial
Preferred Shares on the Initial Closing Date or, if prior to the Initial Closing
Date, the Buyers listed on the Schedule of Buyers as being obligated to purchase
at least two-thirds (2/3) of the Initial Preferred Shares, then outstanding, and
no provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. No such amendment shall be
<PAGE>
effective to the extent that it applies to less than all of the holders of the
Preferred Shares or Warrants then outstanding. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents or the Certificate of Amendment
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of the Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Cyber Digital, Inc.
400 Oser Avenue, Suite 1650
Hauppaupge, New York 11788
Telephone: (516) 231-1200
Facsimile: (516) 231-1446
Attention: J.C. Chatpar, President
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 715-9100
Facsimile: (212) 715-8000
Attention: Scott S. Rosenblum, Esq.
If to the Transfer Agent:
Continental Stock Transfer & Trust Co.
2 Broadway, 19th Floor
New York, NY 10004
Telephone: (212) 509-4000
Facsimile: (212) 509-5152
Attention: William Seegraber, Compliance Department
If to a Buyer, to it at the address and facsimile number set
forth on the Schedule of Buyers, with copies to such Buyer's representatives as
set forth on the Schedule of Buyers, or at such other address and/or facsimile
number and/or to the attention of
<PAGE>
such other person as the recipient party has specified by written notice given
to each other party five days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communications, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
g. Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Buyers which purchased at least
two-thirds (2/3) of the Initial Preferred Shares on the Initial Closing Date,
including by merger or consolidation. A Buyer may assign some or all of its
rights hereunder to (i) a Permitted Transferee (as defined below) without the
consent of the Company and (ii) to a person which is not a Permitted Transferee
with the prior consent of the Company, which consent shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained in the Transaction
Documents, the Buyers shall be entitled to pledge the Securities in connection
with a bona fide margin account or other loan secured by such Securities. For
purposes of this Section 9(g), a "Permitted Transferee" shall mean (i) a Buyer,
(ii) an Affiliate (as that term is defined in Rule 501(b) under the 1933 act) of
a Buyer, (iii) any holder of Preferred Shares or Warrants and (iv) any Affiliate
of a holder of Preferred Shares or Warrants.
h. No Third Party Beneficiaries. This Agreement
is intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is
terminated under Section 9(l), the representations and warranties of the Company
and the Buyers contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive each of the Closings, provided, however, that the
representations and Warranties of the Company and the Buyers contained in
Sections 2 and 3 shall survive each of the Closings only until such time as the
Preferred Shares and the Warrants issued at such closing or the Conversion
Shares or the Warrant Shares issuable upon conversion or exercise thereof, are
no longer held by the Buyers. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall
have the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the
<PAGE>
Company shall be entitled, without the prior approval of the Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Company shall use its
reasonable efforts to consult with each Buyer in connection with any such press
release or other public disclosure prior to its release and each Buyer shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Termination. In the event that the Initial
Closing shall not have occurred with respect to a Buyer on or before three (3)
business days from the date hereof due to the Company's or the Buyer's failure
to satisfy the conditions set forth in Sections 6 and 7 above (and the
non-breaching party's failure to waive such unsatisfied condition(s)), the
non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 9(l), the Company shall remain
obligated to reimburse a non-breaching Buyer for expenses up to the amount
described in Section 4(i) above.
m. Placement Agent. The Company acknowledges
that it has engaged Zanett Securities Corporation as placement agent in
connection with the sale of the Preferred Shares and the related Warrants. The
Company shall be responsible for the payment of any placement agent's fees or
brokers' commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out of pocket expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.
o. Remedies. Each Buyer and each holder of the
Securities shall have all rights and remedies set forth in the Transaction
Documents and the Certificate of Amendment and all rights and remedies which
such holders have been granted at any time under any other agreement or contract
and all of the rights which such holders have under any law. Any person having
any rights under any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
<PAGE>
p. Payment Set Aside. To the extent that the
Company makes a payment or payments to any Buyer hereunder or pursuant to the
Registration Rights Agreement, the Certificate of Amendment or the Warrants or
such Buyer enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
CYBER DIGITAL, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management,
L.L.C.
Its: Investment Manager
By: /s/ J.C. Chatpar
-----------------
Name: J.C. Chatpar
Its: President By: /s/ Jamie O'Brien
-----------------------
Name: Jamie O'Brien
Its: Authorized Signatory
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF BUYERS
Number of
Initial
Investor Address Preferred Investor's Representatives' Address
Investor Name and Facsimile Number Shares and Facsimile Number
- ----------------------- ------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
HFTP Investment c/oPromethean Asset Management, L.L.C. 3,000 Promethean Investment Group, L.L.C.
L.L.C. 750 Lexington Ave., 22nd Floor 750 Lexington Ave., 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John Floegel John Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
</TABLE>
<PAGE>
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(p) - Liens
Schedule 3(u) - Tax Status
EXHIBITS
Exhibit A - Form of Certificate of Amendment
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinion
Exhibit E - Form of Irrevocable Transfer Agent Instructions
COMPOSITE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYBER DIGITAL, INC.
AS OF FEBRUARY 12, 1997
--------
FIRST: The name of the corporation is CYBER DIGITAL, INC.
SECOND: The corporation is formed for the following purpose or purposes:
To manufacture, maintain, sell, operate, repair and generally deal in and
with telecommunication and electronic equipment of all types, including, but not
limited to equipment and services useful in transmission by aural broadcasting,
facsimile, television, radio, energy, pictures, graphic images, sounds or other
visual or aural signals.
To carry on a general mercantile, industrial, investing, and trading
business in all its branches; to devise, invent, manufacture, fabricate,
assemble, install, service, maintain, alter, buy, sell, import, export, license
as licensor or licensee, lease as lessor or lessee, distribute, job, enter into,
negotiate, execute, acquire, and assign contracts in respect of, acquire,
receive, grant, and assign licensing arrangements, options, franchises, and
other rights in respect of, and generally deal in and with, at wholesale and
retail, as principal, and as sales, business, special, or general agent,
representative, broker, factor, merchant, distributor, jobber, advisor, and in
any other lawful capacity, goods, wares, merchandise, commodities, and
unimproved, improved, finished, processed, and other real, personal, and mixed
property of any and all kinds, together with the components, resultants, and
by-products thereof; to acquire by purchase or otherwise own, hold, lease,
mortgage, sell, or otherwise dispose of, erect, construct, make, alter, enlarge,
improve, and to aid or subscribe toward the construction, acquisition or
improvement of any factories, shops, storehouses, buildings, and commercial and
retail establishments of every character, including all equipment, fixtures,
machinery, implements and supplies necessary, or incidental to, or connected
with, any of the purposes or business of the corporation; and generally to
perform any and all acts connected therewith or arising therefrom or incidental
thereto, and all acts proper or necessary for the purpose of the business.
To engage generally in the real estate business as principal, agent,
broker, and in any lawful capacity, and generally to take, lease, purchase, or
otherwise acquire, and to own, use, hold, sell, convey, exchange, lease,
mortgage, work, clear, improve, develop, divide, and otherwise handle, manage,
operate, deal in and dispose of real estate, real property, lands,
multiple-dwelling structures, houses, buildings and other works and any interest
or right therein; to take, lease, purchase or otherwise acquire, and to own,
use, hold, sell, convey, exchange, hire, lease, pledge, mortgage, and otherwise
handle, and deal in and dispose of, as principal, agent, broker, and in any
lawful capacity, such personal property, chattels, chattels real, rights,
easements, privileges, choses in action, notes, bonds, mortgages, and securities
as may lawfully be
<PAGE>
acquired, held, or disposed of; and to acquire, purchase, sell, assign,
transfer, dispose of, and generally deal in and with, as principal, agent,
broker, and in any lawful capacity, mortgages and other interests in real,
personal, and mixed properties; to carry on a general construction, contracting,
building, and realty management business as principal, agent, representative,
contractor, subcontractor, and in any other lawful capacity.
To apply for, register, obtain, purchase, lease, take licenses in respect
of or otherwise acquire, and to hold, own, use, operate, develop, enjoy, turn to
account, grant licenses and immunities in respect of, manufacture under and to
introduce, sell, assign, mortgage, pledge or otherwise dispose of, and, in any
manner deal with and contract with reference to:
(a) inventions, devices, formulae, processes and any improvements and
modifications thereof;
(b) letters patent, patent rights, patented processes, copyrights,
designs, and similar rights, trade-marks, trade symbols and other indications of
origin and ownership granted by or recognized under the laws of the United
States of America or of any state or subdivision thereof, or of any foreign
country or subdivision thereof, and all rights connected therewith or
appertaining thereunto;
(c) franchises, licenses, grants and concessions.
To have, in furtherance of the corporate purposes, all of the powers
conferred upon corporations organized under the Business Corporation Law subject
to any limitations thereof contained in this certificate of incorporation or in
the laws of the State of New York.
THIRD: The office of the corporation is to be located in the City of New
York, County of New York, State of New York.
FOURTH: The total number of shares of capital stock which the Corporation
shall be authorized to issue is 40 million of which 10 million shares shall be
shares of Preferred Stock, having par value of $.05 per share, and 30 million
shares shall be shares of Common Stock, having a par value of $.01 per share.
Preferred Stock may be issued in one or more series with such rights and
designations, including without limitation, voting powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, conversion rights, liquidation privileges,
dividend rights, redemption price or prices and terms of redemption, including
sinking funds provision, as may be determined by action of the Board of
Directors without any further vote or action by the stockholders. Authority is
hereby expressly granted to the Board of Directors to establish and designate
one or more series of Preferred Stock subject to the provisions of this Article.
PART A. Series A Preferred Stock.
Eight Hundred Five (805) of the Ten Million (10,000,000) authorized shares
of Preferred Stock of the Company are hereby designated Series A Preferred
Stock, par value $.05 per share.
<PAGE>
(References to section numbers in this Part A of Article FOURTH shall refer only
to such sections in this Part A of Article FOURTH, unless otherwise expressly
stated herein.) The Series A Preferred Stock shall possess the rights and
preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have a
par value of $.05 per share and shall be designated as Series A Preferred Stock
(the "Series A Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be Eight Hundred Five (805). The Series A
Preferred Stock shall be offered at a purchase price of Ten Thousand Dollars
($10,000.00) per share (the "Original Series A Issue Price"), with a ten percent
(10%) per annum accretion rate as set forth herein.
Section 2. Rank. The Series A Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, $.01 par value per share ("Common Stock"); (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Dividends. The Series A Preferred Stock will bear no dividends,
and the holders of the Series A Preferred Stock ("Holders") shall not be
entitled to receive dividends on the Series A Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the Holders of shares of Series A
Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Certificate of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of (i) the Original Series A
Issue Price for each outstanding share of Series A Preferred Stock and (ii) an
amount equal to ten percent (10%) of the Original Series A Issue Price per annum
for the period that has passed since the date that, in connection with the
consummation of the purchase by Holder of shares of Series A Preferred Stock
from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series A Preferred Stock (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, and after payment in full of the preferential amounts with respect
to the Senior Securities,
<PAGE>
the assets and funds available to be distributed among the Holders of the Series
A Preferred Stock and Parity Securities shall be insufficient to permit the
payment to such Holders of the full preferential amounts due to the Holders of
the Series A Preferred Stock and the Parity Securities, respectively, then the
entire assets and funds of the Company legally available for distribution shall
be distributed among the Holders of the Series A Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to which each
such series of stock is entitled by the Company's Certificate of Incorporation
and any certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution required by subsection 4(a),
if assets remain in this Company, they shall be distributed to holders of Junior
Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4; provided further that an event described in the prior clause that the
Holder does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 4, but instead shall be treated
pursuant to Section 5(e) hereof.
(d) In the event that, immediately prior to the closing of a transaction
described in Section 4(c) which would constitute a liquidation event, the cash
distributions required by Section 4(a) or Section 6 have not been made, the
Company shall either: (i) cause such closing to be postponed until such cash
distributions have been made, or (ii) cancel such transaction, in which event
the rights of the Holders of Series A Preferred Stock shall be the same as
existing immediately prior to such proposed transaction.
Section 5. Conversion. The record Holders of this Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series A Preferred Stock shall
be entitled (at the times and in the amounts set forth below) and subject to the
Company's right of redemption set forth in Section 6(a), at the office of the
Company or any transfer agent for the Series A Preferred Stock (the "Transfer
Agent"), to convert (in multiples of one (1) share of Preferred Stock) as
follows: (x) up to one-third (1/3) of the shares of Series A Preferred Stock
initially issued to such Holder at any time beginning forty-five (45) days
following the date of the last closing of a purchase and sale of Series A
Preferred Stock that occurs pursuant to the offering of the Series A Preferred
Stock by the Company (the "Last Closing
<PAGE>
Date") and at any time thereafter, (y) up to an additional one-third (1/3) of
the shares of Series A Preferred Stock initially issued to such Holder at any
time beginning seventy-five (75) days following the Last Closing Date and at any
time thereafter, and (z) all remaining Series A Preferred Stock held by such
Holder at any time beginning one hundred five (105) days following the Last
Closing Date (each of the time periods referenced in subclauses (x), (y) and (z)
is hereinafter referred to singularly as a "Conversion Gate") at the office of
the Company or any Transfer Agent for the Series A Preferred Stock, into that
number of fully-paid and non-assessable shares of Common Stock of the Company
calculated in accordance with the following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series A
Preferred Stock =
(.10) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
N= the number of days between (i) the date that, in connection with the
consummation of the initial purchase by Holder of shares of Series A Preferred
Stock from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series A Preferred Stock for which
conversion is being elected, and (ii) the applicable Date of Conversion (as
defined in Section 5(c)(iv) below) for the shares of Series A Preferred Stock
for which conversion is being elected, and
Conversion Price = the lesser of (x) 100% of the average Closing Bid
Price, as that term is defined below, for the five (5) trading days ending on
June 28, 1996 (the "Fixed Conversion Price"), or (y) .85 times the average
Closing Bid Price, as that term is defined below, of the Company's Common Stock
for the five (5) trading days immediately preceding the Date of Conversion, as
defined below (the "Variable Conversion Price").
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the OTC Electronic Bulletin Board, or if no longer traded thereon,
on the Nasdaq Small Cap Market or the Nasdaq National Market, or if not traded
on the Nasdaq Small Cap Market or the Nasdaq National Market, the closing bid
price on the principal national securities exchange or the automatic quotation
system on which the Common Stock is so traded and if not available, the price of
the last sale on the principal national securities exchange or the automatic
quotation system on which the Common Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series A Preferred Stock
into full shares of Common Stock, the Holder shall (i) fax, on or prior to 11:59
p.m., New York City time (the "Conversion Notice Deadline") on the date of
conversion, a copy of the fully executed notice of conversion ("Notice of
Conversion") to the Company at the office of the Company or its designated
Transfer Agent for the Series A Preferred Stock stating that the Holder elects
to convert, which notice shall specify the date of conversion, the number of
shares of Series A
<PAGE>
Preferred Stock to be converted, the applicable conversion price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the front page of each certificate to be
converted) and (ii) surrender to a common courier, for delivery to the office of
the Company or the Transfer Agent, the original certificates representing the
Series A Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either the Preferred Stock Certificates are
delivered to the Company or its Transfer Agent as provided above, or the Holder
notifies the Company or its Transfer Agent that such certificates have been
lost, stolen or destroyed (subject to the requirements of subparagraph (i)
below). Upon receipt by Company of a facsimile copy of a Notice of Conversion,
Company shall immediately send, via facsimile, a confirmation of receipt of the
Notice of Conversion to Holder which shall specify that the Notice of Conversion
has been received and the name and telephone number of a contact person at the
Company whom the Holder should contact regarding information related to the
Conversion. In the case of a dispute as to the calculation of the Conversion
Rate, the Company shall promptly issue to the Holder the number of Shares that
are not disputed and shall submit the disputed calculations to its outside
accountant via facsimile within three (3) days of receipt of Holder's Notice of
Conversion. The Company shall cause the accountant to perform the calculations
and notify Company and Holder of the results no later than forty-eight (48)
hours from the time it receives the disputed calculations. Accountant's
calculation shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not be obligated to re-issue such lost or stolen Preferred Stock Certificates if
Holder contemporaneously requests Company to convert such Series A Preferred
Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The Transfer Agent or
the Company (as applicable) shall, no later than the close of business on the
second (2nd) business day (the "Deadline") after receipt by the Company or
Transfer Agent of a facsimile copy of a Notice of Conversion and receipt by
Company or the Transfer Agent of all necessary documentation duly executed and
in proper form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost or destroyed certificates, if required), issue and surrender
to a common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery (or the shortest period of time in which a
recognized international courier can deliver) to the Holder at the address of
the Holder as shown on the stock records of the Company a certificate for
<PAGE>
the number of shares of Common Stock to which the Holder shall be entitled as
aforesaid.
(iii) No Fractional Shares. If any conversion of the Series A
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
in the aggregate, shall be the next lower number of shares.
(iv) Date of Conversion. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company before 11:59 p.m., New York City time, on the Date of
Conversion, and (ii) that the original Preferred Stock Certificates representing
the shares of Series A Preferred Stock to be converted are surrendered by
depositing such certificates with a common courier, as provided above, and
received by the Transfer Agent or the Company as soon as practicable after the
date set forth in the Notice of Conversion. The person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record Holder or Holders of such shares of
Common Stock on the Date of Conversion. If the original Preferred Stock
Certificates representing the Series A Preferred Stock to be converted are not
received by the Transfer Agent or the Company within ten (10) business days
after the Date of Conversion, or if the facsimile of the Notice of Conversion is
not received by the Company or its designated Transfer Agent prior to the
Conversion Notice Deadline, the Notice of Conversion, at the Company's option,
may be declared null and void.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series A Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series A Preferred Stock, the Company will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose; provided, however, that the taking of such action shall not affect the
Company's liability, if any, for damages arising as a result of its failure to
have a sufficient number of shares reserved.
(d) Automatic Conversion. Each share of Series A Preferred Stock
outstanding on the date which is three (3) years after the Last Closing Date
automatically shall be converted into Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the date which is three (3) years after the Last
Closing Date shall be deemed the Date of Conversion with respect to such
conversion.
(e) Adjustment to Conversion Rate.
<PAGE>
(i) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the conversion of all of the Series A Preferred
Stock, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, or other similar event, the Fixed Conversion Price shall
be proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased.
(ii) Adjustment to Variable Conversion Price. If, at any time when
any shares of the Series A Preferred Stock are issued and outstanding, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series A Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity or
there is a sale of all or substantially all the Company's assets or there is a
change of control transaction not deemed to be a liquidation pursuant to section
4(c), then the Holders of Series A Preferred Stock shall thereafter have the
right to receive upon conversion of Series A Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
5(e)(iii) unless (a) it first uses its best efforts to give thirty (30) days and
in any event gives at least twenty (20) days notice prior to the record date of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series A Preferred Stock into Common Stock)
and (b) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company
<PAGE>
under this Certificate of Designation including this subsection 5(e)(iii).
(iv) No Fractional Shares. If any adjustment under this Section 5(e)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
lower number of shares.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of Conversion. If the
Conversion Price of the Company's Common Stock is less than the Fixed Conversion
Price (as defined in Section 5(a)), at the time of receipt of a Notice of
Conversion pursuant to Section 5, the Company shall have the right, in its sole
discretion, to redeem in whole or in part any Series A Preferred Stock submitted
for conversion, immediately prior to and in lieu of conversion ("Redemption Upon
Receipt of Notice of Conversion"). If the Company elects to redeem some, but not
all, of the Series A Preferred Stock submitted for conversion, the Company shall
redeem from among the Series A Preferred Stock submitted by the various
shareholders for conversion on the applicable date, a pro-rata amount from each
such Holder so submitting Series A Preferred Stock for conversion.
(i) Redemption Price Upon Receipt of a Notice of Conversion. The
redemption price per share of Series A Preferred Stock under this Section 6(a)
shall be calculated in accordance with the following formula ("Redemption
Rate"):
[[(.10)(N/365)(10,000)] + 10,000] x Closing Bid Price on Date of Conversion
---------------------------------------
Conversion Price
where,
"N", "Date of Conversion", "Closing Bid Price" and "Conversion Price"
shall have the same meanings as defined in Section 5.
(ii) Mechanics of Redemption Upon Receipt of Notice of Conversion.
The Company shall effect each such redemption by giving notice of its election
to redeem, by facsimile, by 5:00 p.m. New York City time the next business day
following receipt of a Notice of Conversion from a Holder, and the Company shall
provide a copy of such redemption notice by overnight or two (2) day courier, to
(A) the Holder of the Series A Preferred Stock submitted for conversion at the
address and facsimile number of such Holder appearing in the Company's register
for the Series A Preferred Stock and (B) the Company's Transfer Agent. Such
redemption notice shall indicate whether the Company will redeem all or part of
the Series A Preferred Stock submitted for conversion and the applicable
redemption price.
(b) Company's Right to Redeem at its Election. At any time, commencing
twelve (12) months and one (1) day after the Last Closing Date, the Company
shall have the right, in its sole
<PAGE>
discretion, to redeem ("Redemption at Company's Election"), from time to time,
any or all of the Series A Preferred Stock; provided (i) Company shall first
provide thirty (30) days advance written notice as provided in subparagraph
6(b)(ii) below (which can be given beginning thirty (30) business days prior to
the date which is twelve (12) months and one (1) day after the Last Closing
Date), and (ii) that the Company shall only be entitled to redeem Series A
Preferred Stock having an aggregate Stated Value (as defined below) of at least
One Million Five Hundred Thousand Dollars ($1,500,000.00). If the Company elects
to redeem some, but not all, of the Series A Preferred Stock, the Company shall
redeem a pro-rata amount from each Holder of the Series A Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption Price At
Company's Election" shall be calculated as a percentage of Stated Value, as that
term is defined below, of the Series A Preferred Stock redeemed pursuant to this
Section 6(b), which percentage shall vary depending on the Date of Redemption at
Company's Election (as defined below), and shall be determined as follows:
Date of Notice of Redemption at Company's Election % of Stated Value
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
For purposes hereof, "Stated Value" shall mean the Original Series A Issue
Price (as defined in Section 4(a)) of the shares of Series A Preferred Stock
being redeemed pursuant to this Section 6(b), together with the accrued but
unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least thirty (30) days prior
written notice ("Notice of Redemption At Company's Election") to (A) the Holders
of the Series A Preferred Stock selected for redemption, at the address and
facsimile number of such Holder appearing in the Company's Series A Preferred
stock register and (B) the Transfer Agent, which Notice of Redemption At
Company's Election shall be deemed to have been delivered three (3) business
days after the Company's mailing (by overnight or two (2) day courier, with a
copy by facsimile) of such Notice of Redemption At Company's Election. Such
Notice of Redemption At Company's Election shall indicate (i) the number of
shares of Series A Preferred Stock that have been selected for redemption, (ii)
the date which such redemption is to become effective (the "Date of Redemption
At Company's Election") and (iii) the applicable Redemption Price At Company's
Election, as defined in subsection (b)(i) above. Notwithstanding the above,
Holder may convert into Common Stock pursuant to section 5, prior to the close
of business on the Date of Redemption at Company's Election, any
<PAGE>
Series A Preferred Stock which it is otherwise entitled to convert, including
Series A Preferred Stock that has been selected for redemption at Company's
election pursuant to this subsection 6(b); provided, however, that the Company,
shall still be entitled to exercise its right to redeem upon receipt of a Notice
of Conversion pursuant to Section 6(a).
(c) Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Redemption Notice and begin the
redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash, available in a
demand or other immediately available account in a bank or similar financial
institution; or
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bank or similar financial institution; or
(iii) an agreement with a standby underwriter willing to purchase
from the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being redeemed under this
Section 6 shall send their Preferred Stock Certificates so redeemed to the
Company or its Transfer Agent, and the Company shall pay the applicable
redemption price to that Holder within five (5) business days of the Date of
Redemption at Company's Election. The Company shall not be obligated to deliver
the redemption price unless the Preferred Stock Certificates so redeemed are
delivered to the Company or its Transfer Agent, or, in the event one or more
certificates have been lost, stolen, mutilated or destroyed, until the Holder
has complied with Section 5(c)(i).
(ii) If Company elects to redeem pursuant to either Section 6(a) or
6(b) hereof, and Company fails to pay Holder the redemption price within the
time frame as required by this Section 6(d), then Company shall issue shares of
Common Stock to any such Holder who has submitted a Notice of Conversion in
compliance with Section 5(c) hereof. The shares to be issued to Holder pursuant
to this provision shall be the number of shares determined using a Conversion
Price (as defined in Section 6 hereof) that equals the lesser of (i) the
Conversion Price on the date Holder sends its Notice of Conversion to Company or
Transfer Agent via facsimile, or (ii) the Conversion Price on the date the
Transfer Agent issues Common Stock pursuant to this Section 6(d)(ii). The
issuance of such shares shall not affect the Company's liability to the Holder
for damages, if any, arising as a result of its failure to redeem.
(e) Blackout Period. Notwithstanding the foregoing, the
<PAGE>
Company may not either send out a redemption notice or effect a redemption
pursuant to Section 6(b) above during a Blackout Period (defined as a period
during which the Company's officers or directors would not be entitled to buy or
sell stock because of their holding of material non-public information), unless
the Company shall first disclose the non-public information that resulted in the
Blackout Period; provided, however, that no redemption shall be effected until
at least ten (10) days after the Company shall have given the Holder written
notice that the Blackout Period has been lifted.
Section 7. Advance Notice of Redemption.
(a) Holder's Right to Elect to Receive Notice of Cash Redemption by the
Company. Holder shall have the right to require Company to provide advance
notice stating whether the Company will elect to redeem Holder's shares of
Series A Preferred Stock in cash, pursuant to the Company's redemption rights
discussed in Section 6(a).
(b) Mechanics of Holder's Election Notice. Holder shall send notice
("Election Notice") to the Company and such other person as the Company may
designate, via facsimile, stating Holder's intention to require Company to
disclose that if Holder were to exercise his, her or its right of conversion
(pursuant to Section 5) whether Company would elect to redeem a specific number
of shares of Holder's Series A Preferred Stock for cash in lieu of issuing
Common Stock. Company is required to disclose to Holder what action Company
would take over the subsequent twenty (20) business day period, including the
date of such Election Notice, as further discussed in subsection 7(c).
(c) Company's Response. Upon receipt by the Company of a facsimile copy of
an Election Notice, Company shall immediately send, via facsimile, a
confirmation of receipt of the Election Notice to Holder which shall specify
that the Election Notice has been received and the name and telephone number of
a contact person at the Company whom the Holder should contact regarding
information related to the requested advance notice. Thereafter Company must
respond by the close of business on the next business day following receipt of
Holder's Election Notice (1) via facsimile and (2) by depositing such response
with an overnight or two (2) day courier. The Company's response must state
whether it would redeem the shares, in whole or in part, or allow conversion
into shares of Common Stock without redemption. If Company does not respond to
Holder within one (1) business day via facsimile and overnight or two (2) day
courier, Company shall be required to issue to Holder Common Stock upon Holder's
conversion within the subsequent twenty (20) business day period of Holder's
Election Notice. However, if the Company's Common Stock price decreases so that
under the Conversion Rate Company would be required to issue more than an
additional ten percent (10%) of shares of Common Stock than Holder was entitled
to receive at the time Holder sent Company its Election Notice, then Company
shall no longer be bound to convert Holder's Preferred Stock into Common Stock
but may elect to redeem for cash pursuant to Section 6(a).
Section 8. Voting Rights. The Holders of the Series A Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the New
York General Corporation Law ("New
<PAGE>
York Law"), and no Holder of Series A Preferred Stock shall vote or otherwise
participate in any proceeding in which actions shall be taken by the Company or
the shareholders thereof or be entitled to notification as to any meeting of the
shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under New York Law the vote of the Holders of the
Series A Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series A Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under New York Law) shall constitute the approval of such action by the
class. To the extent that under New York Law the Holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one (1) class, each share of Series A Preferred Stock shall
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date on which the Conversion Price is calculated.
Holders of the Series A Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's
by-laws and applicable statutes.
Section 9. Protective Provision. So long as shares of Series A Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by New York Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series A Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock or any Senior Securities so as to affect adversely the Series A
Preferred Stock; provided, however, that no such change may be approved at any
time on or
<PAGE>
prior to the fortieth (40th) day following the Last Closing Date unless such
change is unanimously approved by all Holders;
(b) create any new class or series of stock having a preference over or on
parity with the Series A Preferred Stock with respect to Distributions (as
defined in Section 2 above) or increase the size of the authorized number of
Series A Preferred; or
(c) do any act or thing not authorized or contemplated by this Designation
which would result in taxation of the holders of shares of the Series A
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended);
provided, however, that nothing in this subsection shall limit the Company's
right to issue (i) straight debt securities or (ii) debt securities which are
convertible into restricted Common Stock which is resaleable only after the
expiration of the Rule 144 holding period.
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series A Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series A Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the forty-five (45) day, seventy-five (75) day, and one hundred
five (105) day holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series A Preferred Stock provided, however,
that the Dissenting Holders may not convert anytime on or before the fortieth
(40th) day following the Last Closing Date.
Section 10. Status of Redeemed or Converted Stock. In the event any shares
of Series A Preferred Stock shall be redeemed or converted pursuant to Section 6
or Section 5 hereof, the shares so converted or redeemed shall be canceled,
shall return to the status of authorized but unissued Preferred Stock of no
designated series, and shall not be issuable by the Company as Series A
Preferred Stock.
Section 11. Preference Rights. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one (1) or more
series of Preferred Stock with dividend and/or liquidation preferences junior to
the dividend and liquidation preferences of the Series A Preferred Stock."
Part B. Series B Preferred Stock.
Eight Thousand and Sixty (8,060) of the Ten Million (10,000,000)
authorized shares of Preferred Stock of the
<PAGE>
Corporation are hereby designated Series B Preferred Stock, par value $.05 per
share. (References to section numbers in this Part B of Article FOURTH of the
Certificate of Incorporation ("Part B") shall refer only to such sections in
this Part B of Article FOURTH, unless otherwise expressly stated herein.) The
Series B Preferred Stock shall possess the rights and preferences set forth
below:
Section 1. Designations and Amounts. The shares of such series shall have
a par value of $.05 per share and shall be designated as Series B Preferred
Stock (the "Series B Preferred Stock") and the number of shares constituting the
Series B Preferred Stock shall be Eight Thousand and Sixty (8,060). Three
Thousand Two Hundred Twenty-Five (3,225) shares of Series B Preferred Stock
shall be further designated as Series B-1 Preferred Stock (the "Series B-1
Preferred Stock"), and Four Thousand Eight Hundred Thirty-Five (4,835) shares of
Series B Preferred Stock shall be further designated as Series B-2 Preferred
Stock (the "Series B-2 Preferred Stock"). The Series B Preferred Stock shall be
offered at a purchase price of One Thousand Dollars ($1,000.00) per share (the
"Original Series B Issue Price").
Section 2. Rank. The Series B Preferred Stock shall rank: (a) junior to
any other class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms senior to the Series B Preferred Stock
(collectively, the "Senior Securities"); (b) prior to all of the Corporation's
Common Stock, $.01 par value per share ("Common Stock"); (c) prior to any class
or series of capital stock of the Corporation hereafter created not specifically
ranking by its terms senior to or on parity with any Series B Preferred Stock of
whatever subdivision (collectively, with the Common Stock, "Junior Securities");
and (d) on parity with the Series A Preferred Stock and any class or series of
capital stock of the Corporation hereafter created specifically ranking by its
terms on parity with the Series B Preferred Stock ("Parity Securities") in each
case as to distributions of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions") and as to dividends. The
Series B-1 Preferred Stock and the Series B-2 Preferred Stock shall rank on
parity with each other as to Distributions and dividends.
Section 3. Dividends .
3.1 Cumulative Dividends. The holders of Series B Preferred Stock (the
"Series B Holders") shall be entitled to receive, out of funds legally available
therefor, cumulative annual dividends at an annual rate per share equal to ten
percent (10%) of the Original Series B Issue Price, and such amount shall be
compounded annually such that if the dividend is not paid for any year, then the
unpaid amount shall be added to the Original Series B Issue Price for purposes
of calculating succeeding years' dividends. Such dividends shall accrue on each
share of Series B Preferred Stock from day to day from the date of issue and
shall be cumulative until paid upon liquidation, dissolution or winding up of
the Corporation within the meaning of Section 4 hereof or upon redemption as
provided in Section 6 hereof or
<PAGE>
until such share is converted into Common Stock as provided in Section 5 hereof,
and such dividends shall so accrue whether or not earned or declared and whether
or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. If such cumulative dividends in respect
of any prior or current annual dividend period shall not have been declared and
paid, then the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart with respect to any class
of the Corporation's capital stock, now or hereafter outstanding, other than
Distributions required to be made to holders of Series A Preferred Stock
pursuant to Part A of this Article FOURTH of the Corporation's Certificate of
Incorporation ("Part A"). Cumulative dividends with respect to shares of Series
B Preferred Stock which are accrued, payable and/or in arrears shall be paid on
December 21 of each year commencing on December 21, 1998 (December 21, 1998 and
each December 21 thereafter being referred to herein as a "Dividend Payment
Date"), to the extent assets are legally available therefor and any amounts for
which assets are not legally available shall be paid promptly thereafter as
assets become legally available therefor; any partial payment will be made to
the Series B Holders pro rata in accordance with their holdings of such shares.
On any Dividend Payment Date occurring prior to December 21, 2001, (a) dividends
on shares of Series B-1 Preferred Stock may be paid through the issuance of
additional shares of Series B-1 Preferred Stock and (b) dividends on shares of
Series B-2 Preferred Stock may be paid through the issuance of additional shares
of Series B-2 Preferred Stock, in each case at the rate of one-tenth of one such
share for every $100 of accrued and unpaid dividends.
3.2 Participating Dividends. In the event the Corporation shall make or
issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution with respect to the
Common Stock payable in (a) securities of the Corporation other than shares of
Common Stock or (b) assets, then and in each such event the holders of Series B
Preferred Stock shall receive, in addition to and not in lieu of any and all
dividends under Section 3.1, at the same time such dividend is paid or
distribution is made with respect to Common Stock, the number of such securities
or such other assets of the Corporation which they would have received had their
Series B Preferred Stock been converted into Common Stock immediately prior to
the record date for determining holders of Common Stock entitled to receive such
distribution.
3.3 Reservation of Stock Issuable as Dividends. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Series B-1 Preferred Stock and Series B-2 Preferred Stock, solely for the
purpose of effecting the payment of dividends on the Series B Preferred Stock as
provided in Section 3.1, such number of shares of Series B-1 Preferred Stock and
Series B-2 Preferred Stock as shall from time to time be sufficient to effect
such payment on all outstanding shares of Series B Preferred Stock. If at any
time the number of authorized but unissued shares of Series B-1 Preferred Stock
or Series B-2 Preferred Stock shall not be sufficient to effect such payment on
all outstanding shares of Series B Preferred Stock, the Corporation will take
such
<PAGE>
corporate action as may be necessary to increase its authorized but unissued
shares of Series B-1 Preferred Stock and Series B-2 Preferred Stock to such
number of shares as shall be sufficient for such purpose; provided, however,
that the taking of such action shall not affect the Corporation's liability, if
any, for damages arising as a result of its failure to have a sufficient number
of shares reserved.
Section 4. Liquidation Preference.
4.1 In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of shares of
Series B Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Corporation's Certificate of
Incorporation, and prior in preference to any distribution to Junior Securities
but in parity with any distribution to Parity Securities, an amount per share
equal to the sum of (a) the Original Series B Issue Price for each outstanding
share of Series B Preferred Stock and (b) an amount equal to all accrued and
unpaid dividends thereon, whether or not declared, since the date of issue up to
and including the date full payment shall have been tendered to the Series B
Holders with respect to such liquidation, dissolution or winding up
(collectively, the "Series B Liquidation Amount"). If, after the occurrence of
any such liquidation, dissolution or winding up and payment in full of the
preferential amounts with respect to the Senior Securities, the assets and funds
available to be distributed among the holders of the Series B Preferred Stock
and Parity Securities shall be insufficient to permit the payment to such
holders of the full preferential amounts due to the holders of the Series B
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed among the holders of the Series B Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to which each
such series of stock is entitled by the Corporation's Certificate of
Incorporation.
4.2 Upon the completion of the distribution required by Section 4.1,
if assets remain in the Corporation, they shall be distributed to holders of
Junior Securities in accordance with the Corporation's Certificate of
Incorporation.
4.3 At each Series B Holder's election, a sale, conveyance or
disposition of all or substantially all of the assets of the Corporation or the
effectuation by the Corporation of a transaction or series of related
transactions (other than a registered public offering by the Corporation of
shares of its Common Stock) in which more than fifty percent (50%) of the voting
power of the Corporation is disposed of shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 4; provided, that
no such election by any Series B Holder in respect of any such event shall be
effective so long as any shares of the Corporation's Series A Preferred Stock
are outstanding unless one or more holders of such outstanding shares of Series
A Preferred Stock exercise the corresponding option available to such holders
under Section 4(c) of Part A in respect of such event. An event described in the
immediately preceding sentence that a Series B Holder does
<PAGE>
not elect or, by virtue of the proviso in such sentence, is unable to elect to
treat as a liquidation and a consolidation, merger, acquisition or other
business combination of the Corporation with or into any other company or
companies shall not be treated as a liquidation, dissolution or winding up
within the meaning of this Section 4, but instead shall be treated pursuant to
Section 5.6 hereof.
4.4 In the event that, immediately prior to the closing of a
transaction described in Section 4.3 which would constitute a liquidation event,
the cash distributions required by Section 4.1 or Section 6 have not been made,
the Corporation shall either: (a) cause such closing to be postponed until such
cash distributions have been made, or (b) cancel such transaction, in which
event the rights of the Series B Holders shall be the same as existing
immediately prior to such proposed transaction.
Section 5. Conversion. The Series B Holders shall have conversion rights
as follows (the "Conversion Rights"):
5.1 Right to Convert. Each holder of any share of Series B Preferred
Stock shall be entitled, subject to the Corporation's right of redemption set
forth in Section 6.1, at the office of the Corporation or any transfer agent for
the Series B Preferred Stock (the "Transfer Agent"), to convert such share of
Series B Preferred Stock, at any time after the first anniversary of the first
issuance and sale by the Corporation of any shares of Series B Preferred Stock,
into that number of fully-paid and non-assessable shares of Common Stock of the
Corporation calculated in accordance with the following formula (the "Conversion
Rate"):
Number of shares issued upon conversion of any share of Series B Preferred
Stock =
1,000 + N
------------------
Applicable Conversion Price
where,
N = the amount of all unpaid dividends accrued from the date of issuance
to the applicable Date of Conversion (as defined in Section 5.3.5 below) of such
share of Series B Preferred Stock, and
Applicable Conversion Price = the Series B Conversion Price (as defined in
Section 5.2) applicable to such share of Series B Preferred Stock.
5.2 Conversion Price.
5.2.1 Series B Conversion Price. As used herein, the term "Series B
Conversion Price" shall mean (a) in the case of any share of Series B-1
Preferred Stock, the Series B-1 Conversion Price, as that term is defined in
Section 5.2.2 and (b) in the case of any share of Series B-2 Preferred Stock,
the Series B-2 Conversion Price, as that term is defined in Section 5.2.3.
5.2.2 Series B-1 Conversion Price. As used herein, the term
<PAGE>
"Series B-1 Conversion Price" shall initially mean an amount equal to the lesser
of (a) $7.50 (the "Reference Price") or (b) .85 times the average Closing Price,
as that term is defined in Section 5.2.4, of the Corporation's Common Stock for
the five trading days immediately preceding the Date of Conversion, as defined
in Section 5.3.5 (the "Variable Series B-1 Conversion Price"), which Series B-1
Conversion Price shall be adjusted, however, from time to time in accordance
with this Section 5.
5.2.3 Series B-2 Conversion Price. As used herein, the term "Series
B-2 Conversion Price" shall initially mean an amount equal to the greater of (a)
the Reference Price or (b) .85 times the average Closing Price, as that term is
defined in Section 5.2.4, of the Corporation's Common Stock for the five trading
days immediately preceding the date of the Corporation's first issuance and sale
of any shares of Series B Preferred Stock, which Series B-2 Conversion Price
shall be adjusted, however, from time to time in accordance with this Section 5.
5.2.4 Closing Price. The term "Closing Price," as used with
reference to shares of Common Stock on any specified date, shall mean (a) the
last reported sale price per share of Common Stock on such date on the OTC
Electronic Bulletin Board, or if no longer traded thereon, on the Nasdaq Small
Cap Market or the Nasdaq National Market, or if not traded on the Nasdaq Small
Cap Market or the Nasdaq National Market, the last reported sale price on the
principal national securities exchange or the automated quotation system on
which the Common Stock is so traded or (b) if such OTC Electronic Bulletin Board
or Nasdaq or other automated quotation system shall report only asked and bid
prices, or if there shall have been no sale of Common Stock on such date so
reported, then the average of the last reported asked price and the last
reported bid price of Common Stock.
5.3 Mechanics of Conversion.
5.3.1 General. In order to convert any shares of Series B Preferred
Stock into shares of Common Stock, the holder of such shares shall (a) telecopy,
at or prior to 11:59 p.m., New York City time (the "Conversion Notice Deadline")
on the date of conversion, a copy of the fully executed notice of conversion
("Notice of Conversion") to the Corporation at the office of the Corporation or
its designated Transfer Agent for the Series B Preferred Stock stating that such
holder elects to convert, which notice shall specify the date of conversion, the
number of shares of Series B Preferred Stock to be converted, the applicable
Series B Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the front page of
each certificate to be converted) and (b) surrender to a common carrier or the
United States Postal Service, for delivery to the office of the Corporation or
the Transfer Agent, the original certificates representing the shares of Series
B Preferred Stock being converted (the "Preferred Stock Certificates"), duly
endorsed for transfer to the Corporation; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such conversion unless either the Preferred Stock
Certificates are delivered to the Corporation or its Transfer Agent as provided
above, or such holder notifies the Corporation or its Transfer
<PAGE>
Agent that such certificates have been lost, stolen or destroyed (subject to the
requirements of Section 5.3.2). Upon receipt by the Corporation of a telecopy of
a Notice of Conversion, the Corporation shall within three business days send,
via telecopier, a confirmation of receipt of the Notice of Conversion to such
holder which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Corporation whom such
holder should contact regarding information related to the conversion. In the
case of a dispute as to the calculation of the Conversion Rate, the Corporation
shall promptly issue to such holder the number of Shares that are not disputed
and shall submit the disputed calculations to its outside accountant (the
"Accountant") via telecopier within five business days of receipt of such
holder's Notice of Conversion. The Corporation shall cause the Accountant to
perform the calculations and notify the Corporation and such holder of the
results no later than 48 hours from the time it receives the disputed
calculations. The Accountant's calculation shall be deemed conclusive absent
manifest error.
5.3.2 Lost, Stolen, Destroyed or Mutilated Certificates. Upon
receipt by the Corporation of evidence of the loss, theft, destruction or
mutilation of any Preferred Stock Certificate(s) representing shares of Series B
Preferred Stock, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Corporation, and upon surrender and
cancellation of the Preferred Stock Certificate(s), if mutilated, the
Corporation shall execute and deliver new Preferred Stock Certificate(s) of like
tenor and date. However, the Corporation shall not be obligated to re-issue such
lost, stolen, destroyed or mutilated Preferred Stock Certificate(s) if the
holder thereof contemporaneously requests the Corporation to convert such Series
B Preferred Stock into Common Stock.
5.3.3 Delivery of Common Stock Upon Conversion. The Corporation or
the Transfer Agent (as applicable) shall, no later than the close of business on
the fourth business day (the "Deadline") after receipt by the Corporation or
Transfer Agent of a telecopy of a Notice of Conversion and receipt by the
Corporation or the Transfer Agent of all necessary documentation duly executed
and in proper form required for conversion, including the original Preferred
Stock Certificates to be converted (or after provision for indemnification or
security in the case of lost, stolen or destroyed certificate(s), if required),
issue and surrender to a common carrier or the United States Postal Service for
either overnight or (if delivery is outside the United States) two day delivery
(or the shortest period of time in which a recognized international carrier can
deliver) to the converting holder at the address of such holder as shown on the
stock records of the Corporation a certificate for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid.
5.3.4 Cash in Lieu of Fractional Shares. The Corporation may, if it
so elects, issue fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series B Preferred Stock. If
the Corporation does not elect to issue fractional shares, the Corporation shall
pay to the holder of the shares of Series B Preferred Stock which were
<PAGE>
converted a cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the Closing Price on the Date of Conversion. The
determination as to whether or not any fractional shares are issuable shall be
based upon the total number of shares of Series B Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series B
Preferred Stock being converted.
5.3.5 Date of Conversion. The date on which a conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in the Notice of
Conversion, provided (a) that the copy of the Notice of Conversion is sent by
telecopier to the Corporation at or prior to 11:59 p.m., New York City time, on
the Date of Conversion, and (b) that the original Preferred Stock Certificates
representing the shares of Series B Preferred Stock to be converted are
surrendered by depositing such certificates with a common carrier or the United
States Postal Service, for delivery to the office of the Corporation or the
Transfer Agent and/or, if any of such Preferred Stock Certificates have been
lost, stolen or destroyed, the holder of such shares complies with Section
5.3.2. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Date of Conversion. If
the original Preferred Stock Certificates representing the shares of Series B
Preferred Stock to be converted are not received by the Corporation or the
Transfer Agent, or if such holder fails to comply with Section 5.3.2, as the
case may be, within ten business days after the Date of Conversion, or if the
telecopy of the Notice of Conversion is not received by the Corporation or its
Transfer Agent prior to the Conversion Notice Deadline, the Notice of
Conversion, at the Corporation's option, may be declared null and void.
5.4 Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series B Preferred Stock, the Corporation will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose; provided, however, that the taking of such action shall not
affect the Corporation's liability, if any, for damages arising as a result of
its failure to have a sufficient number of shares reserved.
5.5 Automatic Conversion. Each share of Series B Preferred Stock
outstanding on December 21, 2001, shall automatically be converted into shares
of Common Stock on such date at the applicable Conversion Rate then in effect
for such share (calculated in accordance with the formula in Section 5.1 above),
and such date shall be deemed the Date of Conversion with respect to such
conversion.
<PAGE>
5.6 Adjustment of Common Stock Issuable Upon Conversion.
5.6.1 Adjustment Due to Stock Split, Stock Dividend, Etc. If the
number of outstanding shares of Common Stock is increased by a stock split,
stock dividend, subdivision of shares or other similar event, the Reference
Price and the Series B-2 Conversion Price shall each be proportionately reduced,
or if the number of outstanding shares of Common Stock is decreased by a
combination or reclassification of shares, or other similar event, the Reference
Price and the Series B-2 Conversion Price shall each be proportionately
increased. In addition, if any such event shall have taken place during the
reference period for determination of the Variable Series B-1 Conversion Price,
then the Variable Series B-1 Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event for all five trading days immediately
preceding the Date of Conversion.
5.6.2 Adjustment Due to Merger, Consolidation, Etc. If, at any time
when any shares of Series B Preferred Stock are outstanding, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities of the Corporation
or another entity or there is a sale of all or substantially all the
Corporation's assets or there is a change of control transaction not deemed to
be a liquidation pursuant to Section 4.3, then each Series B Holder shall
thereafter have the right to receive upon conversion of Series B Preferred
Stock, upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities and/or other assets which such Series B
Holder would have been entitled to receive in such transaction had the Series B
Preferred Stock been converted immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holders of the Series B Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Series B Conversion Price and of the number of shares issuable upon
conversion of the Series B Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this Section 5.6.2 unless (a) it first uses its best
efforts to give notice thereof to each Series B Holder 30 days prior to, and in
any event gives notice thereof to each Series B Holder at least 20 days prior
to, the record date of such merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event (during which time each
Series B Holder shall be entitled to convert its shares of Series B Preferred
Stock into Common Stock) and (b) the resulting successor or acquiring entity (if
not the Corporation) assumes by written instrument the obligations of the
Corporation under this Part B, including this Section 5.6.2.
5.6.3 Calculation of Adjustments. In computing each adjustment to
either Series B Conversion Price, the result shall
<PAGE>
be rounded to the nearest thousandth of a cent, and such adjustment shall be
made separately in each instance, and in the event the adjustment therefrom
results in a change of the Series B Conversion Price of less than $0.01, then no
adjustment to such then applicable Series B Conversion Price shall be made, but
the amount of said adjustment calculated thereby shall be carried forward to
successive occasions until such adjustments in the aggregate equal or exceed
$0.01.
Section 6. Redemption.
6.1 Corporation's Right to Redeem to Prevent Certain Conversions.
6.1.1 Blocking Redemption Right. If the Series B-1 Conversion Price
on the Date of Conversion with respect to any shares of Series B-1 Preferred
Stock is less than the Target Price (as hereinafter defined) on such date, then
the Corporation shall have the right, in its sole discretion (but subject to the
provisions of Section 6.2.3), to redeem any or all of the shares of Series B-1
Preferred Stock otherwise to be converted on such date, in lieu of conversion
("Blocking Redemption"), on the Blocking Redemption Date, as defined in Section
6.1.2 at a redemption price for each such share so redeemed equal to its
Redemption Price, as defined in Section 6.3 on such Blocking Redemption Date. If
the Corporation elects to redeem some, but not all, of the shares of Series B-1
Preferred Stock that would otherwise be converted on such Date of Conversion,
the Corporation shall redeem from among such shares of Series B-1 Preferred
Stock that would otherwise be so converted a pro rata amount from each holder of
any of such shares of Series B-1 Preferred Stock in accordance with the number
of shares so submitted for conversion by all such holders. As used herein, the
term "Target Price" shall mean an amount equal to the Reference Price, which
amount shall be adjusted, however, from time to time in accordance with Section
5.6 and Section 6.6.
6.1.2 Mechanics of Blocking Redemption. If the Corporation desires
to effect a redemption under this Section 6.1, it shall deliver notice of its
election to redeem, by telecopy, at or prior to 5:00 p.m. New York City time the
third business day following receipt of a Notice of Conversion from a Series B
Holder with respect to any shares of Series B-1 Preferred Stock, and the
Corporation shall provide a copy of such redemption notice by overnight or two
day carrier, to (a) the holder of the Series B-1 Preferred Stock submitted for
conversion at the address and telecopier number of such holder appearing in the
Corporation's register for the Series B-1 Preferred Stock and (b) the
Corporation's Transfer Agent. Such redemption notice shall indicate (a) whether
the Corporation will redeem all or part of the Series B-1 Preferred Stock
submitted for conversion, (b) the applicable Redemption Price and (c) the date
such redemption shall become effective, which shall be the fifth business day
following the date such notice is so sent by telecopier to such holder (the
"Blocking Redemption Date").
6.2 Corporation's Right to Redeem Generally.
6.2.1 General Redemption Right. Commencing on December 21,
<PAGE>
1998, the Corporation shall have the right, in its sole discretion, to redeem,
from time to time, any or all of the Series B Preferred Stock pursuant to this
Section 6.2 (any such redemption being referred to herein as a "General
Redemption") at a redemption price for each such share so redeemed equal to its
Redemption Price, as defined in Section 6.3; provided, that (a) the Corporation
shall not be entitled to exercise its right to redeem any shares of Series B
Preferred Stock pursuant to this Section 6.2 unless the average of the Closing
Price of the Corporation's Common Stock for any ten consecutive trading days is
greater than the Reference Price then in effect, (b) the Corporation shall
deliver, within five trading days after the end of such ten consecutive trading
days, advance written notice of such redemption as provided in Section 6.2.2,
(c) the Corporation shall only be entitled to redeem on any one occasion either
all the outstanding shares of Series B Preferred Stock or shares of Series B
Preferred Stock having an aggregate Redemption Price (as defined in Section 6.3)
of at least One Million Dollars ($1,000,000.00) and (d) if at any time any share
of Series B-1 Preferred Stock and any share of Series B-2 Preferred Stock are
simultaneously outstanding, then (i) the Corporation may exercise such
redemption right as to any share of Series B-1 Preferred Stock only if, on the
date the Corporation's mailing of its notice of such redemption pursuant to
Section 6.2.2, the Series B-1 Conversion Price is greater than the Series B-2
Conversion Price or all shares of Series B-2 Preferred Stock are simultaneously
redeemed and (ii) the Corporation may exercise such redemption right as to any
share of Series B-2 Preferred Stock only if, on the date of the Corporation's
mailing of such notice pursuant to Section 6.2.2, the Series B-2 Conversion
Price is greater than the Series B-1 Conversion Price or all shares of Series
B-1 Preferred Stock are simultaneously redeemed. If the Corporation elects to
redeem some, but not all, of the shares of Series B-1 Preferred Stock or Series
B-2 Preferred Stock, the Corporation shall redeem a pro rata amount from each
holder of the Series B-1 Preferred Stock or Series B-2 Preferred Stock, as the
case may be, and each such holder may specifically designate which of its shares
of such Series B-1 Preferred Stock or Series B-2 Preferred Stock shall be so
redeemed. Notwithstanding the foregoing, the Corporation may not exercise its
redemption right under this Section 6.2 more than once in any 60 day period, nor
within 31 days of the issuance of any shares of Series B Preferred Stock in
payment of accrued dividends pursuant to Section 3.1.
6.2.2 Mechanics of Redemption at Corporation's Election. If the
Corporation desires to effect a redemption pursuant to this Section 6.2, it
shall deliver prior written notice of such redemption ("Notice of General
Redemption") to (a) the holders of the Series B Preferred Stock selected for
redemption, at the address and telecopier number of such holder appearing in the
Corporation's register for the Series B Preferred Stock and (b) the Transfer
Agent, which Notice of General Redemption shall be deemed to have been delivered
three business days after the Corporation's mailing (by overnight or two day
carrier), with a copy sent by telecopier to each such holder on the date of such
mailing, of such Notice of General Redemption. Such Notice of General Redemption
shall indicate (a) the number of shares of Series B-1 Preferred Stock and/or
Series B-2 Preferred Stock that have been selected for redemption, (b) the date
which such
<PAGE>
redemption is to become effective (the "Date of General Redemption"), which
shall be a date not less than 15 days nor more than 30 days following the date
such Notice of General Redemption is delivered and (c) the applicable Redemption
Price.
6.2.3 Holder's Right to Block Redemption. Notwithstanding the
foregoing provisions of this Section 6.2, each Series B Holder may, by
delivering a Notice of Conversion pursuant to Section 5.3 within seven trading
days following such holder's receipt of a Notice of General Redemption, convert
any or all of such holder's shares selected for redemption, and no such
conversion shall be subject to a Blocking Redemption pursuant to Section 6.1;
provided, however, that if the average Closing Price of the Corporation's Common
Stock for the five trading days immediately preceding the date of such Notice of
Conversion is less than the Reference Price then in effect, then such shares
shall neither be converted pursuant to such Notice of Conversion nor redeemed
pursuant to such Notice of General Redemption nor subject to redemption pursuant
to Section 6.1, and such Notice of General Redemption shall be deemed null and
void, ab initio, as to such holder.
6.3 Redemption Price. The redemption price payable by the Corporation upon
redemption of any share of Series B Preferred Stock pursuant to Section 6.1 or
Section 6.2 shall be an amount (the "Redemption Price") equal to the Original
Series B Issue Price, plus all unpaid dividends on such share accrued from the
date of issuance to the date of such redemption.
6.4 Limitations on the Corporation's Redemption Rights.
6.4.1 Corporation Must Have Immediately Available Funds on Deposit.
The Corporation shall not be entitled to exercise any redemption right under
Section 6.1 or Section 6.2, or send any redemption notice under Section 6.1 or
Section 6.2 unless it has, and on the applicable redemption date will have,
funds legally available to effect such redemption in full and unless it has
deposited the full amount of the redemption price in cash, available in a demand
or other immediately available account with a bank or trust corporation having
aggregate capital and surplus in excess of $100,000,000 as a trust fund for the
benefit of the respective holders of the shares designated for redemption and
not yet redeemed, with irrevocable instructions and authority to the bank or
trust corporation to pay the applicable redemption price for such shares to
their respective holders on or after the applicable redemption date upon receipt
of notification from the Corporation that such holder has surrendered its share
certificate pursuant to Section 5 or this Section 6.
6.4.2 Blackout Period. Notwithstanding the foregoing provisions of
this Section 6, the Corporation may not either send out a redemption notice or
effect a redemption pursuant to Section 6.1 or Section 6.2 during any period
during which the Corporation or any of its officers or directors are not able
lawfully to buy or sell shares of Common Stock because of the possession by any
of them of material non-public information (a "Blackout Period"), unless the
Corporation shall first publicly disclose such non-public information; provided,
however, that no redemption shall be effected until at least ten\
<PAGE>
days after the Corporation shall have given the holder written notice that the
Blackout Period has expired.
6.5 Payment of Redemption Price.
6.5.1 Each holder of any shares of Series B Preferred Stock being
redeemed under this Section 6 shall send Preferred Stock Certificates evidencing
such shares to the Corporation or its Transfer Agent, and the Corporation shall
cause the applicable Redemption Price for each such share to be paid to such
holder, in full, on the Date of Blocking Redemption or Date of General
Redemption, as the case may be; provided that the Corporation shall not be
obligated to deliver the Redemption Price for any such share until the Preferred
Stock Certificate evidencing such share is delivered to the Corporation or its
Transfer Agent, or, in the event such certificate has been lost, stolen,
mutilated or destroyed, until the holder of such share has complied with Section
5.3.2.
6.5.2 If the Corporation elects to redeem any shares of Series B
Preferred Stock pursuant to either Section 6.1 or Section 6.2 hereof, and the
Corporation fails to pay or cause to be paid to any Series B Holder, in full,
the Redemption Price for any such share so selected for redemption from such
holder as and when such payment is due as provided in Section 6.5.1, then the
Corporation shall, if such holder has submitted a Notice of Conversion in
compliance with Section 5.3 hereof, convert such share, in lieu of redeeming
such share, into shares of Common Stock on the date such payment is due (which
date shall be deemed the Date of Conversion with respect to such conversion for
purposes of Section 5.1), and the number of shares of Common Stock to be issued
to such Series B Holder upon such conversion of such share shall be the number
of shares of Common Stock determined using a conversion price that equals the
lesser of (a) the applicable Series B Conversion Price on the date such Series B
Holder sent its Notice of Conversion to the Corporation or the Transfer Agent
via telecopier, or (b) the applicable Series B Conversion Price on the date the
Transfer Agent issues to such Series B Holder certificates evidencing such
shares of Common Stock pursuant to this Section 6.5.2. The issuance of such
shares shall not affect the Corporation's liability to any such Series B Holder
for damages, if any, arising as a result of its failure timely to redeem and to
pay the full amount of the redemption price payable to such holder as provided
herein.
6.6 Adjustment of Target Price. In addition to any adjustment to the
Target Price resulting from any adjustment to the Reference Price pursuant to
Section 5, the Target Price shall also be subject to adjustment as provided in
this Section 6.6.
6.6.1 Upon the Issuance of Common Stock
(a) Issuance of Common Stock. If the Corporation shall, while there are
any shares of Series B Preferred Stock outstanding, issue or sell shares of
Common Stock without consideration or at a price per share less than the
Applicable Market Price, as hereinafter defined, as of the date of such issuance
or sale then, in each such case, the Target Price shall upon such issuance or
sale, except as hereinafter provided, be
<PAGE>
lowered so as to be equal to an amount determined by multiplying the Target
Price by a fraction:
(i) the numerator of which shall be (x) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (y) the number of shares of Common Stock which the
net aggregate consideration, if any, received by the Corporation for the total
number of such additional shares of Common Stock so issued would purchase at the
Applicable Market Price then in effect, and
(ii) the denominator of which shall be (x) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock plus (y) the number of such additional shares of Common
Stock so issued.
As used herein, the term "Applicable Market Price" as of any date of
determination means 85% of the average Closing Price, as that term is defined in
Section 5.2.4, of the Corporation's Common Stock for the five trading days
immediately preceding such date of determination.
(b) Upon Issuance of Warrants, Options and Rights to Common Stock.
(i) For the purposes of this Section 6.6.1, the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options or any
rights with respect to such convertible or exchangeable securities) shall be
deemed an issuance of such Common Stock at such time if the Net Consideration
Per Share (as hereinafter defined) which may be received by the Corporation for
such Common Stock shall be less than the Applicable Market Price at the time of
such issuance. Any obligation, agreement or undertaking to issue warrants,
options, subscriptions or purchase rights at any time in the future shall be
deemed to be an issuance at the time such obligation, agreement or undertaking
is made or arises. No adjustment of the Target Price shall be made under this
Section 6.6.2 upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions or purchase
rights or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have been made or
deemed not required hereunder, upon the issuance of any such warrants, options,
or subscription or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Target Price
shall be adjusted to such Target Price as would have obtained (1) had the
adjustments made upon the issuance of such warrants, options, rights or
convertible securities been made upon the basis of the decreased Net
Consideration Per Share of such securities and (2) had adjustments made to the
Target Price since the date of issuance of such securities been made to the
Target Price as
<PAGE>
adjusted pursuant to (1) above. Any adjustment of the Target Price with respect
to this paragraph which relates to warrants, options, subscriptions, purchase
rights or convertible securities with respect to shares of Common Stock shall be
disregarded if, as, when and to the extent such warrants, options,
subscriptions, purchase rights or convertible securities expire or are canceled
without being exercised or converted, so that the Target Price effective
immediately upon such cancellation or expiration shall be equal to the Target
Price in effect at the time of the issuance of the expired or canceled warrants,
options, subscriptions, purchase rights or convertible securities with such
additional adjustments as would have been made to the Target Price had the
expired or canceled warrants, options, subscriptions, purchase rights or
convertible securities not been issued.
(ii) For purposes of this Section 6.6, the "Net Consideration Per
Share" which may be received by the Corporation shall be determined as follows:
(x) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the Corporation
for the issuance of such warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Corporation upon exercise or conversion
thereof, divided by the aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities were exercised, exchanged or converted.
(y) The "Net Consideration Per Share" which may be received by
the Corporation shall be determined in each instance as of the date of issuance
of warrants, options, subscriptions, or other purchase rights or convertible or
exchangeable securities without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such warrants, options, subscriptions, or other purchase rights or convertible
or exchangeable securities.
(c) Determination of Consideration. For purposes of this Section 6.6, (i)
the amount of consideration received by or payable to the Corporation for the
issuance of any shares of Common Stock or of any of the securities or rights
described in this Section 6.6 shall be deemed to be the amount of such
consideration received by or payable to the Corporation for such issuance, after
deducting therefrom any compensation or discount in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services or for any expenses incurred in connection therewith, and (ii) if a
part or all of the consideration received by the Corporation in connection with
the issuance of shares of the Common Stock or the issuance of any of the
securities or rights described in this Section 6.6 consists of property other
than cash, such consideration shall be deemed to have a fair market value as is
reasonably determined in good faith by the Board of Directors of the
Corporation.
(d) Exceptions. This Section 6.6.1 shall not apply to (a)
<PAGE>
shares issued as a stock split or stock dividend or (b) shares issued upon
conversion of shares of Series A or Series B Preferred Stock.
6.6.2 Calculations. In computing each adjustment to the Target
Price, the result shall be rounded to the nearest thousandth of a cent, and such
adjustment shall be made separately in each instance, and in the event the
adjustment therefrom results in a change of the Target Price of less than $0.01,
then no adjustment to such then applicable Target Price shall be made, but the
amount of said adjustment calculated thereby shall be carried forward to
successive occasions until such adjustments in the aggregate equal or exceed
$0.01.
Section 7. Advance Notice of Redemption.
7.1 Holder's Right to Elect to Receive Notice of Cash Redemption by the
Corporation. Each Series B Holder shall have the right to require the
Corporation to provide advance notice stating whether the Corporation will
redeem such holder's shares of Series B Preferred Stock pursuant to Section 6.1.
7.2 Mechanics of Holder's Election Notice. A Series B Holder desiring to
exercise its rights under this Section 7 shall send notice ("Election Notice")
to the Corporation and such other person as the Corporation may designate, via
telecopier, requesting the Corporation to disclose whether, if such holder were
to exercise its right of conversion pursuant to Section 5 with respect to all or
a specified number of shares of Series B Preferred Stock, the Corporation would
elect to redeem any or all of such shares of Series B Preferred Stock for cash
in lieu of issuing Common Stock. The Corporation shall then be required to
disclose to such holder what action the Corporation would take over the
subsequent 20 business day period, including the date of such Election Notice,
as further provided in Section 7.3.
7.3 Corporation's Response. Upon receipt by the Corporation of an Election
Notice, the Corporation shall immediately send, via telecopier, a confirmation
of receipt of the Election Notice to the holder submitting such Election Notice,
which confirmation shall specify that the Election Notice has been received and
the name and telephone number of a contact person at the Corporation whom such
holder should contact regarding information related to the requested advance
notice. Thereafter the Corporation must respond by the close of business on the
third business day following receipt of such holder's Election Notice (a) via
telecopier and (b) by depositing such response with an overnight or two day
carrier. The Corporation's response must state whether it would redeem the
shares, in whole or in part (and, if in part, the number of such shares it would
redeem), or allow conversion into shares of Common Stock without redemption. If
the Corporation does not respond to such holder within three business days via
telecopier and overnight or two day carrier, the Corporation shall be required
to issue to such holder Common Stock upon such holder's conversion within 20
business days following such holder's Election Notice. However, if the
Corporation's Common Stock price decreases so that under the applicable
Conversion Rate the Corporation would be required to issue more than an
additional twenty percent (20%) of shares of Common Stock other than such holder
was entitled to receive
<PAGE>
at the time such holder sent its Election Notice, then the Corporation shall no
longer be bound to convert such holder's Preferred Stock into Common Stock but
may elect to redeem such shares pursuant to Section 6.1, in which case such
holder may block such redemption by delivering to the Corporation written notice
rescinding its Notice of Conversion within two business days of its receipt of
the Corporation's redemption notice under Section 6.2. If the holder delivers
such a rescission notice, then such shares shall neither be converted pursuant
to the holder's Notice of Conversion nor redeemed pursuant to Section 6.1.
Section 8. Voting Rights. Except as otherwise provided by New York law,
the holders of the Series B Preferred Stock shall have no voting power
whatsoever, and shall not be entitled, as such, to vote or otherwise participate
in any proceeding in which actions shall be taken by the Corporation or the
shareholders thereof or be entitled, as such, to receive notice of any meeting
of the shareholders.
Notwithstanding the above, the Corporation shall provide each Series B
Holder with not less than 20 days' prior written notice of any meeting of the
shareholders regarding any major corporate events affecting the Corporation. In
the event of any taking by the Corporation of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property
(including by way of merger, consolidation or reorganization), or to receive any
other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to each Series B Holder, at least ten days prior to the record date
specified therein, of the date on which any such record is to be taken for the
purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under New York law the vote of the holders of Series B
Preferred Stock, voting separately as a class, is required to authorize a given
action of the Corporation, the affirmative vote or consent of the holders of at
least a majority of the outstanding shares of Series B Preferred Stock, as the
case may be, represented at a duly held meeting at which a quorum is present or
by written consent of a majority of the outstanding shares of Series B Preferred
Stock, as the case may be, (except as otherwise may be required under New York
law) shall constitute the approval of such action by the class. To the extent
that under New York law the holders of the Series B Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one class,
each share of Series B Preferred Stock shall be entitled to a number of votes
equal to the number of shares of Common Stock into which it is then convertible
using the record date for the taking of such vote of shareholders as the date on
which a Series B Conversion Price is calculated. Holders of the Series B
Preferred Stock also shall
<PAGE>
be entitled to notice of all shareholder meetings or written consents with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's By-Laws and applicable statutes.
Section 9. Protective Provision.
9.1 So long as any share of Series B Preferred Stock is outstanding, the
Corporation may not, without first obtaining the approval (by vote or written
consent, as provided by the New York Business Corporation Law) of the holders of
at least two-thirds of the then outstanding shares of Series B Preferred Stock:
(a) alter or change (whether by amendment of its Certificate of
Incorporation or By-Laws or otherwise) the rights, preferences or privileges of
any other class of equity securities so as to affect adversely the Series B-1
Preferred Stock or the Series B-2 Preferred Stock;
(b) alter or change (whether by amendment of its Certificate of
Incorporation or By-Laws or otherwise) any of the rights, preferences or
privileges of the Series B-1 Preferred Stock or the Series B-2 Preferred Stock;
(c) authorize or issue any share of any other equity security senior to or
having a preference over or on parity with the Series B-1 Preferred Stock or the
Series B-2 Preferred Stock with respect to dividends or Distributions (as
defined in Section 2 above);
(d) increase the authorized number of shares of Series A Preferred Stock
or Series B Preferred Stock;
(e) redeem, purchase or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purpose) any share of capital stock of the
Corporation other than (i) through redemption or conversion pursuant to the
provisions of Part A or this Part B, (ii) repurchases of Common Stock, or (iii)
redemptions of other securities convertible into shares of Common Stock made to
block such conversion.
(f) declare or pay any dividend on, or declare or make any other
distribution on account of, its Common Stock or any class or series of Preferred
Stock other than the Series B Preferred Stock (other than dividends payable
solely in shares of Common Stock or distributions on shares of Series A
Preferred Stock required to be made under Part A) or set apart any sum for any
such purpose; or
(g) do any act or thing not authorized or contemplated by this Part B
which would result in taxation of the holders of shares of the Series B
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
9.2 In the event holders of at least two-thirds of the then outstanding
shares of Series B Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or
<PAGE>
privileges of the shares of Series B Preferred Stock, pursuant to clause (a) or
clause (b) of Section 9.1 above, so as to affect the Series B Preferred Stock,
then the Corporation will deliver notice of such approved change to each holder
of Series B Preferred Stock that did not agree to such alteration or change (a
"Dissenting Holder") and each Dissenting Holder shall have the right for a
period of 30 business days to convert any or all of its shares of Series B
Preferred Stock pursuant to the terms of this Part B as they exist prior to such
alteration or change (notwithstanding the one-year waiting period set forth in
Section 5.1 hereof), or continue to hold its shares of Series B Preferred Stock.
Section 10. Status of Redeemed or Converted Stock. In the event any shares
of Series A Preferred Stock or Series B Preferred Stock shall be redeemed or
converted, the shares so converted or redeemed shall be canceled, shall return
to the status of authorized but unissued Preferred Stock of no designated series
and shall not be issuable by the Corporation as Series A Preferred Stock or
Series B Preferred Stock.
Section 11. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend 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
(b) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger of the
Corporation or any transfer of all or substantially all of the assets of the
Corporation to any other corporation or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or winding up is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least ten business days prior to
the date specified in such notice on which such action is to be taken.
Section 12. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary
<PAGE>
action, avoid or seek to avoid the observance or performance of any of the terms
of the Series B Preferred Stock set forth herein, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Series B Preferred Stock against dilution or other impairment.
Without limiting the generality of the foregoing, the Corporation (a) will not
increase the par value of any shares of stock receivable on the conversion of
any shares of Series B Preferred Stock above the amount payable therefor on such
conversion and (b) will take all such action as may be necessary or appropriate
in order that the Corporation may validly and legally issue fully paid and
nonassessable shares of stock on the conversion of all shares of Series B
Preferred Stock from time to time outstanding.
Part C. Series C Preferred Stock.
One Thousand Two Hundred (1,200) of the Ten Million (10,000,000)
authorized shares of Preferred Stock of the Corporation are hereby designated
Series C Preferred Stock, par value $.05 per share. (References to section
numbers in this Part C of Article FOURTH of the Certificate of Incorporation
("Part C") shall refer only to such sections in this Part C of Article
<PAGE>
FOURTH, unless otherwise expressly stated herein.) The Series C Preferred Stock
shall possess the rights and preferences set forth below:
Section 1. Designations and Amounts. The shares of such series shall
have a par value of $.05 per share and shall be designated as Series C Preferred
Stock (the "Series C Preferred Stock") and the number of shares constituting the
Series C Preferred Stock shall be One Thousand (1,000). The Series C Preferred
Stock shall be offered at a purchase price of One Thousand Dollars ($1,000.00)
per share (the "Original Series C Issue Price").
Section 2. Rank. The Series C Preferred Stock shall rank: (a) junior to
any other class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms senior to the Series C Preferred Stock
(collectively, the "Senior Securities"); (b) prior to all of the Corporation's
Common Stock, $.01 par value per share ("Common Stock"); (c) prior to any class
or series of capital stock of the Corporation hereafter created not specifically
ranking by its terms senior to or on parity with any Series C Preferred Stock of
whatever subdivision (collectively, with the Common Stock, "Junior Securities");
and (d) on parity with the Series A Preferred Stock and Series B Preferred Stock
and any class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms on parity with the Series C Preferred Stock
("Parity Securities") in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions") and as to dividends.
Section 3. Dividends.
3.1 Cumulative Dividends. The holders of Series C
Preferred Stock (the "Series C Holders") shall be entitled to receive, out of
funds legally available therefor, cumulative annual dividends at an annual rate
per share equal to six percent (6%) of the Original Series C Issue Price. Such
dividends shall accrue on each share of Series C Preferred Stock from day to day
from the date of issue and shall be cumulative until paid upon liquidation,
dissolution or winding up of the Corporation within the meaning of Section 4
hereof or upon redemption as provided in Section 6 hereof or until such share is
converted into Common Stock as provided in Section 5 hereof, and such dividends
shall so accrue whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. If such cumulative dividends in respect of any prior or
current annual dividend period shall not have been declared and paid, then the
deficiency shall first be fully paid before any dividend or other distribution
shall be paid or declared and set apart with respect to any class of the
Corporation's capital stock, now or hereafter outstanding. Cumulative dividends
with respect to shares of Series C Preferred Stock which are accrued, payable
and/or in arrears shall be paid on May 21 of each year commencing on May 21,
2000 and each May 21 thereafter being referred to herein as a "Dividend Payment
Date"), to the extent assets are legally available therefor and any amounts for
which assets are not legally available shall be paid promptly thereafter as
assets become legally available therefor; any partial payment will be made to
the Series C Holders pro rata in accordance with their holdings of such shares.
On any Dividend Payment Date dividends on shares of Series C Preferred Stock may
<PAGE>
be paid through the issuance of additional shares of Series C Preferred Stock
equal in number to the amount of such dividends divided by $1,000.
3.2 Reservation of Stock Issuable as Dividends. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
payment of dividends on the Series C Preferred Stock as provided in Section 3.1,
such number of shares of Series C Preferred Stock as shall from time to time be
sufficient to effect such payment on all outstanding shares of Series C
Preferred Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect such payment on all outstanding
shares of Series C Preferred Stock, the Corporation will take such corporate
action as may be necessary to increase its authorized but unissued shares of
such number of shares as shall be sufficient for such purpose.
Section 4. Liquidation Preference.
4.1 In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
shares of Series C Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Corporation's
Certificate of Incorporation, and prior in preference to any distribution to
Junior Securities but in parity with any distribution to Parity Securities, an
amount per share equal to the sum of (a) the Original Series C Issue Price for
each outstanding share of Series C Preferred Stock and (b) an amount equal to
all accrued and unpaid dividends thereon, whether or not declared, since the
date of issue up to and including the date full payment shall have been tendered
to the Series C Holders with respect to such liquidation, dissolution or winding
up (collectively, the "Series C Liquidation Amount"). If, after the occurrence
of any such liquidation, dissolution or winding up and payment in full of the
preferential amounts with respect to the Senior Securities, the assets and funds
available to be distributed among the holders of the Series C Preferred Stock
and Parity Securities shall be insufficient to permit the payment to such
holders of the full preferential amounts due to the holders of the Series C
Preferred Stock and the Parity Securities, respectively, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed among the holders of the Series C Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to which each
such series of stock is entitled by the Corporation's Certificate of
Incorporation.
4.2 Upon the completion of the distribution required
by Section 4.1, if assets remain in the Corporation, they shall be distributed
to holders of Junior Securities in accordance with the Corporation's Certificate
of Incorporation.
Section 5. Conversion. The Series C Holders shall have conversion
rights as follows (the "Conversion Rights"):
5.1 Holders' Right to Convert. Each holder of any
share of Series C Preferred Stock shall be entitled to convert such share of
Series C Preferred Stock, at any time after the issuance of such share by the
Corporation, into a number of fully-paid and non-
<PAGE>
assessable shares of Common Stock of the Corporation equal to the quotient that
is obtained when the Original Series C Issue Price for such share plus any
accrued and unpaid dividends on such share is divided by the applicable
Conversion Price. As used herein, the phrase "Conversion Price" shall mean
either of the following: (1) where the Notice of Conversion with respect to such
share is delivered to the Corporation not more than ninety calendar days after
the issuance of such share by the Corporation, $6.00 (the "Fixed Conversion
Price"); or (2) where the Notice of Conversion with respect to such share is
delivered to the Corporation more than ninety calendar days after the issuance
of such share by the Corporation, the lesser of (x) the Fixed Conversion Price
and (y) eighty-five percent (85%) of the average Closing Price of the
Corporation's Common Stock for the five trading days immediately preceding the
Date of Conversion, but not less than fifty percent (50%) of the Fixed
Conversion Price (the "Variable Conversion Price").
The phrase "Closing Price," as used with reference to
shares of Common Stock on any specified date, shall mean (a) the last reported
sale price per share of Common Stock on such date on the OTC Electronic Bulletin
Board, or if no longer traded thereon, on the Nasdaq Small Cap Market or the
Nasdaq National Market, or if not traded on the Nasdaq Small Cap Market or the
Nasdaq National Market, the last reported sale price on the principal national
securities exchange or the automated quotation system on which the Common Stock
is so traded or (b) if such OTC Electronic Bulletin Board or Nasdaq or other
automated quotation system shall report only asked and bid prices, or if there
shall have been no sale of Common Stock on such date so reported, then the
average of the last reported asked price and the last reported bid price of
Common Stock. The Conversion Price shall be adjusted from time to time in
accordance with this Section 5.
5.2 Automatic Conversion. Each share of Series C Preferred
Stock shall, on the third anniversary of the issuance of such share by the
Corporation, be automatically converted into that number of fully-paid and
non-assessable shares of Common Stock of the Corporation equal to the quotient
that is obtained when the Original Series C Issue Price for such share plus any
accrued and unpaid dividends on such share is divided by the Variable Conversion
Price. Such date shall be deemed the Date of Conversion with respect to such
conversion.
5.3 Mechanics of Conversion.
5.3.1 General. In order to convert any shares of
Series C Preferred Stock into shares of Common Stock, the holder of such shares
shall (a) telecopy, at or prior to 11:59 p.m., New York City time (the
"Conversion Notice Deadline") on the date of conversion, a copy of the fully
executed notice of conversion ("Notice of Conversion") to the Corporation at the
office of the Corporation or its designated Transfer Agent for the Series C
Preferred Stock stating that such holder elects to convert, which notice shall
specify the date of conversion, the number of shares of Series C Preferred Stock
to be converted, the applicable Conversion Price and a calculation of the number
of shares of Common Stock issuable upon such conversion (together with a copy of
the front page of each certificate to be converted) and
<PAGE>
(b) surrender to a common carrier or the United States Postal Service, for
delivery to the office of the Corporation or the Transfer Agent, the original
certificates representing the shares of Series C Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for transfer to the
Corporation; provided, however, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or such holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of Section 5.3.2). Upon receipt by the
Corporation of a telecopy of a Notice of Conversion, the Corporation shall
within three business days send, via telecopier, a confirmation of receipt of
the Notice of Conversion to such holder which shall specify that the Notice of
Conversion has been received and the name and telephone number of a contact
person at the Corporation whom such holder should contact regarding information
related to the conversion. In the case of a dispute as to the calculation of the
Conversion Rate, the Corporation shall promptly issue to such holder the number
of Shares that are not disputed and shall submit the disputed calculations to
its outside accountant (the "Accountant") via telecopier within five business
days of receipt of such holder's Notice of Conversion. The Corporation shall
cause the Accountant to perform the calculations and notify the Corporation and
such holder of the results no later than 48 hours from the time it receives the
disputed calculations. The Accountant's calculation shall be deemed conclusive
absent manifest error.
5.3.2 Lost, Stolen, Destroyed or Mutilated
Certificates. Upon receipt by the Corporation of evidence of the loss, theft,
destruction or mutilation of any Preferred Stock Certificate(s) representing
shares of Series C Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, the Corporation
shall not be obligated to re-issue such lost, stolen, destroyed or mutilated
Preferred Stock Certificate(s) if the holder thereof contemporaneously requests
the Corporation to convert such Series C Preferred Stock into Common Stock.
5.3.3 Delivery of Common Stock Upon Conversion. The
Corporation or the Transfer Agent (as applicable) shall, no later than the close
of business on the fourth business day (the "Deadline") after receipt by the
Corporation or Transfer Agent of a telecopy of a Notice of Conversion and
receipt by the Corporation or the Transfer Agent of all necessary documentation
duly executed and in proper form required for conversion, including the original
Preferred Stock Certificates to be converted (or after provision for
indemnification or security in the case of lost, stolen or destroyed
certificate(s), if required), issue and surrender to a common carrier or the
United States Postal Service for either overnight or (if delivery is outside the
United States) two day delivery (or the shortest period of time in which a
recognized international carrier can deliver) to the converting holder at the
address of such holder as shown on the stock records of the Corporation a
certificate for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid.
<PAGE>
5.3.4 Cash in Lieu of Fractional Shares. The
Corporation may, if it so elects, issue fractional shares of Common Stock or
scrip representing fractional shares upon the conversion of shares of Series C
Preferred Stock. If the Corporation does not elect to issue fractional shares,
the Corporation shall pay to the holder of the shares of Series C Preferred
Stock which were converted a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the Closing Price on the Date
of Conversion. The determination as to whether or not any fractional shares are
issuable shall be based upon the total number of shares of Series C Preferred
Stock being converted at any one time by any holder thereof, not upon each share
of Series C Preferred Stock being converted.
5.3.5 Date of Conversion. The date on which a
conversion occurs (the "Date of Conversion") shall be deemed to be the date set
forth in the Notice of Conversion, provided (a) that the copy of the Notice of
Conversion is sent by telecopier to the Corporation at or prior to 11:59 p.m.,
New York City time, on the Date of Conversion, and (b) that the original
Preferred Stock Certificates representing the shares of Series C Preferred Stock
to be converted are surrendered by depositing such certificates with a common
carrier or the United States Postal Service, for delivery to the office of the
Corporation or the Transfer Agent and/or, if any of such Preferred Stock
Certificates have been lost, stolen or destroyed, the holder of such shares
complies with Section 5.3.2. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Date of Conversion. If the original Preferred Stock Certificates representing
the shares of Series C Preferred Stock to be converted are not received by the
Corporation or the Transfer Agent, or if such holder fails to comply with
Section 5.3.2, as the case may be, within ten business days after the Date of
Conversion, or if the telecopy of the Notice of Conversion is not received by
the Corporation or its Transfer Agent prior to the Conversion Notice Deadline,
the Notice of Conversion, at the Corporation's option, may be declared null and
void.
5.4 Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series C Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding shares of Series C Preferred Stock. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series C Preferred
Stock, the Corporation will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose; provided, however, that the
taking of such action shall not affect the Corporation's liability, if any, for
damages arising as a result of its failure to have a sufficient number of shares
reserved.
<PAGE>
5.5 Adjustment of Common Stock Issuable Upon Conversion.
5.5.1 Adjustment Due to Stock Split, Stock Dividend,
Etc. If the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, subdivision of shares or other similar event, the Fixed
Conversion Price and Conversion Price shall each be proportionately reduced, or
if the number of outstanding shares of Common Stock is decreased by a
combination or reclassification of shares, or other similar event, the Fixed
Conversion Price and the Conversion Price shall each be proportionately
increased. In addition, if any such event shall have taken place during the
reference period for determination of the Variable Conversion Price, then the
Variable Conversion Price shall be calculated giving appropriate effect to the
stock split, stock dividend, combination, reclassification or other similar
event for all five trading days immediately preceding the Date of Conversion.
5.5.2 Adjustment Due to Merger, Consolidation, Etc.
If, at any time when any shares of Series C Preferred Stock are outstanding,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Corporation shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Corporation or another entity or there is a sale of all or substantially all the
Corporation's assets or there is a change of control transaction not deemed to
be a liquidation pursuant to Section 4.3, then each Series C Holder shall
thereafter have the right to receive upon conversion of Series C Preferred
Stock, upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities and/or other assets which such Series C
Holder would have been entitled to receive in such transaction had the Series C
Preferred Stock been converted immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holders of the Series C Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Series C Conversion Price and of the number of shares issuable upon
conversion of the Series C Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this Section 5.6.2 unless (a) it first uses its best
efforts to give notice thereof to each Series C Holder 30 days prior to, and in
any event gives notice thereof to each Series C Holder at least 5 days prior to,
the record date of such merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event (during which time each
Series C Holder shall be entitled to convert its shares of Series C Preferred
Stock into Common Stock) and (b) the resulting successor or acquiring entity (if
not the Corporation) assumes by written instrument the obligations of the
Corporation under this Part C, including this Section 5.6.2.
<PAGE>
5.5.3 Calculation of Adjustments. In computing each
adjustment to the Conversion Price, the result shall be rounded to the nearest
thousandth of a cent, and such adjustment shall be made separately in each
instance, and in the event the adjustment therefrom results in a change of the
Conversion Price of less than $0.01, then no adjustment to such then applicable
Conversion Price shall be made, but the amount of said adjustment calculated
thereby shall be carried forward to successive occasions until such adjustments
in the aggregate equal or exceed $0.01.
Section 6. Redemption.
6.1 Corporation's Right to Redeem Generally.
6.1.1 General Redemption Right. The Corporation shall
have the right, in its sole discretion, to redeem, from time to time, any or all
of the Series C Preferred Stock pursuant to this Section 6.1 (any such
redemption being referred to herein as a "General Redemption") at a redemption
price for each such share so redeemed equal to its Redemption Price, as defined
in Section 6.2; provided, that the Corporation shall deliver, at least 10
trading days advance written notice of such redemption as provided in Section
6.2.2. If the Corporation elects to redeem some, but not all, of the shares of
Series C Preferred Stock, the Corporation shall redeem a pro rata amount from
each holder of the Series C Preferred Stock, and each such holder may
specifically designate which of its shares of such Series C Preferred Stock
shall be so redeemed.
6.1.2 Mechanics of Redemption at Corporation's
Election. If the Corporation desires to effect a redemption pursuant to this
Section 6.1, it shall deliver prior written notice of such redemption ("Notice
of General Redemption") to the holders of the Series C Preferred Stock, at the
address and telecopier number of such holder appearing in the Corporation's
register for the Series C Preferred Stock and (b) the Transfer Agent, which
Notice of General Redemption shall be deemed to have been delivered three
business days after the Corporation's mailing (by overnight or two day carrier),
with a copy sent by telecopier to each such holder on the date of such mailing,
of such Notice of General Redemption. Such Notice of General Redemption shall
indicate (a) the number of shares of Series C Preferred Stock that have been
selected for redemption, (b) the date which such redemption is to become
effective (the "Date of General Redemption"), which shall be a date not less
than 10 trading days following the date such Notice of General Redemption is
delivered and (c) the applicable Redemption Price.
6.1.3 Holder's Right to Block Redemption.
Notwithstanding the foregoing provisions of this Section 6.1, each Series C
Holder may, by delivering a Notice of Conversion pursuant to Section 5.3 within
seven trading days following such holder's receipt of a Notice of General
Redemption, convert any or all of such holder's shares selected for redemption.
<PAGE>
6.2 Redemption Price. The redemption price payable by the
Corporation upon redemption of any share of Series C Preferred Stock pursuant to
Section 6.1 shall be an amount (the "Redemption Price") equal to 120% of the
Original Series C Issue Price, plus all unpaid dividends on such share accrued
from the date of issuance to the date of such redemption.
6.3 Payment of Redemption Price.
6.3.1 Each holder of any shares of Series C Preferred
Stock being redeemed under this Section 6 shall send Preferred Stock
Certificates evidencing such shares to the Corporation or its Transfer Agent,
and the Corporation shall cause the applicable Redemption Price for each such
share to be paid to such holder, in full, on the Date of Redemption, provided
that the Corporation shall not be obligated to deliver the Redemption Price for
any such share until the Preferred Stock Certificate evidencing such share is
delivered to the Corporation or its Transfer Agent, or, in the event such
certificate has been lost, stolen, mutilated or destroyed, until the holder of
such share has complied with Section 5.3.2.
Section 7. Voting Rights. Except as otherwise provided by New York law,
the holders of the Series C Preferred Stock shall have no voting power
whatsoever, and shall not be entitled, as such, to vote or otherwise participate
in any proceeding in which actions shall be taken by the Corporation or the
shareholders thereof or be entitled, as such, to receive notice of any meeting
of the shareholders.
To the extent that under New York law the vote of the holders of Series
C Preferred Stock, voting separately as a class, is required to authorize a
given action of the Corporation, the affirmative vote or consent of the holders
of at least a majority of the outstanding shares of Series C Preferred Stock, as
the case may be, represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the outstanding shares of Series C
Preferred Stock, as the case may be, (except as otherwise may be required under
New York law) shall constitute the approval of such action by the class. To the
extent that under New York law the holders of the Series C Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series C Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of shareholders as
the date on which a Conversion Price is calculated. Holders of the Series C
Preferred Stock also shall be entitled to notice of all shareholder meetings or
written consents with respect to which they would be entitled to vote, which
notice would be provided pursuant to the Corporation's ByLaws and applicable
statutes.
Section 8. Status of Redeemed or Converted Stock. In the event any
shares of Series C Preferred Stock shall be redeemed or converted, the shares so
converted or redeemed shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series and shall not be
issuable by the Corporation as Series C Preferred Stock.
<PAGE>
Part D1. Series D1 Convertible Preferred Stock
Five Thousand (5,000) of the Ten Million (10,000,000) authorized shares of
Preferred Stock of the Corporation are hereby designated Series D1 Convertible
Preferred Stock, par value $0.05 per share (the "Preferred Shares"). References
to section numbers in this Part D1 of Article FOURTH of the Certificate of
Incorporation ("Part D1") shall refer only to such sections in this Part D1 of
Article FOURTH, unless otherwise expressly stated herein. The Series D1
Convertible Preferred Stock shall possess the rights and preferences set forth
below:
Section 1. Dividends. The Preferred Shares shall bear dividends
("Dividends") at a rate of 8.0% per annum, which shall be cumulative, accrue
daily from
the Issuance Date (as defined below) and be payable on the first day of each
Calendar Quarter (as defined below) beginning on the earlier of (A) the first
day of the Calendar Quarter immediately following the date on which the
Registration Statement (as defined below) is declared effective by the SEC (as
defined below) and (B) January 1, 2000 (each a "Dividend Date"). If a Dividend
Date is not a Business Day (as defined below) then the Dividend shall be due and
payable on the Business Day immediately following the Dividend Date. Dividends
shall be payable in shares of Common Stock (as defined below) ("Dividend
Shares") or, at the option of the Company, in cash, provided that the Dividends
which accrued during any period shall be payable in cash only if the Company
provides written notice ("Dividend Election Notice") to each holder of Preferred
Shares at least 20 days prior to the Dividend Date. Dividends to be paid in
shares of Common Stock shall be paid in a number of fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section 2(b)) of
Common Stock equal to the quotient of (I) the Additional Amount (as defined
below) and (II) the Conversion Price (as defined below) on the applicable
Dividend Date. Notwithstanding the foregoing, the Company shall not be entitled
to pay Dividends in shares of Common Stock and shall be required to pay such
Dividends in cash if (x) any event constituting a Triggering Event (as defined
in Section 3(b)), or an event that with the passage of time would constitute a
Triggering Event if not cured, has occurred and is continuing on the date of the
Company's Dividend Election Notice or on the Dividend Date, unless otherwise
consented to in writing by the holder of Preferred Shares entitled to receive
such Dividend or (y) the Registration Statement (as defined in the Registration
Rights Agreement (as defined below)) is not effective and available for the
resale of all of the Registrable Securities (as defined in the Registration
Rights Agreement), including but not limited to the Dividend Shares, on the Date
of the Company's Dividend Election Notice or on the Dividend Date. Any accrued
and unpaid Dividends which are not paid within five (5) Business Days of such
accrued and unpaid dividends' Dividend Date shall bear interest at the rate of
18.0% per annum from such Dividend Date until the same is paid in full (the
"Default Interest").
Section 2. Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), on the terms and conditions set forth in this Section 2.
Certain Defined Terms. For purposes of this Certificate of
Amendment, the following terms shall have the following meanings:
"Additional Amount" means, on a per share basis, the sum of
(A) unpaid Default Interest through the date of determination, if any, plus (B)
the result of the following formula: (.08)(N/365)($1,000).
"Business Day" means any day other than Saturday, Sunday or
other day on which commercial banks in the city of New York are authorized or
required by law to remain closed.
<PAGE>
"Calendar Quarter" means, each of the period beginning on and
including January 1 and ending on and including March 31, the period beginning
on and including April 1 and ending on and including June 30, the period
beginning on and including July 1 and ending on and including September 30, and
the period beginning on and including October 1 and ending on and including
December 31.
"Closing Bid Price" means, for any security as of any date,
the last closing bid price for such security on the Principal Market (as defined
below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(d)(iii) below with the term "Closing Bid Price" being substituted for the term
"Market Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period).
"Closing Sale Price" means, for any security as of any date,
the last closing trade price for such security on the Principal Market as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing trade
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade price of such security in the
over-the-counter market on the electronic bulleting board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the lowest bid price and lowest ask price of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such
<PAGE>
dispute shall be resolved pursuant to Section 2(d)(iii) below with the term
"Closing Sale Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
"Conversion Amount" means the sum of (1) the Additional
Amount, and (2) the Stated Value.
"Conversion Percentage" means (A) one hundred percent or (B)
in the event that the Company has failed to list all its shares of Common Stock
on The New York Stock Exchange, The Nasdaq SmallCap Market or the Nasdaq
National Market within 90 days of the Initial Issuance Date, then eighty
percent, both as subject to adjustment as provided herein.
"Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination the lesser of (I) the Fixed
Conversion Price (as defined below), subject to adjustment as provided herein
and (II) the Floating Conversion Price (as defined below), subject to adjustment
as provided herein.
"Fixed Conversion Price" means 115% of the arithmetic average
of the Closing Bid Price of the Common Stock for the ten (10) consecutive
trading days immediately preceding the Issuance Date, subject to adjustment as
provided herein.
"Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage in
effect as of such date by the lessor of (I) the Market Price of the Common Stock
for such date and (II) the Closing Bid Price on such date.
"Initial Issuance Date" means the first date on which the
Company issues Preferred Shares pursuant to the Securities Purchase Agreement.
"Issuance Date" means, with respect to each Preferred Share,
the date of issuance of the applicable Preferred Share.
"Maturity Date" means the date which is three years after the
applicable Issuance Date, unless extended pursuant to Section 2(d)(vii).
"Market Price" means, with respect to any security for any
date of determination, that price which shall be computed as the arithmetic
average of the three (3) lowest Closing Sales Prices for such security during
the twenty (20) consecutive trading days immediately preceding such date of
determination. All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during the pricing
period.
<PAGE>
"N" means the number of days from, but excluding, the last
Dividend Date with respect to which dividends, along with any Default Interest,
has been paid by the Company on the applicable Preferred Share, or the Issuance
Date if no Dividend Date has occurred, through and including the Conversion
Date, the Maturity Date or other date of determination for such Preferred Share,
as the case may be, for which such determination is being made.
"Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Principal Market" means the Nasdaq SmallCap Market or the
Over the Counter Bulletin Board ("OTCBB"), whichever is the principal trading
market on which the Common Stock is then traded.
"Registration Rights Agreement" means that certain
registration rights agreement between the Company and the initial holders of the
Preferred Shares relating to the filing of a registration statement covering the
resale of the shares of Common Stock issuable upon conversion of the Preferred
Shares.
"Securities Purchase Agreement" means that certain securities
purchase agreement between the Company and the initial holders of the Preferred
Shares.
"Stated Value" means $1,000 per Preferred Share.
Holder's Conversion Right; Maturity Conversion. Subject to the
provisions of Section 5, at any time or times on or after the Issuance
Date, any holder of Preferred Shares shall be entitled to convert any
whole number of Preferred Shares into fully paid and nonassessable shares
of Common Stock in accordance with Section 2(d), at the Conversion Rate.
If any Preferred Shares remain outstanding on the Maturity Date (as
defined below), then all such Preferred Shares shall at the option of the
Company either (I) be converted at 110% of the Conversion Rate as of such
date or (II) be redeemed at a price per Preferred Share equal to the
Liquidation Preference (as defined in Section 10) as of such date, each in
accordance with Section 2(d)(vii). The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction
of a share of Common Stock up or down to the nearest whole share.
<PAGE>
Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 2(b)
shall be determined according to the following formula (the "Conversion
Rate"):
Conversion Amount
Conversion Price
Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York City Time on
such date, a copy of a fully executed notice of conversion in the form set
forth in Section 21 (the "Conversion Notice") to the Company with a copy
thereof to the Company's designated transfer agent (the "Transfer Agent")
and (B) if required by Section 2(d)(viii), surrender to a common carrier
for delivery to the Transfer Agent as soon as practicable following such
date the original certificates representing the Preferred Shares being
converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "Preferred Stock
Certificates"). Such holder shall use its best efforts to send a copy of
each Conversion Notice within one (1) Business Day of facsimile
transmission of such Conversion Notice via e-mail to the Company;
provided, however, that the failure of any holder to satisfy its
obligations under this sentence shall not effect the Conversion Date or
the obligations of the Company for any conversion of Preferred Shares.
Company's Response. Upon receipt by the Company of
a copy of a Conversion Notice, the Company (1) shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such
holder and the Transfer Agent, which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein and (2) on or before the second Business
Day following the date of receipt by the Company of such Conversion Notice
(the "Share Delivery Date"), (A) issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name
of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the holder, credit such
aggregate number of shares of Common Stock to which the holder shall be
entitled to the holder's or its designee's balance account with DTC
through its Deposit Withdrawal Agent Commission system. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of Preferred Shares
being converted, then the Transfer Agent shall, as soon as practicable and
in no event later than three Business Days after receipt of the Preferred
Stock Certificate(s) (the
<PAGE>
"Preferred Stock Delivery Date") and at its own expense, issue and deliver
to the holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.
Dispute Resolution. In the case of a dispute as to
the determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall instruct the Transfer Agent to issue to
the holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile by 11:59 New York City Time on the Business Day
immediately following the date of receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed determination
or arithmetic calculation being submitted to the holder, then the Company
shall within one (1) Business Day submit via facsimile (A) the disputed
determination of the Market Price to an independent, reputable investment
bank selected by the Company and approved by the holders of a majority of
the Preferred Shares then outstanding or (B) the disputed arithmetic
calculation of the Conversion Rate to the Company's independent, outside
accountant. The Company shall cause the investment bank or the accountant,
as the case may be, to perform the determinations or calculations and
notify the Company and the holder of the results no later than five (5)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
error.
Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on the Conversion Date.
Company's Failure to Timely Convert.
(A) Cash Damages. If within four (4) Business Days
after the Company's receipt of the facsimile copy of a Conversion Notice
the Company shall fail to issue a certificate to a holder or credit such
holder's balance account with DTC for the number of shares of Common Stock
to which such holder is entitled upon such holder's conversion of
Preferred Shares or to issue a new Preferred Stock Certificate
representing the number of Preferred Shares to which such holder is
entitled pursuant to Section 2(d)(ii), in addition to all other available
remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder for each
date after the Share Delivery Date such conversion is not timely effected
and/or each date after the Preferred Stock Delivery Date such Preferred
Stock Certificate is not delivered in an amount equal to 0.5% of the sum
of (a) the product of (I) the number of shares of Common Stock not issued
to the holder on or prior to the Share Delivery Date and to which such
holder is entitled
<PAGE>
and (II) the Closing Bid Price of the Common Stock on the Share Delivery
Date, and (b) in the event the Company has failed to deliver a Preferred
Stock Certificate to the holder on or prior to the Preferred Stock
Delivery Date, the product of (y) the number of shares of Common Stock
issuable upon conversion of the Preferred Shares represented by such
Preferred Stock Certificate, as of the Preferred Stock Delivery Date and
(z) the Closing Bid Price of the Common Stock on the Preferred Stock
Delivery Date. If the Company fails to pay the additional damages set
forth in this Section 2(d)(v) within five Business Days of the date
incurred, then the holder entitled to such payments shall have the right
at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately
issue, in lieu of such cash damages, the number of shares of Common Stock
equal to the quotient of (X) the aggregate amount of the damages payments
described herein divided by (Y) the Conversion Price in effect on such
Conversion Date as specified by the holder in the Conversion Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason a holder has not received all of the
shares of Common Stock prior to the tenth (10th) Business Day after the
Share Delivery Date with respect to a conversion of Preferred Shares, then
the holder, upon written notice to the Company, with a copy to the
Transfer Agent, may void its Conversion Notice with respect to, and retain
or have returned, as the case may be, any Preferred Shares that have not
been converted pursuant to such holder's Conversion Notice; provided that
the voiding of a holder's Conversion Notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of
such notice pursuant to Section 2(d)(v)(A) or otherwise. Thereafter, the
Conversion Price of any Preferred Shares returned or retained by the
holder for failure to timely convert shall be adjusted to the lesser of
(I) the Conversion Price as in effect on the date on which the holder
voided the Conversion Notice and (II) the lowest Closing Bid Price during
the period beginning on the Conversion Date and ending on the date such
holder voided the Conversion Notice.
(C) Redemption. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th)
Business Day after the Share Delivery Date with respect to a conversion of
Preferred Shares (a "Conversion Failure"), then the holder, upon written
notice to the Company, may require that the Company redeem all Preferred
Shares held by such holder, including the Preferred Shares previously
submitted for conversion and with respect to which the Company has not
delivered shares of Common Stock, in accordance with Section 3.
Pro Rata Conversion and Redemption. In the event
the Company receives a Conversion Notice from more than one holder of
Preferred Shares for the same Conversion Date and the Company can convert
some, but not all, of such Preferred Shares, the Company shall convert
from each holder of Preferred Shares electing to have Preferred Shares
converted at such time a pro rata amount of such holder's Preferred Shares
submitted for conversion based on the number of Preferred Shares submitted
for conversion on such date by such holder relative to the
<PAGE>
number of Preferred Shares submitted for conversion on such date.
Mandatory Conversion or Redemption at Maturity. If
any Preferred Shares remain outstanding on the Maturity Date, then all
such Preferred Shares, at the Company's option, either (i) shall be
converted at 110% of the Conversion Rate as of such date and otherwise as
if the holders of such Preferred Shares had given the Conversion Notice on
the Maturity Date (a "Maturity Date Mandatory Conversion"), or (ii) shall
be redeemed as of such date for an amount in cash per Preferred Share (the
"Maturity Date Redemption Price") equal to the Liquidation Preference (as
defined in Section 10) (a "Maturity Date Mandatory Redemption"). The
Company shall be deemed to have elected a Maturity Date Mandatory
Redemption unless it delivers written notice to each holder of Preferred
Shares at least 20 Business Days prior to the Maturity Date of its
election to effect a Maturity Date Mandatory Conversion. If the Company
elects a Maturity Date Mandatory Redemption, then on the Maturity Date the
Company shall pay to each holder of Preferred Shares outstanding on the
Maturity Date, by wire transfer of immediately available funds, an amount
per Preferred Share equal to the Maturity Date Redemption Price. If the
Company elects a Maturity Date Mandatory Redemption and shall fail to
redeem all of the Preferred Shares outstanding on the Maturity Date by
payment of the Maturity Date Redemption Price, then in addition to any
remedy such holder of Preferred Shares may have under these Articles of
Amendment, the Securities Purchase Agreement and the Registration Rights
Agreement, (X) the applicable Maturity Date Redemption Price payable in
respect of such unredeemed Preferred Shares shall bear interest at the
rate of 1.5% per month, prorated for partial months, until paid in full,
and (Y) any holder of Preferred Shares shall have the option to require
the Company to convert any or all of such holder's Preferred Shares that
the Company elected to redeem under this Section 2(d)(vii) and for which
the Maturity Date Redemption Price (together with any interest thereon)
has not been paid into the number of shares of Common Stock such holder
would have received if such holder had given a Conversion Notice for such
Preferred Shares on the Maturity Date. On the Maturity Date, all holders
of Preferred Shares shall surrender all Preferred Stock Certificates, duly
endorsed for cancellation, to the Company or the Transfer Agent. If the
Company has elected a Maturity Date Mandatory Conversion or has failed to
pay the Maturity Date Redemption Price in a timely manner as described
above, then the Maturity Date shall be extended for any Preferred Shares
for as long as (A) the conversion of such Preferred Shares would violate
the provisions of Section 5, (B) a Triggering Event shall have occurred
and be continuing, or (C) an event shall have occurred and be continuing
which with the passage of time and the failure to cure would result in a
Triggering Event.
Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in
accordance with the terms hereof, the holder thereof shall not be required
to physically surrender the certificate representing the Preferred Shares
to the Company unless the full number of Preferred Shares represented by
the certificate are being converted. The holder and the Company shall
maintain records showing the number of Preferred Shares so
<PAGE>
converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the holder and the Company, so as not
to require physical surrender of the certificate representing the
Preferred Shares upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and
determinative in the absence of manifest error. Notwithstanding the
foregoing, if Preferred Shares represented by a certificate are converted
as aforesaid, the holder may not transfer the certificate representing the
Preferred Shares unless the holder first physically surrenders the
certificate representing the Preferred Shares to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the holder
a new certificate of like tenor, registered as the holder may request,
representing in the aggregate the remaining number of Preferred Shares
represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred
Shares, the number of Preferred Shares represented by such certificate may
be less than the number of Preferred Shares stated of the face thereof.
Each certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY
REVIEW THE TERMS OF THE COMPANY'S CERTIFICATE OF
AMENDMENT, PREFERENCES AND RIGHTS OF THE PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE, INCLUDING
SECTION 2(d)(viii) THEREOF. THE NUMBER OF PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN
THE NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF
PURSUANT TO SECTION 2(d)(viii) OF THE CERTIFICATE OF
AMENDMENT, PREFERENCES AND RIGHTS.
Taxes. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of
Common Stock upon the conversion of Preferred Shares.
Adjustments to Conversion Price. The Conversion
Price will be subject to adjustment from time to time as provided
in this Section 2(f).
(i) Adjustment of the Fixed Conversion Price upon
Issuance of Common Stock. If and whenever on or after the date of issuance
of the Preferred Shares, the Company issues or sells, or in accordance
with this Section 2(f) is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares
of Common Stock deemed to have been issued by the Company (I) in
connection with an Approved Stock Plan (as defined below), (II) upon the
conversion or exercise of Convertible Securities which are outstanding as
of the Initial Issuance Date and listed on Schedule 3(c)(iii) to the
Securities Purchase
<PAGE>
Agreement, provided that the terms of such Convertible Securities have not
been altered, amended or revised since the Initial Issuance Date or (III)
upon conversion of the Preferred Shares) for a consideration per share
less than a price (the "Applicable Price") equal to the Fixed Conversion
Price in effect immediately prior to such time, then immediately after
such issue or sale, the Fixed Conversion Price then in effect shall be
reduced to an amount equal to such consideration per share. For purposes
of determining the adjusted Fixed Conversion Price under this Section
2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any
manner grants or sells any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such
Option or upon conversion or exchange of any Convertible Securities
issuable upon exercise of such Option is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or
sale of such Option for such price per share. For purposes of this Section
2(f)(i)(A), the "lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion
or exchange of any Convertible Securities issuable upon exercise of such
Option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one
share of Common Stock upon granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Fixed
Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is issuable
upon such conversion or exchange thereof is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
issuance of sale of such Convertible Securities for such price per share.
For the purposes of this Section 2(f)(i)(B), the "price per share for
which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one
share of Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion or exchange of such Convertible Security.
No further adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of
the Fixed Conversion Price had been or are to be made pursuant to other
provisions of this Section 2(f)(i), no further adjustment of the Fixed
Conversion Price shall be made by reason of such issue or sale.
<PAGE>
(C) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of
any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock changes
at any time, the Fixed Conversion Price in effect at the time of such
change shall be adjusted to the Fixed Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially
granted, issued or sold. For purposes of this Section 2(f)(i)(C), if the
terms of any Option or Convertible Security that was outstanding as of the
date of issuance of the Preferred Shares are changed in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of
the date of such change. No adjustment shall be made if such adjustment
would result in an increase of the Fixed Conversion Price then in effect.
(D) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction
in which no specific consideration is allocated to such Options by the
parties thereto, the Options will be deemed to have been issued for a
consideration of $0.01, unless the Board of Directors of the Company shall
have made a good faith allocation of the consideration received for such
Option and such other securities, in which case the Option and such other
securities will be deemed to be issued for the consideration as allocated
by such Board. If any Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net amount
received by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the average of the Market
Price of such securities on the date of receipt. If any Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed
to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined by the good
faith determination of the Company's Board of Directors. If such parties
are unable to reach agreement within 10 days after the occurrence of an
event requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the holders of a majority of
the Preferred Shares then outstanding. The determination of such
<PAGE>
appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options
or in Convertible Securities or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(f)(i), the following terms have the respective meanings set
forth below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of
the Company, pursuant to which the Company's securities may be issued to
any employee, officer, director or consultants for services provided to
the Company.
(II) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible
Securities.
(III) "Convertible Securities" means any
stock or securities (other than Options) directly or indirectly
convertible into or exchangeable for Common Stock.
(ii) Adjustment of the Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(iii) Holder's Right of Alternative Conversion Price
Following Issuance of Convertible Securities. If the Company in any manner
issues or sells Convertible Securities that are convertible into or
exchangeable for Common Stock at a price which may vary with the market
price of the Common Stock, including by way of periodic reset to the
Conversion Price (the formulation for such variable price being herein
referred to as, the "Variable Price"), the Company shall provide written
notice thereof via facsimile and overnight courier to each holder of the
Preferred Shares ("Variable Notice") on the date of issuance of such
Convertible Securities. From and after the date the Company issues any
such Convertible Securities with a
<PAGE>
Variable Price, a holder of Preferred Shares shall have the right, but not
the obligation, in its sole discretion to substitute the Variable Price
for the Floating Conversion Price upon conversion of any Preferred Shares
by designating in the Conversion Notice delivered upon conversion of such
Preferred Shares that solely for purposes of such conversion the holder is
relying on the Variable Price rather than the Floating Conversion Price
then in effect. A holder's election to rely on a Variable Price for a
particular conversion of Preferred Shares shall not obligate the holder to
rely on a Variable Price for any future conversions of Preferred Shares.
(iv) Adjustment of the Conversion Price Upon Major
Corporate Event Announcement. In the event (A) the Company makes a public
announcement that it intends to consolidate or merge with or into another
Person or engage in a business combination involving the issuance or
exchange of more than 30% of the Company's outstanding Common Stock, (B)
the Company makes a public announcement that it intends to sell or
transfer all or substantially all of the Company's assets, or (C) any
Person (including the Company) publicly announces a purchase, tender or
exchange offer for more than 30% of the Company's outstanding Common Stock
(the transactions described in clauses (A), (B) and (C) above are
hereinafter referred to as "Major Corporate Events" and the date of the
announcement referred to in clause (A), (B) or (C) is hereinafter referred
to as the "Announcement Date"), then the Conversion Price shall, effective
upon the Announcement Date and continuing through and including the
Adjusted Conversion Price Termination Date (as defined below), be equal to
the Conversion Price which would have been applicable for a conversion by
the holder on the Announcement Date. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be
determined as set forth in Section 2(c). For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any
proposed Major Corporate Event for which a public announcement as
contemplated by this Section 2(f)(iv) has been made, the date upon which
the Company or other Person (in the case of clause (C) above) consummates
or publicly announces the termination or abandonment of the proposed Major
Corporate Event which was the subject of the previous public announcement.
(v) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(f) but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Conversion Price so as to protect
the rights of the holders of the Preferred Shares; provided that no such
adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 2(f).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each
holder of Preferred Shares, setting forth in reasonable detail, and
certifying, the calculation of
<PAGE>
such adjustment.
(B) The Company will give written notice to each
holder of Preferred Shares at least five (5) Business Days prior to the
date on which the Company closes its books or takes a record (I) with
respect to any dividend or distribution upon the Common Stock, (II) with
respect to any pro rata subscription offer to holders of Common Stock or
(III) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation, provided that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to such holder.
(C) The Company will also give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to
the date on which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(g) Conversion Restrictions. Subject to the exceptions
described below, without the prior consent of the Company, the Buyers
shall not be entitled to submit a Conversion Notice for the conversion of
any of the Preferred Shares during the period beginning on the Initial
Closing Date and ending on December 31, 1999. During the period beginning
on and including January 1, 2000 and ending on January 31, 2000, each
Purchaser (as defined in Section 14) may convert up to 25% of the
Preferred Shares issued to such Purchaser. During the period beginning on
and including January 1, 2000 and ending on February 29, 2000, each
Purchaser may convert up to 50% of the Preferred Shares issued to such
Purchaser. During the period beginning on and including January 1, 2000
and ending on March 31, 2000, each Purchaser may convert up to 75% of the
Preferred Shares issued to such Purchaser. From and after April 1, 2000,
each Purchaser may convert all of the Preferred Shares issued to such
Purchaser. Notwithstanding the foregoing, the conversion restrictions set
forth above shall not apply: (a) on and after any date on which the Common
Stock is not listed, quoted or reported on The New York Stock Exchange,
Inc., The American Stock Exchange, Inc., the Nasdaq National Market, The
Nasdaq SmallCap Market or the OTCBB or has been delisted or suspended from
trading on any such exchange or quotation or reporting system, or any such
delisting or suspension is threatened or pending either (I) in writing by
such exchanges or quotation or reporting systems or (II) by falling below
the minimum listing maintenance requirements of such exchanges or
quotation or reporting systems; (b) on or after any date on which there
shall have occurred an event constituting a Change of Control (as defined
below), an announcement of a pending Change of Control, a Triggering Event
(as defined below) or an event that with the passage of time and without
being cured would constitute a Triggering Event; (c) on or after any date
on which the Company issues or sells or is deemed to have issued or sold
Convertible Securities that are convertible into or exercisable or
exchangeable for Common Stock at a Variable Price; (d) on or after the
date the Company delivers a Notice of Redemption at Company's Election (as
defined in Section 6); (e) on or after any date on which the arithmetic
<PAGE>
average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive trading days immediately preceding such date is less than 90%
of the Closing Bid Price of the Common Stock on the Initial Issuance Date
(subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions); or (f) with respect to any
conversion of Preferred Shares, at a price equal to the Fixed Conversion
Price then in effect.
(h) Adjustment of Conversion Restrictions upon Issuance
of Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock and are
subject to (i) restrictions on the amount of shares that can be converted,
or (ii) no restrictions on the amount of shares that can be converted (the
restriction on conversions or lack thereof being herein referred to as the
"Conversion Restriction"), and such Conversion Restriction is not
formulated using the same time periods and percentages used in Section
2(g), then the Company shall provide written notice thereof via facsimile
and overnight courier to each holder of the Preferred Shares ("Conversion
Restriction Notice") on the date of issuance of such Convertible
Securities. If the holders of Preferred Shares representing at least
two-thirds (2/3) of the Preferred Shares then outstanding which remain
subject to the restrictions in Section 2(g) provide written notice via
facsimile and overnight courier (the "Conversion Restriction Election
Notice") to the Company within five (5) Business Days of receiving a
Conversion Restriction Notice that such holders desire to replace the
conversion restrictions set forth in Section 2(g) then in effect with the
Conversion Restriction described in such Conversion Restriction Notice,
then from and after the date of the Company's receipt of the Conversion
Restriction Election Notice the conversion restrictions set forth in
Section 2(g) automatically will be replaced with the Conversion
Restrictions (together with such modifications to this Certificate of
Amendment as may be required to give full effect to the substitution of
the Conversion Restrictions for the conversion restrictions set forth in
Section 2(g)). A holder's delivery of a Conversion Restriction Election
Notice shall serve as the consent required to amend this Certificate of
Amendment pursuant to Section 15 below.
Section 3. Redemption at Option of Holders.
Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Preferred Shares contained
herein, after a Triggering Event (as defined below), each holder of
Preferred Shares shall have the right, at such holder's option, to
require the Company to redeem all or a portion of such holder's
Preferred Shares at a price per Preferred Share equal to the greater
of (i) 125% of the Liquidation Preference and (ii) the product of
(A) the Conversion Rate in effect at such time as such holder
delivers a Notice of Redemption at Option of Buyer (as defined
below) and (B) the arithmetic average of the Closing Bid Prices of
the Common Stock on the five (5) consecutive trading days
immediately preceding such Triggering Event on which the Principal
Market, or the market or exchange where the Common Stock is then
traded, is open for trading ("Redemption Price").
<PAGE>
"Triggering Event". A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
the failure of the applicable Registration
Statement to be declared effective by the SEC on or prior to the date that
is 45 days after the applicable Effectiveness Deadline (as defined in the
Registration Rights Agreement);
while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of all of the
Registrable Securities (as defined in the Registration Rights Agreement)
in accordance with the terms of the Registration Rights Agreement, and
such lapse or unavailability continues for a period of five consecutive
trading days, provided that such five day period shall be extended to a
total of 10 consecutive trading days in the event that the Company makes
an acquisition which is required to be reported under Item 2 of Form 8-K
and for which pro forma financial information is required to be reported
pursuant to Article 11 of Regulation S-X promulgated under the 1933 Act.
the suspension from trading or failure of the
Common Stock to be listed, quoted or reported on The Nasdaq SmallCap
Market, The Nasdaq National Market, The New York Stock Exchange, Inc., The
American Stock Exchange, Inc. or the OTCBB for a period of five
consecutive trading days or for more than an aggregate of 10 trading days
in any 365-day period;
the Company's or the Transfer Agent's notice to
any holder of Preferred Shares, including by way of public announcement,
at any time, of its intention not to comply with a request for conversion
of any Preferred Shares into shares of Common Stock that is tendered in
accordance with the provisions of this Certificate of Amendment;
a Conversion Failure (as defined in Section
2(d)(v)(C);
upon the Company's receipt of a Conversion Notice,
the Company shall not be obligated to issue shares of Common Stock upon
such conversion due to the provisions of Section 14; or
the Company breaches any representation, warranty,
covenant or other term or condition of the Securities Purchase Agreement,
the Registration Rights Agreement, the Warrants, this Certificate of
Amendment or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby and hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3(a) of the
<PAGE>
Securities Purchase Agreement) and except, in the case of a breach of a
covenant which is curable, only if such breach continues for a period of
at least 10 days after the earlier of (I) the date on which the Company
knowledge of such breach or (II) the date a holder of Preferred Shares
gives written notification to the Company regarding such breach.
Mechanics of Redemption at Option of Buyer. Within one
(1) Business Day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Preferred Shares. At any time after the earlier of a holder's
receipt of a Notice of Triggering Event and such holder becoming
aware of a Triggering Event, any holder of Preferred Shares then
outstanding may require the Company to redeem all of the Preferred
Shares by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer") to the
Company, which Notice of Redemption at Option of Buyer shall
indicate the number of Preferred Shares that such holder is electing
to redeem.
Payment of Redemption Price. Upon the Company's receipt
of a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Company shall immediately notify each holder
of Preferred Shares by facsimile of the Company's receipt of such
notices and each holder which has sent such a notice shall promptly
submit to the Transfer Agent such holder's Preferred Stock
Certificates which such holder has elected to have redeemed. The
Company shall deliver the applicable Redemption Price to such holder
within five Business Days after the Company's receipt of a Notice of
Redemption at Option of Buyer; provided that a holder's Preferred
Stock Certificates shall have been so delivered to the Transfer
Agent. If the Company is unable to redeem all of the Preferred
Shares submitted for redemption, the Company shall (i) redeem a pro
rata amount from each holder of Preferred Shares based on the number
of Preferred Shares submitted for redemption by such holder relative
to the total number of Preferred Shares submitted for redemption by
all holders of Preferred Shares and (ii) in addition to any remedy
such holder of Preferred Shares may have under this Certificate of
Amendment and the Securities Purchase Agreement, pay to each holder
interest at the rate of 2.0% per month (prorated for partial months)
in respect of each unredeemed Preferred Share until paid in full.
Void Redemption. In the event that the Company does not
pay the Redemption Price within the time period set forth in Section
3(d), at any time thereafter and until the Company pays such unpaid
applicable Redemption Price in full, a holder of Preferred Shares
shall have the option (the "Void Optional Redemption Option") to, in
lieu of redemption, require the Company to promptly return to such
holder any or all of the Preferred Shares that were submitted for
redemption by such holder under this Section 3 and for which the
applicable Redemption Price (together with any interest thereon) has
not been
<PAGE>
paid, by sending written notice thereof to the Company via facsimile
(the "Void Optional Redemption Notice"). Upon the Company's receipt
of such Void Optional Redemption Notice, (i) the Notice of
Redemption at Option of Buyer shall be null and void with respect to
those Preferred Shares subject to the Void Optional Redemption
Notice, and (ii) the Company shall immediately return any Preferred
Shares subject to the Void Optional Redemption Notice, and (iii) the
Conversion Price of such returned Preferred Shares shall be adjusted
to the lesser of (A) the Conversion Price as in effect on the date
on which the Void Optional Redemption Notice is delivered to the
Company and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice of Redemption at Option of
Buyer is delivered to the Company and ending on the date on which
the Void Optional Redemption Notice is delivered to the Company.
Disputes; Miscellaneous. In the event of a dispute as to
the determination of the Market Price, the Closing Bid Price or the
arithmetic calculation of the Redemption Price, such dispute shall
be resolved pursuant to Section 2(d)(iii) above with the term
"Closing Bid Price" being substituted for the term "Market Price"
and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. In the event of a
redemption pursuant to this Section 3 of less than all of the
Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and
delivered to the holder of such Preferred Shares a preferred stock
certificate representing the remaining Preferred Shares which have
not been redeemed.
Section 4. Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person or (ii) other Organic Change following which the Company
is not a surviving entity, the Company will secure from the Person purchasing
such assets or the successor resulting from such Organic Change (in each case,
the "Acquiring Entity") a written agreement (in form and substance reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding) to deliver to each holder of Preferred Shares in exchange for such
shares, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to the Preferred Shares, including,
without limitation, having a stated value and liquidation preference equal to
the Stated Value and the Liquidation Preference of
<PAGE>
the Preferred Shares held by such holder, and satisfactory to the holders of a
majority of the Preferred Shares then outstanding. Prior to the consummation of
any other Organic Change, the Company shall make appropriate provision (in form
and substance satisfactory to the holders of a majority of the Preferred Shares
then outstanding) to insure that each of the holders of the Preferred Shares
will thereafter have the right to acquire and receive in lieu of or in addition
to (as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Preferred Shares
such shares of stock, securities or assets that would have been issued or
payable in such Organic Change with respect to or in exchange for the number of
shares of Common Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares as of the date of such Organic
Change (without taking into account any limitations or restrictions on the
convertibility of the Preferred Shares).
(b) Optional Redemption Upon Change of Control. In addition to
the rights of the holders of Preferred Shares under Section 4(a), upon a Change
of Control (as defined below) of the Company each holder of Preferred Shares
shall have the right, as such holder's option, to require the Company to redeem
all or a portion of such holder's Preferred Shares at a price per Preferred
Share equal to the greater of (A) 125% of the Liquidation Preference and (B) the
Product of (y) the Conversion Rate on the date the holder of Preferred Shares
gives a Notice of Redemption Upon Change of Control and (C) the arithmetic
average of the Closing Bid Prices of the Common Stock during the five (5)
trading days immediately preceding such date on which the Principal Market, or
the market or exchange where the Common Stock is then traded, is open for
trading ("Change of Control Redemption Price"). No sooner than 15 days nor later
than 10 days prior to the consummation of a Change of Control, but not prior to
the public announcement of such Change of Control, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "Notice of Change
of Control") to each holder of Preferred Shares. At any time during the period
beginning after receipt of a Notice of Change of Control (or, in the event a
Notice of Change of Control is not delivered at least 10 days prior to a Change
of Control, at any time on or after the date which is 10 days prior to a Change
of Control) and ending on the date of such Change of Control, any holder of the
Preferred Shares then outstanding may require the Company to redeem all or a
portion of the holder's Preferred Shares then outstanding by delivering written
notice thereof via facsimile and overnight courier (a "Notice of Redemption Upon
Change of Control") to the Company, which Notice of Redemption Upon Change of
Control shall indicate (i) the number of Preferred Shares that such holder is
submitting for redemption, and (ii) the applicable Change of Control Redemption
Price, as calculated pursuant to this Section 4(b). Upon the Company's receipt
of a Notice(s) of Redemption Upon Change of Control from any holder of Preferred
Shares, the Company shall promptly, but in no event later than one (1) Business
Day following such receipt, notify each holder of Preferred Shares by facsimile
of the Company's receipt of such Notice(s) of Redemption Upon Change of Control.
The Company shall deliver the applicable Change of Control Redemption Price
simultaneous with the consummation of the Change of Control; provided that, if
required by Section 2(d)(viii), a holder's Preferred
<PAGE>
Stock Certificates shall have been so delivered to the Company. Payments
provided for in this Section 4(b) shall have priority to payments to other
stockholders in connection with a Change of Control. For purposes of this
Section 4(b), "Change of Control" means (i) the consolidation, merger or other
business combination of the Company with or into another Person (other than (A)
a consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets, or (iii) a
purchase, tender or exchange offer made to and accepted by the holders of more
than the 50% of the outstanding shares of Common Stock.
(c) Forced Delisting. If a redemption voided pursuant to
Section 3(e) was caused by a Triggering Event involving the Company's inability
to issue Conversion Shares because of the Primary Exchange Cap (as defined in
Section 14), and if so directed by the holders of at least two-thirds (2/3) of
the Preferred Shares then outstanding, including shares of Preferred Shares
submitted for redemption pursuant to Section 3 with respect to which the
applicable Redemption Price has not been paid, in a Void Mandatory Redemption
Notice, the Company shall immediately delist the Common Stock from exchange or
automated quotation system on which the Common Stock is traded and have the
Common Stock, at such holders' option, traded on the electronic bulletin board
or the "pink sheets".
(d) Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 5. Limitation on Beneficial Ownership. The Company
shall not effect any conversion of Preferred Shares and no holder of Preferred
Shares shall have the right to convert Preferred Shares in excess of that number
of Preferred Shares which, upon giving effect to such conversion, would cause
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates to exceed 4.99% of the total outstanding shares of Common
Stock following such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of
<PAGE>
Common Stock beneficially owned by the holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of the Preferred
Shares with respect to which the determination of such proviso is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) conversion of the remaining, nonconverted Preferred Shares beneficially
owned by the holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants or convertible preferred stock)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 5, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Section 5, in determining
the number of outstanding shares of Common Stock a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares Common Stock then
outstanding. In any case, the number of outstanding shares Common Stock shall be
determined after giving effect to conversions of Preferred Shares and exercise
of Warrants (as defined below) by such holder and its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported.
Notwithstanding the foregoing, each holder of Preferred Shares shall have the
sole obligation to determine whether the restrictions contained in this Section
5 apply to such holder. For the purpose of making determinations pursuant to
this Section 5, the Company may assume that no affiliate of a holder holds any
shares of Common Stock unless notified in writing by a holder of Preferred
Shares.
Section 6. Redemption at the Company's Election. On any day
after the Initial Issuance Date and prior to the date which is one (1) year
after the Initial Issuance Date, the Company shall have the right, in its sole
discretion, to require that any or all of the outstanding Preferred Shares be
redeemed ("Redemption at Company's Election") for consideration equal to the
Company's Election Redemption Price (as defined below); provided that the
Conditions to Redemption at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Redemption at Company's
Election by providing each holder of Preferred Shares written notice ("Notice of
Redemption at Company's Election") by facsimile and overnight courier. If the
Company elects to redeem some, but not all, of the Preferred Shares, the Company
shall redeem a pro rata amount from each holder of Preferred Shares based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding on the date of the Company's delivery of the Notice
of Redemption at Company's Election (such amount with respect to the Holder
being referred to herein as its "Pro Rata Redemption Amount"). The Notice of
Redemption at Company's Election shall indicate (x) the number of Preferred
<PAGE>
Shares the Company has selected to redeem, (y) the date selected by the Company
for redemption ("Company's Election Redemption Date"), which date shall be not
less than 20 or more than 30 Business Days after each holder's receipt of such
notice, and (z) each holder's Pro Rata Redemption Amount. If the Company has
exercised its right of Redemption at Company's Election and the conditions of
this Section 6, including the Conditions to Redemption at Company's Election,
have been satisfied, then each Buyer's Pro Rata Redemption Amount shall be
redeemed as of the Company's Election Redemption Date by payment by the Company
to each Buyer of the Company's Election Redemption Price for each Preferred
Share redeemed. If required by Section 2(d)(viii), all holders of Preferred
Shares shall thereupon and within two Business Days after the Company's Election
Redemption Date surrender all Preferred Stock Certificates selected for
redemption, duly endorsed for cancellation, to the Transfer Agent. "Conditions
to Redemption at the Company's Election" means the following conditions: (i) on
each day during the period beginning the date the SEC declares the Registration
Statement registering the Registrable Securities effective and ending on and
including the Company's Election Redemption Date, the Registration Statement
shall be effective and available for the sale of no less than all of the
Registrable Securities, (ii) on each day during the period beginning on the
Initial Issuance Date and ending on and including the Company's Election
Conversion Date, the Common Stock is reported on OTCBB, designated for quotation
on The Nasdaq SmallCap Market or the Nasdaq National Market or listed on The New
York Stock Exchange, Inc. or The American Stock Exchange, Inc. and shall not
have been suspended from trading on such exchanges or quotation or reporting
systems nor shall delisting or suspension by such exchanges or quotation or
reporting systems have been threatened either (A) in writing by such exchanges
or quotation or reporting systems or (B) by falling below the minimum listing
maintenance requirements of such exchanges or quotation or reporting systems;
(iii) the Company shall not have previously given more than three (3) Notices of
Redemption at Company's Election; (iv) during the period beginning on the
Initial Issuance Date and ending on and including the Company's Election
Conversion Date, the Company shall have delivered Conversion Shares upon
conversion of the Preferred Shares and Warrant Shares upon exercise of the
Warrants to the Buyers on a timely basis as set forth in Section 2(d)(ii) of
this Certificate of Amendment and Sections 2(a) and 2(b) of the Warrants,
respectively; and (v) the Company otherwise has satisfied its obligations and is
not in default under this Certificate of Amendment, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. The "Company's
Election Redemption Price" shall mean (A) prior to the date which is six months
after the Initial Issuance Date, 115% of the Stated Value and (B) on and after
the date which is six months after the Initial Issuance Date but prior to the
date which is one (1) year after the Initial Issuance Date, 120% of the Stated
Value. Notwithstanding the above, any holder of Preferred Shares may convert
such shares (including Preferred Shares selected for redemption) into Common
Stock pursuant to Section 2(a) on or prior to the date immediately preceding the
Company's Election Redemption Date. If the Company fails to timely pay any
Company's Election Redemption Price in accordance with this Section 6, then the
Company shall not be permitted to submit another Notice of Redemption at
Company's Election without the prior written consent of the holders of
<PAGE>
the Preferred Shares representing at least two-thirds (2/3) of the Preferred
Shares then outstanding.
Section 7. Company's Right to Redeem in Lieu of Conversion.
Subject to the terms and conditions of this Section 7, at any time after the
Initial Issuance Date, and so long as the Company has provided appropriate
notice as described below, the Company may elect to redeem Preferred Shares
submitted for conversion in lieu of converting such Preferred Shares, provided
that the Conversion Price for such Preferred Shares (as reflected in the
Conversion Notice for such Preferred Shares) on the Conversion Date is less than
a price (the "Redemption in Lieu of Conversion Trigger Price") equal to $3.00
(appropriately adjusted for any stock split, stock dividend, combination or
other similar transaction) (a "Company Redemption in Lieu of Conversion"). If
the Company elects to redeem some, but not all, of the Preferred Shares
submitted for conversion, the Company shall redeem a number of Preferred Shares
from each holder of Preferred Shares submitted for conversion on the applicable
date equal to such holder's pro-rata amount (based on the number of Preferred
Shares held by such holder relative to the number of Preferred Shares
outstanding) of all Preferred Shares submitted for conversion which the Company
elects to redeem.
(a) Redemption Price of Company Redemption in Lieu of Conversion.
The "Redemption Price of Company Redemption in Lieu of Conversion" shall be an
amount per Preferred Share equal to the product of (i) the Conversion Rate on
the applicable Conversion Date and (ii) the Closing Bid Price of the Common
Stock on the Conversion Date.
(b) Mechanics of Company Redemption in Lieu of Conversion. The
Company shall exercise its right to redeem by delivering written notice by
facsimile and overnight courier ("Notice of Company Redemption in Lieu of
Conversion") to (i) each holder of the Preferred Shares and (ii) the Transfer
Agent on any day immediately following a date on which the Conversion Price is
less than $3.00. Such Notice of Company Redemption in Lieu of Conversion shall
indicate (A) the maximum, if any, aggregate number of Preferred Shares which the
Company will redeem in connection with the Company Redemption in Lieu of
Conversion, (B) confirm the time period during which the Company may effect
Company Redemption in Lieu of Conversion, which period shall begin on and
include the date of delivery to all of the holders of the Notice of Redemption
in Lieu of Conversion and shall end on and include the date which is 30 calendar
days after the date of receipt by all of the holders of the Notice of Redemption
in Lieu of Conversion (the "Redemption in Lieu of Conversion Period") and (C)
each holder's pro rata amount as described in the following sentence. If the
Company elects to limit the number of Preferred Shares which it will redeem
during the Redemption in Lieu of Conversion Period, the Company shall allocate
for redemption from each holder of Preferred Shares a number of Preferred Shares
equal to such holder's pro-rata amount (based on the number of Preferred Shares
held by such holder on the date of the Notice of Company Redemption in Lieu of
Conversion relative to the total number of Preferred Shares
<PAGE>
outstanding on such date). The Company may terminate a Redemption in Lieu of
Conversion Period at any time with respect to Preferred Shares which have not
been submitted for conversion by delivering written notice of such termination
to each holder of Preferred Shares by facsimile and overnight courier at least
five (5) Business Days prior to the effective date of such termination.
Notwithstanding anything to the contrary in this Section 7, the Company shall
convert Preferred Shares pursuant to Section 2 if such Preferred Shares are
submitted for conversion (i) before the beginning, or after the effective date
of the termination, of the Redemption in Lieu of Conversion Period, (ii) for a
Conversion Price (as reflected in the Conversion Notice) greater than or equal
to the Redemption in Lieu of Conversion Trigger Price or (iii) are in excess of
such holder's pro rata allocation of the maximum number of Preferred Shares the
Company indicated that it would redeem in its Notice of Company Redemption in
Lieu of Conversion.
(c) Payment of Redemption Price. The Company shall pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to the
holder of the Preferred Shares being redeemed in cash by wire transfer by 5:00
p.m. New York City time on the first Business Day after the applicable
Conversion Date on which such Preferred Shares are submitted for conversion. If
the Company shall fail to pay the applicable Redemption Price of Company
Redemption in Lieu of Conversion to such holder on a timely basis as described
in this Section 7(c), in addition to any remedy such holder of Preferred Shares
may have under this Certificate of Amendment and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the rate of 1.5% per month
until paid in full. If the Company fails to pay such unpaid applicable
Redemption Price of Company Redemption in Lieu of Conversion by 5:00 p.m. on the
first Business Day following the applicable Conversion Date in full to each
holder, each holder of Preferred Shares submitted for redemption pursuant to
this Section 7 and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid, shall have the option to, in
lieu of redemption, (A) to require the Company to promptly return to each holder
all of the Preferred Shares that were submitted for redemption by such holder
under this Section 7 and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid or (B) to convert those
Preferred Shares for which the applicable Redemption Price of the Company
Redemption in Lieu of Conversion has not been paid at a Conversion Price equal
to the lesser of (I) the Conversion Price applicable to such conversion on the
date on which such Preferred Shares were originally presented for conversion and
(II) the Conversion Price which would have been in effect if such Preferred
Shares were presented for conversion on the Business Day immediately following
the last day on which the Company could have effected a timely Company
Redemption in Lieu of Conversion, by sending written notice thereof to the
Company via facsimile (the "Void Company Redemption Notice") at any time after
5:00 p.m. on the first Business Day following the applicable Conversion Date.
Upon the Company's receipt of such Void Company Redemption Notice(s) prior to
payment of the full applicable redemption price to each holder, the Company's
Redemption in Lieu of Conversion shall be null and void with respect to those
Preferred Shares submitted for redemption and for which the applicable
redemption
<PAGE>
price has not been paid and with respect to any Preferred Shares submitted in
the future for conversion in the same Redemption in Lieu of Conversion Period.
In the case of the Void Company Redemption Notice requesting the return of the
Preferred Shares (i) the Company shall immediately return any Preferred Shares
submitted to the Company by each holder for redemption under this Section 7 and
for which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid and (ii) the Fixed Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (I) the Conversion
Price applicable to such conversion on the date on which such Preferred Shares
were originally presented for conversion and (II) the lowest Conversion Price
which would have been in effect if such Preferred Shares were presented for
conversion on any Business Day during the period beginning on the Business Day
immediately following the last day on which the Company could have effected a
timely Company Redemption in Lieu of Conversion and ending on the date of the
Company's receipt of the applicable Void Company Redemption Notice. In the case
of the Void Company Redemption Notice requesting the conversion of the Preferred
Shares, such conversion shall be at the Conversion Price indicated above and
shall satisfy the requirements of Section 2(d) based on the Conversion Date on
which such Preferred Shares were originally submitted for conversion.
Notwithstanding the foregoing, if the Company fails to pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to a holder within
the time period described in this Section 7(c) due to a dispute as to the
arithmetic calculation of the Redemption Price of Company Redemption in Lieu of
Conversion, such dispute shall be resolved pursuant to Section 2(d)(iii) above
with the term "Redemption Price of Company Redemption in Lieu of Conversion"
being substituted for the term "Conversion Rate." If the Company fails to timely
effect a Company Redemption in Lieu of Conversion in accordance with this
Section 7, the Company shall not be allowed to submit another Notice of Company
Redemption in Lieu of Conversion without the prior written consent of the
holders of at least two-thirds (y) of the Preferred Shares then outstanding.
(d) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Redemption in Lieu of Conversion pursuant to Section 7(b) above and begin the
redemption procedure under this Section 7, unless it has:
the full amount of the Redemption Price of Company Redemption
in Lieu of Conversion in cash, available in a demand or other immediately
available account in a bank or similar financial institution;
credit facilities, with a bank or similar financial
institutions that are available for use in redeeming the Preferred Shares, in
the full amount of the Redemption Price of Company Redemption in Lieu of
Conversion;
a written agreement with a standby underwriter ready, willing
and able to purchase from the Company a sufficient number of shares of stock to
provide proceeds necessary to redeem any Preferred Shares that are not converted
<PAGE>
prior to a Company Redemption in Lieu of Conversion; or
a combination of the items set forth in the preceding clauses
(i), (ii) and (iii), aggregating the full amount of the Redemption Price of
Company Redemption in Lieu of Conversion.
Section 8. Reservation of Shares; Authorized Shares.
Reservation. The Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares, such
number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Preferred Shares then outstanding;
provided that the number of shares of Common Stock so reserved shall at no
time be less than 200% of the number of shares of Common Stock for which
the Preferred Shares are at any time convertible (without regard to any
limitations on conversions) (the "Required Reserve Amount). The initial
number of shares of Common Stock reserved for conversions of the Preferred
Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the
number of Preferred Shares held by each holder at the time of issuance of
the Preferred Shares or increase in the number of reserved shares, as the
case may be. In the event a holder shall sell or otherwise transfer any of
such holder's Preferred Shares, each transferee shall be allocated a pro
rata portion of the number of reserved shares of Common Stock reserved for
such transferor. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Preferred Shares shall be allocated to the
remaining holders of Preferred Shares, pro rata based on the number of
Preferred Shares then held by such holders.
Insufficient Authorized Shares. If at any time while any of
the Preferred Shares remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the
Preferred Shares at least a number of shares of Common Stock equal to the
Required Reserve Amount (an "Authorized Share Failure"), then the Company
shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Preferred Shares
then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than 60 days after the
occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the authorization of an increase in the
number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement
and shall use its reasonable best efforts to
<PAGE>
solicit its stockholders' approval of such increase in authorized shares
of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.
Section 9. Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the New
York Business Corporation Law of the State of New York, and as expressly
provided in this Certificate of Amendment.
Section 10. Liquidation, Dissolution, Winding-Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive in
cash out of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "Liquidation Funds"), before
any amount shall be paid to the holders of any of the capital stock of the
Company of any class junior in rank to the Preferred Shares in respect of the
preferences as to the distributions and payments on the liquidation, dissolution
and winding up of the Company, an amount per Preferred Share equal to the
Conversion Amount (otherwise the "Liquidation Preference"); provided that, if
the Liquidation Funds are insufficient to pay the full amount due to the holders
of Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Preferred Shares
as to payments of Liquidation Funds (the "Pari Passu Shares"), then each holder
of Preferred Shares and Pari Passu Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Amendment, Preferences and Rights, as a percentage of the full
amount of Liquidation Funds payable to all holders of Preferred Shares and Pari
Passu Shares. The purchase or redemption by the Company of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
Section 11. Preferred Rank. All shares of Common Stock and the
Company's Series C Preferred Stock. par value $0.05 per share (the "Series C
Preferred Stock") shall be of junior rank to all Preferred Shares in respect to
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. The rights of the shares of Common
Stock and the Series C Preferred Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior or equal rank to the Preferred Shares
in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not
<PAGE>
hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of New York or enter into any
agreement containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other class of
capital stock. In the event of the merger or consolidation of the Company with
or into another corporation, the Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger shall
result inconsistent therewith.
Section 12. Participation. Subject to the rights of the holders, if
any, of the Pari Passu Shares, the holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock. Notwithstanding the
foregoing, this Section 12 shall not apply if the Company makes a cash dividend
payment to the holders of the Common Stock if such dividend meets the following
qualifications: (i) the dividend is paid out of current earnings accrued after
the Issuance Date and (ii) the dividend is a non-extraordinary quarterly
dividend.
Section 13. Restriction on Redemption and Cash Dividends. Until all
of the Preferred Shares have been converted or redeemed as provided herein, the
Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, its Common Stock without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares.
Section 14. Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue any shares of Common Stock upon conversion of
the Preferred Shares if the issuance of such shares of Common Stock would exceed
that number of shares of Common Stock which the Company may issue upon
Conversion of the Preferred Shares (the "Exchange Cap") without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion
<PAGE>
from outside counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding. Until such approval or written opinion is
obtained, no purchaser of Preferred Shares pursuant to the Securities Purchase
Agreement (the "Purchasers") shall be issued, upon conversion of Preferred
Shares, shares of Common Stock in an amount greater than the product of (i) the
Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the
number of Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement and the denominator of which is the aggregate amount of all
the Preferred Shares issued to the Purchasers pursuant to the Securities
Purchase Agreement (the "Cap Allocation Amount"). In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred
Shares, the transferee shall be allocated a pro rata portion of such Purchaser's
Cap Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Cap Allocation Amounts of the remaining holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such holder.
Section 15. Vote to Change the Terms of Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (A) any change to
this Certificate of Amendment or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares and (B) the issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
Section 16. Lost or Stolen Certificates. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
Section 17. Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Certificate of Amendment
shall be cumulative and in addition to all other remedies available under this
Certificate of Amendment, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit
<PAGE>
a holder's right to pursue actual damages for any failure by the Company to
comply with the terms of this Certificate of Amendment. The Company covenants to
each holder of Preferred Shares that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the holder
thereof and shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of the Preferred Shares and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in
the event of any such breach or threatened breach, the holders of the Preferred
Shares shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
Section 18. Specific Shall Not Limit General; Construction. No
specific provision contained in this Certificate of Amendment shall limit or
modify any more general provision contained herein. This Certificate of
Amendment shall be deemed to be jointly drafted by the Company and all Buyers
and shall not be construed against any person as the drafter hereof.
Section 19. Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
Section 20. Notice. Whenever notice is required to be given under
these Articles of Amendment, unless otherwise provided herein, such notice shall
be given in accordance with Section 9(f) of the Securities Purchase Agreement.
Section 21. Conversion Notice. Conversion Notices shall take the
following form:
CYBER DIGITAL, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Amendment of the Series D1
Convertible Preferred Stock of Cyber Digital, Inc. (the "Certificate of
Amendment"). In accordance with and pursuant to the Certificate of Amendment,
the undersigned hereby elects to convert the number of shares of Series D1
Convertible Preferred Stock, par value $0.05 per share (the "Preferred Shares"),
of Cyber Digital, Inc., a New York corporation (the "Company"), indicated below
into shares of Common Stock, par value $0.01 per share (the "Common Stock"), of
the Company, by tendering the stock certificate(s) representing the share(s) of
Preferred Shares specified below as of the date specified below.
<PAGE>
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Is the alternative Floating Conversion Price being relied on pursuant to
Section 2(f)(iii) of the Certificate of Amendment? (check one)
YES ____ No ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number (if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ___________ ___, _____
from the Company and acknowledged and agreed to by [TRANSFER AGENT].
CYBER DIGITAL, INC.
By:
Name:
Title:
* * * * *
<PAGE>
FIFTH: The Secretary of State is designated as the agent of
the corporation upon whom process against the corporation may be served. The
post office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is: c/o
D. David Cohen, Esq., 501 Madison Avenue, New York, New York 10022.
SIXTH: The duration of the corporation is to be perpetual.
SEVENTH: Any one or more members of the Board of Directors of
the corporation or of any committee thereof may participate in a meeting of said
Board or of any such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time.
EIGHTH: No holder of any of the shares of any class of the
corporation shall be entitled as of right to subscribe for, purchase, or
otherwise acquire any shares of any class of the corporation which the
corporation proposes to issue or any rights or options which the corporation
proposes to grant for the purchase of shares of any class of the corporation or
for the purchase of any shares, bonds, securities, or obligations of the
corporation which are convertible into or exchangeable for, or which carry any
rights, to subscribe for, purchase, or otherwise acquire shares of any class of
the corporation; and any and all of such shares, bonds, securities or
obligations of the corporation, whether now or hereafter authorized or created,
may be issued, or may be reissued or transferred if the same have been
reacquired and have treasury status, and any and all of such rights and options
may be granted by the Board of Directors to such persons, firms, corporations
and associations, and for such lawful consideration, and on such terms, as the
Board of Directors in its discretion may determine, without first offering the
same, or any thereof, to any said holder. Without limiting the generality of the
foregoing stated denial of any and all preemptive rights, no holder of shares of
any class of the corporation shall have any preemptive rights in respect of the
matters, proceedings, or transactions specified in subparagraphs (1) to (6),
inclusive, of paragraph (e) of Section 622 of the Business Corporation Law.
NINTH: Except as may otherwise be specifically provided in
this certificate of incorporation, no provision of this certificate of
incorporation is intended by the corporation to be construed as limiting,
prohibiting, denying, or abrogating any of the general or specific powers or
rights conferred under the Business Corporation Law upon the corporation, upon
its shareholders, bondholders, and security holders, and upon its directors,
officers, and other corporate personnel, including, in particular, the power of
the corporation to furnish indemnification to directors and officers in the
capacities defined and prescribed by the Business Corporation Law and the
defined and prescribed rights of said persons to indemnification as the same are
conferred by the Business Corporation Law.
TENTH: A. In addition to any affirmative vote required by law,
by this Certificate of Incorporation or by any Preferred Stock designation, and
notwithstanding any other provision of the Certificate of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, the Certificate of Incorporation or the
By-Laws of the Corporation), the affirmative vote of at least 75% of the total
voting power of all the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the adoption or authorization
of a business combination (as defined herein ) with any other entity (as defined
herein), provided, however, the provisions of this Article TENTH shall not apply
to, and only such vote as shall otherwise be required by law, this Certificate
of Incorporation or the By-Laws of the Corporation, shall be required for, any
such business combination recommended to the stockholders by two-thirds of the
whole Board of Directors of the Corporation, provided that and so long as a
majority of the members of the Board of Directors acting upon such matter shall
be continuing directors (as defined herein).
B. As used in this Certificate of Incorporation, (a) the term
"continuing director" shall mean a member of the initial Board of Directors of
the Corporation, or a member of the Board of Directors of the Corporation who
was elected by the public stockholders prior to the time that such other entity
(as defined herein) acquired shares of stock of the Corporation entitling such
other entity to exercise in excess of ten percent (10%) of the total voting
power of all classes of stock of the Corporation entitled to vote in the
election of directors, or a member of the Board of Directors of the Corporation
who was elected or nominated for election by a majority of continuing directors;
(b) the term "other entity" shall include any individual, corporation,
partnership, person or entity and any other entity with which it or its
"affiliate" or "associate" (as defined below) has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring, holding,
voting or disposing of stock of the Corporation, or which is its "affiliate" or
"associate" as those terms are defined in Rule 12b-2 (or any successor rule) of
the General Rules and Regulations under the Securities Exchange Act of 1934,
together with the successors and assigns of such persons in any transaction or
series of transactions not involving a public offering of the Corporation's
stock within the meaning of the Securities Act of 1933; and (c) the term
"business combination" shall include (i) any merger or consolidation of the
Corporation with or into any other entity, other than a merger or consolidation
that does not require the vote of the stockholders of the Corporation; (ii) any
sale, lease, transfer or exchange (in one transaction or a series of
transactions) of all or substantially all of the property and assets of the
Corporation to any other entity; (iii) any merger of consolidation of any other
entity with or into the Corporation or any subsidiary of this Corporation; or
(iv) any agreement or contract with any other entity providing for any of the
transactions described in this subparagraph (c).
ELEVENTH: In addition to any affirmative vote required by law,
by this Certificate of Incorporation or by any Preferred Stock designation, and
notwithstanding any other provision of this Certificate of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws of the Corporation), the affirmative vote of the holders of at least 75%
of the total voting power of all the outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, alter, change or repeal
any one or more of the provisions contained in Articles TENTH or ELEVENTH of
this Certificate of Incorporation, subject to the provisions of any class or
series of Preferred Stock which may at the time be outstanding.
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
CYBER DIGITAL, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 1 Number of Shares: 190,678
Date of Issuance: October 5, 1999
Cyber Digital, Inc., a New York corporation (the "Company"), hereby certifies
that, for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
HFTP Investment, L.L.C., the registered holder hereof or its permitted assigns,
is entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) one hundred ninety thousand six hundred seventy eight (190,678) fully
paid nonassessable shares of Common Stock (as defined herein) of the Company
(the "Warrant Shares") at the purchase price per share provided in Section 1(b)
below; provided, however, that in no event shall the holder be entitled to
exercise this Warrant for a number of Warrant Shares in excess of that number of
Warrant Shares which, upon giving effect to such exercise, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this
<PAGE>
Warrant with respect to which the determination of such proviso is being made,
but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised Warrants beneficially owned by the holder
and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by
the holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or 10QSB or Form 10-K or 10KSB, as the case may be, (2) a more recent
public announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than Two (2) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversions of Preferred Shares and
exercise of Warrants (as defined below) by such holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "Preferred Share Warrants") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of September 30, 1999, among the
Company and the Buyers referred to therein (the "Securities Purchase
Agreement").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer, director
or consultant for services provided to the Company.
(ii) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(iii) "Articles of Amendment" means the Company's Article of
Amendment to its Articles of Incorporation for the Company's Series D1
Convertible Preferred Stock.
(iv) "Closing Bid Price" means, for any security as of any
date, the
<PAGE>
last closing bid price for such security on the Principal Market (as defined
below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
Principal Market is not the principal trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of the Preferred Shares. If the Company and the holders of the
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(a) of this
Warrant with the term "Closing Bid Price" being substituted for the term "Market
Price." All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.
(v) "Common Stock" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(vi) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(vii) "Expiration Date" means the date three (3) years from
the Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday
or other day on which banks are required or authorized to be closed in the City
of New York or the State of New York or on which trading does not take place on
the principal exchange or automated quotation system on which the Common Stock
is traded (a "Holiday"), the next date that is not a Holiday.
(viii) "Issuance Date" means, with respect to each Warrant,
the date of issuance of the applicable Warrant.
(ix) "Market Price" means, with respect to any security for
any date of determination, that price which shall be computed as the arithmetic
average of the Closing Bid Prices for such security on each of the three (3)
consecutive trading days immediately preceding such date of determination (all
such determinations to be appropriately adjusted for any stock dividend, stock
split or similar transaction during the pricing period).
(x) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xi) "Other Securities" means (i) those warrants of the
Company
<PAGE>
issued prior to, and outstanding on, the date of issuance of this Warrant, (ii)
the Preferred Shares and (iii) the shares of Common Stock issued upon conversion
of the Preferred Shares.
(xii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii) "Preferred Shares" means the shares of the Company's
Series D1 Convertible Preferred Shares issued pursuant to the Securities
Purchase Agreement.
(xiv) "Principal Market" means the Nasdaq SmallCap Market or
the Over the Counter Bulletin Board (" OTCBB"), whichever is the principal
trading market on which the Common Stock is then traded.
(xv) "Registration Rights Agreement" means that Agreement
dated September 30, 1999 by and among the Company and the Buyers referred to
therein.
(xvi) "Securities Act" means the Securities Act of 1933, as
amended.
(xvii) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
(xviii) "Warrant Exercise Price" shall be equal to, with
respect to any Warrant Share, 120% of the Market Price of the Common Stock on
the applicable Issuance Date of this Warrant, subject to adjustment as
hereinafter provided (including, without limitation, pursuant to Section 2(g)).
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "herein," "hereof,"
and "hereunder," and words of similar import, shall refer to this Warrant as a
whole and not to any provision of this Warrant, and the words "Section,"
"Schedule," and "Exhibit" shall refer to Sections of, and Schedules and Exhibits
to, this Warrant unless otherwise specified.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Eastern Time on the
Expiration Date by (i) delivery of a written
<PAGE>
notice, in the form of the subscription notice attached as Exhibit A hereto (the
"Exercise Notice"), of such holder's election to exercise this Warrant, which
notice shall specify the number of Warrant Shares to be purchased, (ii) (A)
payment to the Company of an amount equal to the applicable Warrant Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (plus any applicable issue or transfer taxes) (the "Aggregate
Exercise Price") in cash or wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 2(e)) and (iii) the surrender to a
common carrier for overnight delivery to the Company as soon as practicable
following such date, this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction);
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), the Company shall on the second Business Day following the date of
receipt of the Exercise Notice, the Aggregate Exercise Price (or notice of a
Cashless Exercise) and this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction) (the
"Exercise Delivery Documents"), credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its designee's
balance account with The Depository Trust Company; provided, however, if the
holder who submitted the Exercise Notice requested physical delivery of any or
all of the Warrant Shares, then the Company shall, on or before the second
Business Day following receipt of the Exercise Delivery Documents issue and
surrender to a common carrier for overnight delivery to the address specified in
the Exercise Notice, a certificate, registered in the name of the holder, for
the number of shares of Common Stock to which the holder shall be entitled
pursuant to such request. Upon delivery of the Exercise Notice and Aggregate
Exercise Price referred to in clause (ii)(A) above or notification to the
Company of a Cashless Exercise referred to in Section 2(e), the holder of this
Warrant shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of this Warrant as required by
clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price or the
Market Price of a security or the arithmetic calculation of the Warrant Shares,
the Company shall promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within one Business Day of
receipt of the holder's subscription notice. If the holder and the Company are
unable to agree upon the determination of the Warrant Exercise Price or the
Market Price or arithmetic calculation of the Warrant Shares within one Business
Day of such disputed determination or arithmetic calculation being submitted to
the holder, then the Company shall immediately submit via facsimile (i) the
disputed determination of the Warrant Exercise Price or the Market Price to an
independent, reputable investment banking firm or (ii) the disputed arithmetic
calculation of the Warrant Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant, as the
<PAGE>
case may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours from
the time it receives the disputed determinations or calculations. Such
investment banking firm's or accountant's determination or calculation, as the
case may be, shall be deemed conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) Business Days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder within four (4) Business Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of Common Stock to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant or a new Warrant
for the number of shares of Common Stock to which such holder is entitled
pursuant to Section 2(b) hereof, the Company shall, in addition to any other
remedies under this Warrant or the Securities Purchase Agreement or otherwise
available to such holder, including any indemnification under Section 8 of the
Securities Purchase Agreement, pay as additional damages in cash to such holder
on each day the issuance of such Common Stock certificate or new Warrant, as the
case may be, is not timely effected an amount equal to 0.5%of the product of (A)
the sum of the number of shares of Common Stock not issued to the holder on a
timely basis and to which the holder is entitled and/or, the number of shares
represented by the portion of this Warrant which is not being converted, as the
case may be, and (B) the average of the Closing Bid Price of the Common Stock
for the three consecutive trading days immediately preceding the last possible
date which the Company could have issued such Common Stock or Warrant, as the
case may be, to the holder without violating this Section 2.
(e) If, despite the Company's obligations under the Securities
Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to
be issued are not registered and available for resale pursuant to a registration
statement in accordance with the Registration Rights Agreement, including during
a Grace Period (as defined in the Registration Rights Agreement), then
notwithstanding anything contained herein to the contrary, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made
<PAGE>
to the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the "Net Number" of shares of Common
Stock determined according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number shares with respect to which this Warrant
is then being exercised.
B= the Closing Bid Price of the Common Stock on the date
immediately preceding the date of the subscription notice.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
(f) Adjustment to Warrant Exercise Price -- Market Price of Common
Stock. In addition to any other adjustment to the Warrant Exercise Price
provided for in this Warrant, in the event that 120% of the Market Price of the
Common Stock on the date which is one (1) year after the issuance date of this
Warrant (the "Reset Date") is less than the Warrant Exercise Price in effect
immediately prior to such Reset Date, then from and after such Reset Date the
Warrant Exercise Price shall be equal to 120% of the Market Price of the Common
Stock on the Reset Date, subject to adjustment as provided herein.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or
<PAGE>
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance upon exercise of this Warrant)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Company's Articles of Amendment or any waiver
thereof which has an adverse effect on the rights granted hereunder shall be
given effect until the Company has taken appropriate action (satisfactory to the
holders of Preferred Share Warrants representing a majority of the shares of
Common Stock issuable upon the exercise of such Preferred Share Warrants then
outstanding) to avoid such adverse effect with respect to this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of Common Stock or other securities or property in a
name other than that of the registered holders of this Warrant to be converted
and such holder shall pay such amount, if any, to cover any applicable transfer
or similar tax.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as
<PAGE>
such, any of the rights of a stockholder of the Company or any right to vote,
give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the holder of this Warrant of the
Warrant Shares which he or she is then entitled to receive upon the due exercise
of this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any securities
(upon exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor"). Upon exercise of this
Warrant, other than pursuant to a Cashless Exercise the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant that the Company receive such other representations as
the Company considers reasonably necessary to assure the Company that the
issuance of its securities upon exercise of this Warrant shall not violate any
United States or state securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
<PAGE>
(b) This Warrant and the rights granted hereunder shall be
assignable by the holder hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
this Warrant, the Company issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (other than shares of Common Stock deemed to have
been issued by the Company (I) in connection with an Approved Stock Plan, (II)
upon the conversion or exercise of convertible securities which are outstanding
as of October 1, 1999 and listed on Schedule 3(c)(iii) to the Securities
Purchase Agreement, provided that the terms of such convertible securities have
not been altered, amended or revised since October 1, 1999 or (III) upon
exercise or conversion of the Other Securities) for a consideration per share
less than a price (the " Applicable Price") equal to the Warrant Exercise Price
in effect immediately prior to such issuance or sale, then immediately after
such issue or sale the Warrant Exercise Price then in effect shall be reduced to
an amount equal to such consideration per share. Upon each such adjustment of
the Warrant Exercise Price hereunder, the number of shares of Common Stock
acquirable upon exercise of this Warrant shall be adjusted to the number of
shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
of any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
<PAGE>
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
<PAGE>
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01, unless the
Board of Directors of the Company shall have made a good faith allocation of the
consideration received for such Option and such other securities, in which case
such Option and such other securities will be deemed to be issued for the
consideration as allocated by such Board. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price of such securities on the date of receipt. If any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined by the good faith determination of the Company's Board of
Directors. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of Preferred
Share Warrants representing a majority of the shares of Common Stock obtainable
upon exercise of the Preferred Share Warrants then outstanding. The
determination of such appraiser shall be final and binding upon all parties and
the fees and expenses of such appraiser shall be borne jointly by the Company
and the holders of Preferred Shares.
(ii) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.
(iii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the holders
of
<PAGE>
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(d) shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Bid Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Bid Price of
the Common Stock on the trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the
<PAGE>
holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the amount of the assets that would
have been payable to the holder of this Warrant pursuant to the Distribution had
the holder exercised this Warrant immediately prior to such record date and with
an exercise price equal to the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Preferred
Share Warrants; provided that no such adjustment will increase the Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of a Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase
<PAGE>
stock, warrants, securities or other property pro rata to the record holders of
any class of Common Stock (the "Purchase Rights"), then the holder of this
Warrant will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") written agreement (in form and substance
satisfactory to the holders of Preferred Share Warrants representing a majority
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding) to deliver to each holder of Preferred Share Warrants
in exchange for such Warrants, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant
and satisfactory to the holders of the Preferred Share Warrants (including, an
adjusted warrant exercise price equal to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and exercisable
for a corresponding number of shares of Common Stock acquirable and receivable
upon exercise of the Preferred Share Warrants (without regard to any limitations
or exercise), if the value so reflected is less than any Warrant Exercise Price
in effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the holders of Preferred Share
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Preferred Share Warrants then outstanding) to insure that each
of the holders of the Preferred Share Warrants will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Preferred Share Warrants (without regard to any
limitations or exercise), such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like
<PAGE>
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Cyber Digital, Inc.
400 Oser Avenue, Suite 1650
Hauppauge, New York 11788
Telephone: (516) 231-1200
Facsimile: (516) 231-1446
Attention: J.C. Chatpar, President
With copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 715-9100
Facsimile: (212) 715-8000
Attention: Scott S. Rosenblum, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is
<PAGE>
sought.
Section 13. Date. The date of this Warrant is October 5, 1999. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Preferred Share Warrants may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the written consent of the
holders of Preferred Share Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding; provided that no such action may increase the Warrant Exercise
Price of the Preferred Share Warrants or decrease the number of shares or class
of stock obtainable upon exercise of any Preferred Share Warrants without the
written consent of the holder of such Preferred Share Warrant.
Section 15. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York, or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
J.C. Chatpar, its President, as of the 5th day of October, 1999.
CYBER DIGITAL, INC.
By: /s/ J.C. Chatpar
-----------------
Name: J.C. Chatpar
Title: President
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
CYBER DIGITAL, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares ") of Cyber
Digital, Inc., a New York corporation (the "Company"), evidenced by the attached
Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _______________
Warrant Shares (to the extent permitted by the terms of the
Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
Name:
Title:
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Cyber Digital, Inc., a New York
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, ____
______________________________________
By: _____________________________
Its: _____________________________
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of September
30, 1999, by and among Cyber Digital, Inc. a New York corporation, with
headquarters located at 400 Oser Avenue, Suite 1650, Hauppauge, New York 11788
(the "Company"), and the undersigned buyers (each, a "Buyer" and collectively,
the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to (i) issue and sell to the Buyers (I) 3,000
shares of the Company's Series D1 Convertible Preferred Stock (the "Initial
Preferred Shares"), which will be convertible into shares (as converted, the
"Initial Conversion Shares") of the Company's Common Stock, par value $0.01 per
share (the "Common Stock" ), in accordance with the terms of the Company's
Certificate of Amendment amending the Company's Certificate of Incorporation for
the designation of the Series D1 Convertible Preferred Stock (the "Certificate
of Amendment"), and (II) a Warrant for each Initial Preferred Share issued and
sold (collectively, the "Initial Warrants") each of which Initial Warrants will
be exercisable to purchase up to a number of shares of Common Stock equal to the
quotient of (A) 300, divided by (B) the average of the Closing Bid Prices (as
defined in the Certificate of Amendment) of the Common Stock on the three
trading days immediately preceding the Initial Closing Date (as defined below)
(as exercised, the "Initial Warrant Shares"); and (ii) issue and sell to the
Buyers (I) 2,000 additional shares of the Company's Series D1 Convertible
Preferred Stock (the "Mandatory Preferred Shares" and collectively, with the
Initial Preferred Shares, the "Preferred Shares"), which will be convertible
into shares of Common Stock (as converted, the "Mandatory Conversion Shares" and
collectively with the Initial Conversion Shares, the "Conversion Shares") in
accordance with the Certificate of Amendment, and (II) a Warrant for each
Mandatory Preferred Share issued and sold (collectively, the "Mandatory
Warrants" and collectively with the Initial Warrants, the "Warrants"), each of
which Mandatory Warrants will be exercisable to purchase up to a number of
shares of Common Stock equal to the quotient of (A) 300, divided by (B) the
average of the Closing Bid Prices of the Common Stock on the three trading days
immediately preceding the Mandatory Closing Date (as defined below) (as
exercised, the "Mandatory Warrant Shares" and collectively with the Initial
Warrant Shares, the "Warrant Shares");
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933,
<PAGE>
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom such Buyer assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means (i) the Initial Conversion
Shares and the Mandatory Conversion Shares issued or issuable upon conversion of
the Initial Preferred Shares and the Mandatory Preferred Shares, as the case may
be, (ii) the Initial Warrant Shares and the Mandatory Warrant Shares issued or
issuable upon exercise of the Initial Warrants and the Mandatory Warrants, as
the case may be, (iii) the Dividend Shares (as defined in the Certificate of
Amendment) and (iv) any shares of capital stock issued or issuable with respect
to the Initial Conversion Shares, the Mandatory Conversion Shares, the Initial
Preferred Shares, the Mandatory Preferred Shares, the Initial Warrant Shares,
the Mandatory Warrant Shares, the Initial Warrants, the Mandatory Warrants or
the Dividend Shares as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of Preferred Shares or exercises of Warrants,
provided, however, the term Registrable Securities shall not include any
Registrable Securities which have been sold pursuant to an effective
Registration Statement (as defined below) or pursuant to Rule 144 promulgated
under the 1933 Act.
<PAGE>
Additional Registrable Securities.
e. "Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than 45 days after the Initial Closing
Date (the "Filing Deadline"), file with the SEC the Registration Statement on
Form S-3 covering the resale of all of the Initial Registrable Securities. In
the event that Form S-3 is unavailable for such a registration, the Company
shall use such other form as is available for such a registration, subject to
the provisions of Section 2(e). The Registration Statement prepared pursuant
hereto shall register for resale at least that number of shares of Common Stock
equal to the product of (x) 2.0 and (y) the number of Initial Registrable
Securities as of the date immediately preceding the date the Initial
Registration Statement is initially filed with the SEC (as if the Mandatory
Preferred Shares and the Mandatory Warrants were issued and outstanding on such
date), subject to adjustment as provided in Section 2(f). The Company shall use
its best efforts to have the Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than 90 days after the Initial
Closing Date (the "Effectiveness Deadline").
b. Piggy-Back Registrations. If at any time prior to the date
on which the Registration Period (as hereinafter defined) with respect to all
Registration Statements shall have expired, the number of shares of Common Stock
available for sale under the Registration Statements is insufficient to cover
all of the Registrable Securities and the Company proposes to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its securities (other than on
Form S-4 or Form S-8 (or their equivalents at such time) relating to securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall promptly send to each Investor written notice
of the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(b) and, if within ten (10) business days
after receipt of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, subject to the
priorities set forth below in this Section 2(b). No right to registration of
Registrable Securities under this Section 2(b) shall be construed to limit any
registration required under Section 2(a). The obligations of the Company under
this Section 2(b) may be waived by Investors holding a majority of the
Registrable Securities. If an offering in
<PAGE>
connection with which an Investor is entitled to registration under this Section
2(b) is an underwritten offering, then each Investor whose Registrable
Securities are included in such Registration Statement shall, unless otherwise
agreed to by the Company, offer and sell such Registrable Securities in an
underwritten offering using the same underwriter or underwriters and, subject to
the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. If a registration
pursuant to this Section 2(b) is to be an underwritten public offering and the
managing underwriter(s) advise the Company in writing, that in their reasonable
good faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is advisable to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, and (3) third,
the securities requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of the Registrable
Securities. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form reasonably acceptable to the holders
<PAGE>
of a majority of the Registrable Securities and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities which
such Registration Statement is required to cover or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(c), the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least 200% of such Registrable Securities (based on the market price of the
Common Stock on the trading day immediately preceding the date of filing of such
amendment or new Registration Statement), in each case, as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefor
arises. The Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Shares and
exercise of the Warrants covered by such Registration Statement is greater than
the quotient determined by dividing (i) the number of shares of Common Stock
available for resale under such Registration Statement by (ii) 1.5. For purposes
of the calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares or exercise of the Warrants shall be
disregarded and such calculation shall assume that the Preferred Shares are then
convertible into, and the Warrants are then exercisable for, shares of Common
Stock at the then prevailing Conversion Rate (as defined in the Company's
Certificate of Amendment) or Exercise Price (as defined in the Warrants),
respectively.
g. Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. If (i) a Registration Statement
covering all the Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the Filing
Deadline or (B) declared effective by the SEC on or before the Effectiveness
Deadline or (ii) on any day after the Registration Statement has been declared
effective by the SEC sales of all the Registrable Securities required to be
included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(t))) pursuant to the
Registration Statement (including, without limitation, because of a failure to
keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, to
register sufficient shares of Common Stock), then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying shares of Common
<PAGE>
Stock (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Preferred Shares an
amount in cash per Preferred Share held equal to the product of (i) $1,000
multiplied by (ii) the sum of (A) .02, if the Registration Statement is not
filed by the Filing Deadline, plus (B) .02, if the Registration Statement is not
declared effective by the Effectiveness Deadline, plus, (C) the product of (I)
.000667 multiplied by (II) the sum of (x) the number of days after the Filing
Deadline that such Registration Statement is not filed with the SEC, plus (y)
the number of days after the Effectiveness Deadline that the Registration
Statement is not declared effective by the SEC, plus (z) the number of days
after the Registration Statement has been declared effective by the SEC that
such Registration Statement is not available (other than during an Allowable
Grace Period) for the sale of at least all the Registrable Securities required
to be included on such Registration Statement. The payments to which a holder
shall be entitled pursuant to this Section 2(g) are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay Payments are incurred and (II) the third business day after the event or
failure giving rise to the Registration Delayed Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Sections 2(a) or 2(f),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the Filing Deadline) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the Effectiveness Deadline). The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction pursuant to Rule
144(k) (or successor thereto) promulgated under the 1933 Act or (ii) the date on
which the Investors shall have sold all the Registrable Securities covered by
such Registration Statement (the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. The term
<PAGE>
"best efforts" shall mean, among other things, that the Company shall submit to
the SEC, within three (3) business days (except such period shall be extended to
ten (10) business days if there exists material non-public information
concerning the Company the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company) after the Company learns that no review of a
particular Registration Statement will be made by the staff of the SEC or that
the staff has no further comments on the Registration Statement, as the case may
be, a request for acceleration of effectiveness of such Registration Statement
to a time and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 Act"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Registration Statement at least five (5) days prior to its
filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K and any similar or successor reports) within a reasonable number of days
prior to the their filing with the SEC and (b) not file any document in a form
to which Legal Counsel reasonably objects in a timely manner. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which consent shall not be withheld, unless legal counsel has
objected to disclosures in the Registration Statement relating to (A) the
Registrable Securities, the Preferred Shares or the Warrants or (B) the
Investors. The Company shall furnish to Legal Counsel, without charge, (i) any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, (ii) promptly after
<PAGE>
the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits and
(iii) upon the effectiveness of any Registration Statement, one copy of the
prospectus included in such Registration Statement and all amendments and
supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
Registrable Securities covered by a Registration Statement under all other
securities or "blue sky" laws of such jurisdictions in the United States, (ii)
prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction.
The Company shall promptly notify Legal Counsel and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such
event or development, the Company shall notify Legal Counsel and each Investor
in writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in
<PAGE>
light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness),
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension as
soon as possible and to notify Legal Counsel and each Investor who holds
Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. At the reasonable request of any Investor, the Company
shall furnish to such Investor, on the date of the effectiveness of the
Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the Investors.
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors, (collectively, the "Inspectors"), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree, and each Investor hereby
agrees, to hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors and Investors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such
<PAGE>
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements with the Company with respect
thereto, substantially in the form of this Section 3(i). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt written notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq SmallCap Market, or (iii) if,
despite the Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for reporting on the Over the Counter Bulletin Board for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable
<PAGE>
Securities being offered, and to the extent applicable to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of the
applicable Registration Statement.
n. If requested by an Investor, the Company shall (i) as soon
as practicable incorporate in a prospectus supplement or post-effective
amendment such information as such Investor reasonably requested be included
therein relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering; (ii) as soon as reasonably practicable make all required
filings of such prospectus supplement or post-effective amendment after being
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) supplement or make amendments to any
Registration Statement if reasonably requested by such Investor of such
Registrable Securities.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
<PAGE>
s. Intentionally Left Blank.
t. Notwithstanding anything to the contrary in Section 3(f),
at any time after the applicable Registration Statement has been declared
effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a "Grace Period"); provided, that
the Company shall promptly (i) notify the Investors in writing of the existence
of material non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Periods shall exceed 10
consecutive days and during any consecutive 365 day period, there shall be no
more than two (2) Grace Periods (an "Allowable Grace Period"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the holders receive the notice referred to in clause (i)
and shall end on and include the later of the date the holders receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of 3(g) hereof shall not be applicable during the period of any
Allowable Grace Period. Upon expiration of the Grace Period, the Company shall
again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material non-public information is
no longer applicable.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
<PAGE>
c. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g),
the first sentence of 3(f) or 3(s), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company. Subject to Section 4(i) of the Securities Purchase
Agreement, the Company shall not be responsible for the fees and disbursements
of Legal Counsel in connection with registration, filings or qualifications
pursuant to Sections 2 and 3 of this Agreement.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the Securities and Exchange Act of 1934 as amended (the "1934 Act ") (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "Claims")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue
<PAGE>
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("Blue Sky Filing"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to Section 6(c), the Company shall reimburse the
Investors and each such controlling Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or disbursements
or other reasonable expenses incurred by them in connection with investigating
or defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) shall not be available
to the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "Indemnified Party"), against any Claim or Indemnified Damages to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case
<PAGE>
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(c), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or Claim. The indemnifying
party shall keep
<PAGE>
the Indemnified Party or Indemnified Person fully apprised at all times as to
the status of the defense or any settlement negotiations with respect thereto.
No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at
<PAGE>
any time permit the Investors to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the Registrable Securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the 1933 Act and applicable
state securities laws; (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in accordance with
the applicable requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No
<PAGE>
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Cyber Digital, Inc.
400 Oser Avenue, Suite 1650
Hauppauge, New York 11788
Telephone: (516) 231-1200
Facsimile: (516) 231-1446
Attention: J.C. Chatpar, President
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 715-9100
Facsimile: (212) 715-8000
Attention: Scott S. Rosenblum, Esq.
<PAGE>
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY
<PAGE>
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the Warrants
and the Certificate of Amendment constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Warrants and the Certificate of Amendment supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares and the Warrants then outstanding
have been converted into or exercised for Registrable Securities without regard
to any limitation on conversions of the Preferred Shares or exercises of the
Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
<PAGE>
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
<PAGE>
COMPANY: BUYERS:
CYBER DIGITAL, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management,
L.L.C.
Its: Investment Manager
By: /s/ J.C. Chatpar By: /s/ Jamie O'Brien
----------------- -----------------------
Name: J.C. Chatpar Name: Jamie O'Brien
Its: President Its: Authorized Signatory
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor Address Investor's Representatives' Address
Investor Name and Facsimile Number and Facsimile Number
- ------------------------ ---------------------------------------- ------------------------------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. Promethean Investment Group, L.L.C.
750 Lexington Ave., 22nd Floor 750 Lexington Ave., 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John Floegel John Floegel
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
</TABLE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Transfer Agent]
__________________
__________________
Attn:_____________
Re: Cyber Digital, Inc.
Ladies and Gentlemen:
We are counsel to Cyber Digital, Inc., a New York corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders"),
pursuant to which the Company issued to the Holders shares of its Series D1
Convertible Preferred Stock, par value $0.05 per share (the "Preferred Shares"),
convertible into shares of the Company's Common Stock, par value $0.01 per share
(the "Common Stock"), and Warrants (the "Warrants") to acquire shares of Common
Stock. Pursuant to the Purchase Agreement, the Company also has entered into
that certain Registration Rights Agreement with the Holders (the "Registration
Rights Agreement"), pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants, under the Securities Act of 1933,
as amended (the "1933 Act"). In connection with the Company's obligations under
the Registration Rights Agreement, on ____________ ___, 1999, the Company filed
a Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC"), relating to the Registrable Securities which names each of the Holders
as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS], and to the best of our
knowledge after telephonic inquiry, no stop order suspending its effectiveness
has been issued and no proceedings for that purpose are pending before, or
threatened by, the SEC and the Registrable Securities are available for resale
under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
NEWS RELEASE
Cyber Digital, Inc. Announces Completion of $3 Million Private Placement
Hauppauge, New York, October 7, 1999 ...........Cyber Digital, Inc.
(the "Company"), (OTCBB:CYBD) today announced the completion of a private
placement of its Series D1 Convertible Preferred Stock and accompanying warrants
to an accredited institutional investor for an aggregate amount of $3 million.
Subject to certain conditions, the institutional investor is also required to
buy and the Company is required to sell additional shares of the Series D1
Convertible Preferred Stock and accompanying warrants for an aggregate amount of
$2 million. The Zanett Securities Corporation of New York City, New York, acted
as placement agent.
The Company will use the proceeds of the private placement to (i) fund
the capital expenditure incurred in the deployment of a high-speed Internet
infrastructure network, which is comprised of the Company's Cyber Business
Internet Gateways and Cyber Internet Access Network switches, as is planned for
rollout in New York City and Boston, (ii) accelerate marketing and indirect
sales force expansion efforts, and (iii) fund the working capital needs. "We are
extremely pleased with the completion of this private placement and we welcome
our new institutional investor. This is an important step in funding the growth
of our company as we begin the deployment of high-speed Internet access and
virtual private network services powered by AT&T to our business customers,"
commented J.C. Chatpar, Chairman of Cyber Digital, Inc.
Cyber Digital, Inc. designs, develops, markets and services its
Internet Protocol (IP) Frame Relay infrastructure equipment, as well as advanced
integrated packet and circuit digital switching equipment employing SS7 or C7
signaling for private and public switch voice network operators worldwide. For
more information on the Company, on our relationship with AT&T and on our
high-speed Internet access services, please visit our Web site WWW.CYBERATT.COM.
Company contact:
J.C. Chatpar, Chairman
516-231-1200
###
