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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
NOISE CANCELLATION TECHNOLOGIES, INC.
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(NAME OF ISSUER)
Common Stock, $0.01 par value share
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(TITLE OF CLASS OF SECURITIES)
655279 10 7
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(CUSIP NUMBER)
Mr. Peter J. Cobos
c/o Kingdon Capital Management Corp.
152 West 57th Street, New York, New York 10019
(212) 333-0100
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
July 17, 1996
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(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement /x /. (A fee
---
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent of less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
(continued on the following pages)
PAGE 1 OF 7 PAGES
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CUSIP NO. 655279 10 7 13D PAGE 2 OF 7 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Kingdon Capital Management Corporation
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)
(b) /x/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
NUMBER OF
SHARES 14,405,945
BENEFICIALLY ------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING N/A
PERSON ------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
14,405,945
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10 SHARED DISPOSITIVE POWER
N/A
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
14,405,945
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.2%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP NO. 655279 10 7 13D PAGE 3 OF 7 PAGES
ITEM 1. SECURITY AND ISSUER.
This statement relates to shares of common stock, $0.01 par value per
share (the "Common Stock"), of Noise Cancellation Technologies, Inc. ("NCT").
NCT's principal executive office is located at 1025 West Nursery Road,
Linthicum, MD 21090.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is being filed on behalf of Kingdon Capital Management
Corporation ("KCMC"), a Delaware corporation. KCMC's principal business is to
act as an investment adviser; its principal office and principal place of
business is located at 152 West 57th Street, New York, NY 10019.
Mr. Mark Kingdon is the sole shareholder and director of KCMC. He is
employed as KCMC's sole executive officer. His principal business address is
152 West 57th Street, New York, NY 10019. Mr. Kingdon is a citizen of the
United States of America.
Neither KCMC nor Mr. Kingdon has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). Neither KCMC nor Mr. Kingdon has, during the last five years,
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction which resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violations with respect to
such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Entities and managed accounts over which KCMC has investment
discretion (the "Funds") are parties to a Securities Purchase Agreement with
NCT, dated as of April 8, 1996 (the "Agreement"), pursuant to which the Funds
purchased for an aggregate purchase price (the "Purchase Price") of $1,550,000
(a) an aggregate of 1,000,000 shares of Common Stock, (b) secured convertible
notes of NCT in the aggregate principal amount of $1,200,000 (the "Notes") and,
(c) an option (the "Option") to purchase shares of Common Stock for an aggregate
purchase price of $3,450,000 (the "Exercise Price"). The Funds utilized their
working capital to pay the Purchase Price and expect to utilize their working
capital to pay the Exercise Price of any portion of the Option they exercise.
The Funds did not borrow any portion of the Purchase Price and do not expect to
borrow any portion of the Exercise Price. The Agreement, the Notes and the
Option are described more fully in Item 6. The Common Stock currently held of
record by the Funds, the Notes, the Option and the shares of Common Stock
issuable upon conversion of the Notes (the "Conversion Shares") and exercise of
the Option (the "Option Shares") are collectively referred to herein as the
"Securities."
ITEM 4. PURPOSE OF TRANSACTION
The Securities are being held for investment purposes. Neither KCMC,
Mr. Kingdon nor any of the Funds presently has any plans or intentions to
acquire additional NCT securities other than the Conversion Shares and the
Option Shares.
Neither KCMC, Mr. Kingdon nor any of the Funds has any plans or
proposals which relate to, or would result in, any of the actions enumerated in
Item 4 of the instructions to Schedule 13D.
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CUSIP NO. 655279 10 7 13D PAGE 4 OF 7 PAGES
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
As of the date hereof, KCMC is the beneficial owner of 14,405,945
shares of Common Stock. This represents 13.2%(1) of the outstanding shares of
Common Stock. KCMC has sole voting and dispositive power with respect to the
Securities owned by the Funds. Therefore, for purposes of Section 13(d) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), KCMC is
deemed to beneficially own all of the Securities held of record by the Funds and
the Funds do not beneficially own any of such Securities. Of the 14,405,95
shares of Common Stock beneficially owned by KCMC, 1,000,000 shares were
acquired upon execution of the Agreement, 3,548,804(2) shares are issuable as
Conversion Shares, and 9,857,141(2) shares are issuable as Option Shares. The
Notes and the Option became convertible or exercisable, as the case may be, on
July 17, 1996 (the "Effective Date") upon the effective date of an amendment to
NCT's Certificate of Incorporation to increase its authorized shares of Common
Stock. For purposes of Section 13(d) of the Exchange Act, KCMC did not have any
right to acquire, and did not become the beneficial owner of, the Conversion
Shares and the Option Shares until the Effective Date.
The actual Securities held of record by each of the Funds as of the
date hereof is as follows:
PRINCIPAL
SHARES OF AMOUNT OF CONVERSION OPTION
FUND COMMON STOCK NOTES(3) SHARES(2) SHARES(2)
---- ------------ ----- ------ ------
Kingdon Associates, L.P. 150,000 $186,312.33 532,320 1,478,571
Kingdon Partners, L.P. 250,000 310,520.55 887,201 2,464,285
M. Kingdon Offshore NV 600,000 745,249.31 2,129,283 5,914,285
------- ---------- --------- ---------
1,000,000 $1,242,082.19 3,548,804 9,857,141
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(1)Based on the 95,857,074 shares of Common Stock outstanding as of
May 8, 1996, as reported in NCT's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and the 13,405,945 shares of Common Stock that are issuable
upon the exercise of the Option and conversion of the Notes in full.
(2)The number of shares issuable upon conversion of the Notes is
determined by dividing the sum of the principal amount of the Notes, plus any
accrued interest thereon, by the Conversion Price (as defined in Item 6 below)
then in effect. The number of shares issuable upon exercise of the Option is
determined by dividing $3,450,000 by the Per Share Option Price (as defined in
Item 6 below) then in effect. The calculations for the purposes of this Schedule
13D assumes that the Conversion Price and Per Share Option Price equal $0.35,
which is the lesser of $0.35 and half of the average closing bid prices for the
five days ending June 16, 1996, as reported by The NASDAQ National Market,
($.37) and that the Notes will not be converted until August 16, 1996, the
maturity date thereof. The number of shares of Conversion Shares and Option
Shares issuable upon conversion of the Notes and exercise of the Option will
fluctuate depending on the Conversion Price and the Per Share Option Price from
time to time in effect. However, except to the extent shares are disposed of,
the actual number of Conversion Shares and Option Shares shall never be less
than the number of shares issuable utilizing the Fixed Conversion Price (as
defined in Item 6 below) of the Notes and the Fixed Exercise Price (as defined
in Item 6 below) of the Option. To the extent the Conversion Price of the Notes
and Per Share Option Price of the Option are less than the Fixed Conversion
Price and Fixed Exercise Price at any given time, respectively, the number of
Conversion Shares and Option Shares issuable to the Funds and beneficially owned
by KCMC at such time will increase without any action on the part of the Funds
or KCMC.
(3)Includes accrued interest through August 16, 1996, the maturity
date thereof.
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CUSIP NO. 655279 10 7 13D PAGE 5 OF 7 PAGES
KCMC has the sole power to vote, direct the vote, dispose or direct
the disposition of all the shares of Common Stock that it beneficially owns.
Neither KCMC, Mr. Kingdon nor the Funds has effected any transactions in the
Common Stock of NCT during the past sixty (60) days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
On April 8, 1996, the Funds entered into the Agreement with NCT
pursuant to which the Funds purchased 1,000,000 shares of Common Stock, the
Notes and the Option. Closing of the transactions contemplated by the Agreement
occurred on April 10, 1996. Upon the Effective Date, as defined in Item 3
above, and for 30 days following the Effective Date, the outstanding principal
amount of the Notes, together with accrued interest thereon (at a rate of 10%
per annum), is convertible by the Funds into that number of shares of Common
Stock as equals the number obtained by dividing (i) the sum of (A) that portion
of the principal amount of the Note to be converted plus (B) the "Conversion
Date Interest" (as defined below), by (ii) the "Conversion Price" (as defined
below) in effect on the date of the conversion. Conversion Date Interest means
the product obtained by multiplying (i) the principal amount of the Notes to be
converted, by (ii) a fraction (A) the numerator of which is the number of days
elapsed since the date of the issuance of the Notes and (B) the denominator of
which is 365, by (iii) 0.10. Conversion Price means the lesser of: (i) fifty
percent of the average closing bid prices for the Common Stock on The NASDAQ
National Market or on the principal securities exchange or other securities
market on which the Common Stock is then being traded, for the five consecutive
trading days ending one trading day prior to the date of the conversion, and
(ii) $0.35 ("the Fixed Conversion Price").
Pursuant to the terms of the Agreement, upon the Effective Date (as
defined in Item 3 above), and for 30 days following the Effective Date, the
Option is exercisable by the Funds for that number of shares of Common Stock
equal in number to the quotient obtained by dividing $3,450,00 by the "Per Share
Option Price" (as defined below). Per Share Option Price means a price per
share equal to the lesser of: (i) $0.35 (the "Fixed Exercise Price"), and (ii)
fifty percent of the average closing bid prices for the Common Stock on The
NASDAQ National Market or on the principal securities exchange or other
securities market on which the Common Stock is then being traded, for the five
consecutive trading days ending one trading day prior to the date of the
exercise of the Option.
Pursuant to Section 4(e) of the Agreement, prior to making any
offering of equity securities at any time between April 8, 1996 and April 5,
1997, NCT must provide each of the Funds with an option to purchase such portion
of the shares being offered in the proposed offering, on the same terms as those
contemplated by the proposed offering, as the aggregate number of shares of
Common Stock then owned by the Funds (calculated on a fully diluted basis in
accordance with the Agreement) bears to the aggregate number of shares of Common
Stock then outstanding (together with the number of shares of Common Stock then
issuable pursuant to then outstanding in-the-money derivative securities).
Section 4(e) also prohibits NCT from negotiating or contracting with any party
to obtain additional equity financing prior to October 7, 1996 (or in the event
the Option is not exercised, August 16, 1996) without the prior consent of the
Funds.
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CUSIP NO. 655279 10 7 13D PAGE 6 OF 7 PAGES
Pursuant to Section 4(l) of the Agreement, in the event, NCT, at any
time or from time to time after the effective date of the Agreement and prior to
December 31, 1997, issues or sells shares of Common Stock or any convertible
securities for a price less than the Funds' Average Purchase Price other than in
an Excluded Issuance (as such terms are defined in the Agreement), NCT is
required to issue to the Funds a number of shares of Common Stock such that the
aggregate number of shares of Common Stock held by each Fund subsequent to such
issuance shall be equal to the product obtained by multiplying: (i) the sum of
the number of shares of Common Stock then held by each Fund issued pursuant to
the Agreement, conversion of the Notes and exercise of the Option, (ii) by a
fraction, (A) the numerator of which shall be equal to the Funds' Average
Purchase Price and (B) the denominator of which shall be the New Price (as
defined in the Agreement).
Simultaneously with the execution of the Agreement, NCT and KCMC
entered into a Registration Rights Agreement, pursuant to which NCT agreed to
register, under the Securities Act of 1933, as amended, the resale of any and
all shares of Common Stock acquired by KCMC pursuant to the Agreement (including
any and all shares of Common Stock issued upon the conversion of the Notes and
the exercise of the Option).
The descriptions of the Agreement, the Note, the Option and the
Registration Rights Agreement made above are qualified in their entirety by
reference to the copies of the documents attached hereto as Exhibits A, B and C.
Except as disclosed above, KCMC has no contract, arrangement,
understanding or relationship with any person with respect to the Common Stock
of NCT.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit I - Securities Purchase Agreement
Exhibit II - Registration Rights Agreement
Exhibit III - Form of the Note
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CUSIP NO. 655279 10 7 13D PAGE 7 OF 7 PAGES
SIGNATURE
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The undersigned, after reasonable inquiry and to the best of its
knowledge and belief, certifies that the information set forth in this Statement
on Schedule 13D is true, complete and correct.
DATE: July 25, 1996
Kingdon Capital Management Corporation
By: /s/Peter Cobos
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Peter Cobos, Controller
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 8, 1996
by and among NOISE CANCELLATION TECHNOLOGIES, INC., a Delaware corporation, with
headquarters located at 1025 West Nursery Road, Linthicum, Maryland 21090 (the
"COMPANY"), and each of the purchasers set forth on the signature page hereto
(the "BUYERS").
WHEREAS:
A. The Company and each Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) under the Securities Act of 1933, as amended (the "1933 ACT");
B. The Buyers wish to purchase, in the amounts and upon the terms and
conditions stated in this Agreement, (i) an aggregate of one million (1,000,000)
shares of common stock, par value $0.01 per share (the "COMMON STOCK"), of the
Company; and (ii) secured convertible term notes in the form attached hereto or
EXHIBIT "A-1" (the "NOTES") in the aggregate principal amount of One Million Two
Hundred Thousand Dollars ($1,2000,000) which are convertible into shares of
Common Stock upon the terms and subject to the conditions set forth in such
Notes; and
C. The Company wishes to grant to the Buyers an option to purchase
additional shares of Common Stock for an aggregate purchase price of up to Three
Million Four Hundred Fifty Thousand Dollars ($3,450,000) upon the terms and
subject to the conditions set forth herein.
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "A-2" (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 SECURITIES; GRANT OF OPTION.
a. PURCHASE OF COMMON STOCK AND NOTES. On the First Closing Date (as
defined herein) subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 hereof, the Company shall issue and
sell to each Buyer and each Buyer shall purchase from the Company (i) such
number of shares of Common Stock as is set forth next to such Buyer's name on
SCHEDULE 1 attached hereto, at a price per share equal to $0.35 per share of
Common Stock, for the aggregate purchase price set forth next to such Buyer's
name on SCHEDULE 1 and (ii) such aggregate principal amount of Notes set forth
next to such Buyer's name on SCHEDULE 1 for a purchase price
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equal to such aggregate principal amount. The closing date of the purchase of
the Common Stock and the Notes pursuant to this Section 1(a) (the "FIRST
CLOSING") is hereinafter referred to as the "FIRST CLOSING DATE."
b. OPTION TO ACQUIRE ADDITIONAL COMMON STOCK.
(i) At any time, and from time to time, during the period beginning
on the effective date of the Amendment (as defined in Section 4(k) hereof) and
ending thirty (30) days thereafter, the Buyers shall have the right (the
"OPTION"), exercisable in whole or in part by delivering written notice to the
Company, to purchase, at a purchase price per share equal to the "Per Share
Option Price" (as defined below), up to such number of shares of the Company's
Common Stock as is equal to the quotient obtained by dividing (x) the Option
Exercise Price set forth next to such Buyer's name on SCHEDULE 1 attached hereto
by (y) the Per Share Option Price. The date of the purchase of any Common Stock
upon exercise of the Option (each an "OPTION CLOSING") is hereinafter referred
to as an "OPTION CLOSING DATE" and, collectively with the First Closing Date, as
the "CLOSING DATES." The date the Company receives written notice of Buyer's
election to exercise is hereinafter referred to as an "Exercise Date."
(ii) The Per Share Option Price shall mean a price per share equal to
the lesser of (i) the Fixed Exercise Price (as defined below) and (ii) fifty
percent (50%) of the average of the closing bid prices for the Common Stock on
the NASDAQ National Market or on the principal securities exchange or other
securities market on which the Common Stock is then traded, for the five (5)
consecutive trading days ending one (1) trading day prior to the Exercise Date.
The Fixed Exercise Price shall initially be $0.35. In the event that the
Company shall, at any time or from time to time after the date of this Agreement
and prior to the exercise in full of the Option, issue or sell shares of Common
Stock or any securities exercisable for, convertible into or exchangeable for
Common Stock ("CONVERTIBLE SECURITIES") for a consideration per share (the "NEW
PRICE") less than the Fixed Exercise Price then in effect, other than in an
Excluded Issuance (as hereinafter defined), then the Fixed Exercise Price shall
on and after the date of issuance of such Common Stock or Convertible Securities
be reduced to an amount which equals the New Price. The Per Share Option Price
and Fixed Exercise Price shall be subject to equitable adjustments for stock
splits, stock dividends, combinations, reclassifications and similar events. The
Company shall promptly notify each Holder of any adjustment (and events that
require an adjustment) to the Per Share Option Price or the Fixed Exercise Price
pursuant to this Section 1(b)(ii).
c. FORM OF PAYMENT.
(i) On the First Closing Date, (A) each Buyer shall pay the purchase
price (the "PURCHASE PRICE") for the Common Stock and Note to be issued and
sold to it by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of (I) in the case of Common
Stock, a duly executed certificate representing such number of fully paid and
nonassessable shares of Common Stock as are being so purchased and (II) in the
case of the Note, the duly executed Note in the principal amount of the Note
being so purchased and (B) the Company
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shall simultaneously deliver such Common Stock and/or Note, duly executed on
behalf of the Company, to the Buyer, against delivery of such Purchase Price.
(ii) On each Option Closing Date, (A) the applicable Buyer shall pay
the portion of the Option Exercise Price payable for the shares of Common Stock
in respect of which it has exercised the Option (I) by wire transfer to the
Company, in accordance with the Company's written wiring instructions and/or
(II) delivery to the Company for cancellation of all or any portion of the Notes
held by such Buyer (to the extent, and only to the extent, the Company has not
exercised its right to force conversion thereof pursuant to Section 2.7 of the
Notes), against delivery of such number of fully paid and nonassessable shares
of Common Stock as are being so purchased and (B) the Company shall
simultaneously deliver such Common Stock to the Buyer against delivery of the
Option Exercise Price.
d. CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the First Closing shall be 12:00 noon Eastern Standard Time on April 10, 1996
and the date and time of each Option Closing shall be 12:00 noon Eastern
Standard Time on the third business day following the exercise of the Option in
accordance with Section 1(b) above, (subject, in each case, to a two (2)
business day grace period at either party's option), or, in each case, such
other mutually agreed upon time. The closings shall occur on the Closing Dates
at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut
Street, Philadelphia, Pennsylvania 19102.
2. BUYER'S REPRESENTATIONS AND WARRANTIES
Each Buyer severally represents and warrants to the Company that:
a. INVESTMENT PURPOSE. The Buyer is purchasing the Common Stock issuable
at the First Closing (the "COMMON SHARES"), the Notes, the shares of Common
Stock issuable upon conversion of the Notes (the "NOTE SHARES") and the shares
of Common Stock issuable upon exercise of the Option (the "OPTION SHARES")
(collectively, the "SECURITIES") for its own account for investment only and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales registered under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the 1933 Act.
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
3
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d. INFORMATION. The 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 the Buyer or its advisors. The Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company and
have received satisfactory answers to any such inquiries. Neither such
inquiries nor any other due diligence investigation conducted by the Buyer shall
modify, amend or affect the Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a high degree of
risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RESALE. The Buyer understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
transferred unless (a) subsequently registered thereunder, or (b) the Buyer
shall have delivered to the Company an opinion of counsel in form, substance and
scope reasonably satisfactory to the Company to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration or (c) sold pursuant to Rule 144 promulgated under the
1933 Act (or a successor rule); (ii) any sale of such Securities made in
reliance on Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such 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 (in each case, other than pursuant to the Registration
Rights Agreement).
g. LEGENDS. The Buyer understands that the Notes and, until such time as
the Common Shares, Note Shares and Option Shares have been registered under the
1933 Act, as contemplated by the Registration Rights Agreement, the certificates
for the Common Shares, Note Shares and Option Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel,
in form, substance and scope reasonably acceptable to the Company,
that registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
4
<PAGE>
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the 1933 Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the 1933 Act or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144 under the 1933 Act (or a successor rule thereto) without
any restriction as to the number of securities acquired as of a particular date
that can then be immediately sold. The Buyer agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable securities law, including without
limitation, in the case of Securities sold in reliance upon a registration
statement under the 1933 Act, compliance with the prospectus delivery
requirements under the 1933 Act.
h. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms.
i. RESIDENCY. The residency of such Buyer is set forth under its name of
Schedule 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. Each of the Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and each of its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the operations, properties financial condition or prospects of the
Company and its subsidiaries taken as a whole or on the transactions
contemplated hereby.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Notes and the Security Agreement securing the
Company's obligations under the Notes (the "SECURITY AGREEMENT") and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Security Agreement and the Notes by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without limitation
the issuance of the Common Shares and the Notes, and the issuance and
reservation for issuance of the Note Shares and Option Shares issuable upon
conversion of the Notes or exercise of the Option, as applicable) have been duly
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authorized by the Company's Board of Directors and, except for the approval of
the Amendment by the Company's stockholders, no further consent or authorization
of the Company, its Board or Directors, or its stockholders is required, (iii)
this Agreement has been duly executed and delivered by the Company, and (iv)
this Agreement constitutes, and upon execution and delivery by the Company of
the Registration Rights Agreement, the Security Agreement and the Notes, each of
such instruments will constitute, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the effective date of this Agreement, the
authorized capital stock of the Company consists of (i) 100,000,000 shares of
Common Stock of which 94,857,074 shares are issued and outstanding, 2,100,673
shares are reserved for issuance pursuant to options granted under and outside
of the Company's stock option plans, and 1,613,791 shares are reserved for
issuance pursuant to warrants and other securities exercisable or exchangeable
for or convertible into shares of Common Stock; and (ii) 10,000,000 shares of
preferred stock, par value $0.10 per share, none of which are issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances. Except as disclosed in SCHEDULE 3(C),
as of the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights exercisable for or
convertible or exchangeable into, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement). The Company has furnished to the Buyer true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof ("CERTIFICATE OF INCORPORATION") and the Company's By-laws, as
in effect on the date hereof (the "BY-LAWS"). The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of each Closing
Date.
d. ISSUANCE OF SHARES. The Common Shares are, and upon the effective
date of the Amendment, the Note Shares and Option Shares will be, duly
authorized and, upon issuance in accordance with the terms of this Agreement,
the Notes and the Option, as applicable, such Shares shall be validly issued,
fully paid and non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof.
e. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Security Agreement and the
Notes by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Common Shares and, after the effective date of the Amendment, the issuance
and reservation for issuance of the Note Shares and Option Shares) will not (i)
result in a violation of the Certificate of Incorporation or By-laws or (ii)
conflict with, or
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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 result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) 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 for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The businesses of the Company and its subsidiaries are not
being conducted, and shall not be conducted, so long as the Buyers' own any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, 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 this
Agreement, the Registration Rights Agreement, the Security Agreement and/or the
Notes in accordance with the terms hereof or thereof.
f. SEC DOCUMENTS, FINANCIAL STATEMENTS. Since December 31, 1994, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act of 1934, as amended (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 (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC DOCUMENTS"). The Company has delivered to the Buyer true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations 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 include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business
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subsequent to December 31, 1995 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
g. ABSENCE OF CERTAIN CHANGES. Since December 31, 1995 there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company (other than a greater than expected deterioration in working
capital).
h. ABSENCE OF LITIGATION. Other than as set forth on 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 or any of its subsidiaries.
i. DISCLOSURE. All information relating to or concerning the Company set
forth in this Agreement and provided to the Buyer pursuant to Section 2(d)
hereof is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they are or
were made, not misleading.
j. ABSENCE OF EVENTS OF DEFAULT. No Event of Default, as defined in the
Notes, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default, has occurred and is continuing.
k. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of an
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyers are not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by the Buyers or any of their respective affiliates,
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers' purchase of the Common
Stock, the Notes and the Options. The Company further represents to the Buyers
that its decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. BLUE SKY LAWS. The Company shall, on or before each Closing Date,
take such action as the Company shall reasonably determine is necessary to
qualify the Securities for, or obtain
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<PAGE>
exemption for the Securities for, sale to the Buyers at the applicable 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 such Closing Date.
c. REPORTING STATUS. So long as the Buyers beneficially owns any of the
Securities, 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 permit such termination.
d. USE OF PROCEEDS. The Company shall not use the proceeds from the sale
of the Securities for anything other than the Company's internal working capital
purposes and shall not, directly or indirectly, use such proceeds for any loan
to or investment in any other corporation, partnership, enterprise or other
person.
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. The Company agrees
that, during the period beginning on the date hereof and ending on the earlier
of (i) the 180th day following the First Closing Date and (ii) solely in the
event the Option is not exercised, the Option Termination Date, the Company will
not, without the prior written consent of the Buyers, negotiate or contract with
any party to obtain additional equity financing (including debt financing with
an equity component) in any form ("FUTURE OFFERINGS"). The Company will not
conduct any Future Offering (as defined below) during the period beginning on
the date hereof and ending 360 days after the First Closing Date unless it shall
have first delivered to each Buyer, at least five (5) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing each Buyer
an option during such five (5) day period to purchase such portion of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this and
the immediately preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATION") as (i) the aggregate number of shares of Common Stock then
owned by such Buyer (calculated on a fully diluted basis after giving effect to
the exercise and conversion of all securities exercisable for or convertible
into shares of Common Stock) bears to (ii) the aggregate number of shares of
Common Stock then outstanding (including shares of Common Stock issuable
pursuant to outstanding derivative securities at an exercise price or conversion
price which is less than or equal to the average closing bid prices of the
Common Stock on NASDAQ or on the principal securities exchange or other
securities market on which the Common Stock is then traded for the five (5)
consecutive trading days immediately preceding the date the Company provides the
notice to such Buyer under this sentence); provided that if any securities are
issued for other than cash, Buyers may pay the purchase price for such
securities in cash in an amount equal to the fair market value of such noncash
consideration. The Capital Raising Limitation shall not apply to any
transaction involving issuances of securities in connection with a merger,
consolidation or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the payment for services (including rent) the acquisition
of a business, product or license by the Company (so long as the securities so
issued are not issued at a discount of greater than ten percent (10%) to their
fair market value) or exercise of options by
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<PAGE>
employees, consultants or directors. The Capital Raising Limitation also shall
not apply to the issuance of securities (i) pursuant to an underwritten public
offering, (ii) by a subsidiary of the Company or (iii) upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan.
f. EXPENSES. The Company shall pay all expenses incurred by the Buyers
in connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith, including, without limitation, Buyers' attorneys' fees and
expenses. The Company's obligation to pay Buyers' expenses under this Section
4(f) shall be limited to Fifteen Thousand Dollars ($15,000).
g. FINANCIAL INFORMATION. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within five (5) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; and (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its subsidiaries.
h. RESERVATION OF SHARES. The Company shall at all times after the
effective date of the Amendment have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the full
conversion of the Notes and issuance of the Note Shares in connection therewith
and the full exercise of the Option and the issuance of the Option Shares in
connection therewith (based on the Conversion Price as in effect from time to
time). The Company shall not reduce the number of shares reserved for issuance
upon conversion of the Notes and the exercise of the Option without the consent
of each of the Buyers, which consent will not be unreasonably withheld.
i. LISTING. The Company shall as promptly as practicable after the First
Closing secure the listing of the Common Shares, Note Shares and Option Shares,
and shall promptly after the issuance of any Common Stock pursuant to Section
4(l) hereof secure the listing of such Common Stock, upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of the Common Shares, all Note Shares from time to time issuable upon
conversion of the Notes, all Option Shares issuable upon exercise of the Option
and all Common Stock issuable pursuant to Section 4(l) hereof.
j. CORPORATE EXISTENCE. Until the later of (i) the earlier of maturity
and repayment of all of the Notes or the earlier conversion in full of all of
the Notes and (ii) the expiration or earlier exercise in full of the Option, the
Company shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (x) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith and (y) is a publicly
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traded corporation whose Common Stock is listed for trading on the NASDAQ
National Market ("NASDAQ") or another national securities exchange or automated
quotation system.
k. AMENDMENT TO CERTIFICATE OF INCORPORATION. The Company shall use its
best efforts to amend, as soon as practicable after the First Closing (and in
any event no later than August 15, 1996), the Company's Certificate of
Incorporation to increase the number of shares of Common Stock the Company is
authorized to issue to at least such amount as will allow the reservation for
issuance and issuance of the full number of shares of Common Stock issuable upon
conversion of the Notes and the exercise of the Option (the "AMENDMENT). In
that regard, the Company shall present to its stockholders a proposal to approve
the Amendment at its next annual meeting of stockholders or a special meeting of
stockholders called for such purpose and shall prepare proxy materials with
respect thereto which contain the recommendation of the Company's Board of
Directors for the approval of the Amendment and which comply, in all material
respects, with the proxy rules promulgated pursuant to the 1934 Act. Subject in
all events to Section 4(e) above, the Company shall not issue or reserve for
issuance (or enter into any agreement to issue or reserve for issuance) any
shares of Common Stock authorized for issuance after the date hereof unless its
obligations to issue shares pursuant to the Notes and Option have been satisfied
in full or unless such issuance or reservation for issuance will not affect the
Company's ability to satisfy such obligations.
l. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK TO PREVENT DILUTION.
(i) In the event that the Company shall, at any time or from time to
time after the effective date of this Agreement and prior to December 31, 1997,
issue or sell shares of Common Stock or any Convertible Securities for a New
Price less than such Buyer's Average Purchase Price (as defined below), other
than in an Excluded Issuance (as defined below), then the Company shall upon the
date of issuance of such Common Stock or Convertible Securities issue to each
Buyer for the consideration per share set forth in subsection (iii) of this
Section 4(l), a number of shares of Common Stock such that the aggregate number
of shares of Common Stock held by such Buyer subsequent to such issuance shall
be equal to the product of (A) the sum of the number of shares of Common Stock
then held by such Buyer which were issued pursuant to this Agreement (including
this Section 4(l)), plus the number of shares of Common Stock then held by such
Buyer issued upon exercise of the Options and upon conversion of the Notes,
multiplied by (B) a fraction (x) the numerator of which shall be equal to the
Buyer's Average Purchase Price immediately prior to such issuance and (y) the
denominator of which shall be the New Price.
(ii) The following terms shall be the following meanings for purposes
of this Section 4(l):
(A) "EXCLUDED ISSUANCE" shall refer to any issuance of shares of
Common Stock or Convertible Securities issued (x) upon exercise,
conversion or exchange of any Convertible Securities outstanding
on the effective date of this Agreement or (ii) in connection
with any transaction described in the penultimate sentence of
Section 4(e) above.
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(B) "BUYER'S AVERAGE PURCHASE PRICE" shall mean the quotient obtained
by dividing (x) the aggregate consideration paid to the Company
for the shares of Common Stock held by such Buyer which were
issued pursuant to this Agreement at the First Closing, upon
exercise of the Options and upon conversion of the Notes (based
on the aggregate principal amount of Notes converted into such
Common Stock in the case of any such shares issued upon
conversion of Notes) by (y) the aggregate number of shares of
Common Stock referred to in clause (x) of this definition.
(C) "New Price" shall mean the Cash Consideration (or the fair market
value of any non-cash consideration, determined in good faith by
the Company's Board of Directors) per share of Common Stock
received by the Company.
(iii) The consideration per share to be paid by a Buyer for any shares
of Common Stock issued to it pursuant to this Section 4(l) shall be equal to the
lesser of (i) $0.01 per share or (ii) $100 divided by the aggregate number of
shares being issued to such Buyer in connection with such issuance, in each case
payable in cash to the Company.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Common Shares, Note
Shares and Option Shares in such amounts as specified from time to time by such
Buyer to the Company. Prior to registration of the resale of the Common Shares,
the Note Shares and Option Shares under the 1933 Act, such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than such instructions referred to in
this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof, in the case of the Common Shares, Option Shares and Note Shares, prior
to registration of such Common Shares, Option Shares and Note 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 shall affect in any way any Buyer's
obligation and agreement set forth in Section 2(g) hereof to comply with all
applicable securities laws upon resale of the Securities. If a Buyer provides
the Company with an opinion of counsel, reasonably satisfactory to the Company
in form, substance and scope, that registration of the resale by such Buyer of
any of the Securities is not required under the 1933 Act, the Company shall
permit the transfer, and, in the case of the Common Shares, Note Shares and
Option Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
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6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Securities at the
First Closing and each Option Closing, as applicable, is subject to the
satisfaction, at or before the Closing Date in respect of such closing, of each
of the following conditions thereto, 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:
(a) In the case of the First Closing, the parties shall have duly
executed this Agreement, the Registration Rights Agreement and the Security
Agreement, and delivered the same to each other.
(b) The Buyer shall have delivered the Purchase Price in accordance
with Section 1(c) above.
(c) The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date.
(d) In the case of each Option Closing, the Amendment shall be in
full force and effect.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase Securities at the First
Closing and each Option Closing, as applicable, is subject to the satisfaction,
at or before the Closing Date in respect of such closing, of each of the
following conditions thereto, provided that these conditions are for each
Buyer's sole benefit and may be waived by a Buyer at any time in its sole
discretion:
(a) In the case of the First Closing, the parties shall have duly executed
this Agreement, the Registration Rights Agreement and the Security Agreement,
and delivered the same to each other and the Company shall have duly executed
the Notes and delivered them to the Buyers in accordance with Section 1(c)
above.
(b) The Company shall have delivered duly executed certificates
representing the Common Stock being so purchased to the Buyers in accordance
with Section 1(c) above.
(c) The Common Stock shall be authorized for quotation on NASDAQ, and
trading in the Common Stock (or on NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
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(d) The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
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 in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyers shall have received a
certificate, executed by the chief executive officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Buyers.
(e) The Buyers shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyers and in substantially the same form as EXHIBIT "B"
attached hereto.
(f) The Buyers shall have received the officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the Delaware without regard to the principles of
conflict of laws. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in New York County in
the State of New York with respect to any dispute arising under this Agreement
or the transactions contemplated hereby.
b. COUNTERPARTS. This Agreement may be executed in two or more
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.
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 or the
validity or enforceability of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. 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 of the Buyers makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
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f. NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in the mail, if
mailed, or upon receipt, if delivered personally or by courier, in each case
addressed to a party. The addresses for such communications shall be:
If to the Company:
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 West Nursery Road
Linthicum, Maryland 21090
Telecopy: (410) 636-5989
Attention: Michael Parrella
With a copy to:
John B. Horton
One Dock Street, Suite 300
Stamford, CT 06902
Telecopy: (203) 348-4106
If to a Buyer, addressed to such Buyer at:
c/o Kingdon Capital Management Corp.
152 West 57th Street
New York, NY 10019
Telecopy: (212) 582-2636
Attention: Michael Markbreiter
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Wayne D. Bloch, Esq.
Each party shall provide notice to the other party of any change in address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other (which
consent shall not be unreasonably withheld). Notwithstanding the foregoing, any
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Buyer may assign its rights hereunder to any of its "affiliates," as that term
is defined under the 1934 Act, without the consent of the Company.
h. 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. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 4, 5 and 8 shall survive the
closings. The Company agrees to indemnify and hold harmless the Buyer for loss
or damage arising as a result of or related to any breach or alleged breach by
the Company of any of its representations set forth in Section 3 hereof,
including advancement of expenses as they are incurred.
j. PUBLICITY. The Company and the Buyers shall have the right to approve
before issuance any press releases, SEC or NASD filings, or any other public
statements with respect to the transactions contemplated hereby; PROVIDED,
HOWEVER, that the Company shall be entitled, without the prior approval of the
Buyer, to make any press release or SEC or NASD filings with respect to such
transactions as is required by applicable law and regulations (although the
Buyers shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof).
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the First Closing shall not have
occurred on or before fifteen (15) business days from the date hereof, unless
the parties agree otherwise, this Agreement shall terminate at the close of
business on such date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Buyers and the Company have caused this Agreement
to be duly executed as of the date first above written.
NOISE CANCELLATION TECHNOLOGIES, INC.
By:
-----------------------
Name:
---------------------
Its:
----------------------
BUYERS
KINGDON ASSOCIATES, L.P.
By: Kingdon Capital Management Corp.,
its general partner
By:
------------------------------
Mark Kingdon
President
KINGDON PARTNERS, L.P.
By: Kingdon Capital Management Corp.,
its general partner
By:
------------------------------
Mark Kingdon
President
M. KINGDON OFFSHORE NV
By: Kingdon Capital Management
Corp., its investment advisor
By:
------------------------------
Mark Kingdon
President
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SCHEDULE 1
ALLOCATION OF SECURITIES
PRINCIPAL OPTION
PURCHASE AMOUNT OF EXERCISE
BUYER COMMON SHARES PRICE NOTES PRICE
----- ------------- ----- ----- -----
Kingdon Associates, L.P. 150,000 $ 52,500 $180,000 $517,500
Residence: New York
Kingdon Partners, L.P. 250,000 87,500 300,000 862,500
Residence: New York
M. Kingdon Offshore NV 600,000 210,000 720,000 2,070,000
Residence: Grand Cayman, ------- ------- ------- ---------
Cayman Islands BWI
1,000,000 $350,000 $1,200,000 $3,450,000
<PAGE>
EXHIBIT A-2
to
Securities
Purchase
Agreement
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 10,
1996 by and among NOISE CANCELLATION TECHNOLOGIES, INC., a Delaware corporation,
with headquarters located at 1025 West Nursery Road, Linthicium, Maryland 21090
(the "COMPANY"), and each of the undersigned (collectively, together with their
affiliates and any assignee or transferee of all of their rights hereunder, the
"INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company
has agreed, upon the terms and subject to the conditions contained therein, to
issue and sell to the Initial Investors (i) One Million (1,000,000) shares (the
"COMMON SHARES") of the Company's Common Stock, $.01 par value ("COMMON STOCK"),
(ii) Secured Convertible Notes (the "NOTES") that are convertible into shares
(the "CONVERSION SHARES") of Common Stock upon the terms and subject to the
conditions of such Notes and (iii) pursuant to the option described in Section
1(b) of the Securities Purchase Agreement (the "OPTION"), up to an additional
Three Million Four Hundred Fifty Thousand Dollars ($3,450,000) of Common Stock
(the "OPTION SHARES"); and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
<PAGE>
(i) "INVESTORS" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the shares of Common Stock
issued or issuable pursuant to the Securities Purchase Agreement (including,
without limitation, the Common Shares and the shares issuable pursuant to
Section 4(l) thereof), the Conversion Shares (including, without limitation, the
Damages Shares, as defined in Section 4.7 of the Notes), the Option Shares, and
any shares of Common Stock issued with respect to the foregoing.
(iv) "REGISTRATION STATEMENT" means a registration statement of
the Company under the 1933 Act.
b. 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, on or
prior to the date which is fifteen (15) days after the earlier of (i) the date
upon which the Option expires (the "OPTION TERMINATION DATE") and (ii) September
14, 1996 (the earlier of (i) and (ii) is hereinafter referred to as the "TRIGGER
DATE"), file with the SEC a Registration Statement on Form S-3 (or, if Form S-3
is not then available, on such form of Registration Statement as is then
available to effect a registration of the Registrable Securities, subject to the
consent of the Initial Investors, which consent will not be unreasonably
withheld) covering the resale of the Registrable Securities, which Registration
Statement, to the extent allowable under the 1933 Act and the Rules promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Note, upon exercise of the Option,
pursuant to Section 4(l) of the Securities Purchase Agreement or otherwise (i)
to prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the Notes
or the Option Exercise Price of the Option in accordance with the terms thereof
or (iii) by reason of the issuance of Damages Shares. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
prior review of) the Initial Investors and their counsel prior to its filing or
other submission. If the Amendment (as defined in the Securities Purchase
Agreement) is not effective by the date upon which the Registration Statement
referred to above is filed with the SEC, and the SEC will not allow the
Registrable Securities underlying the Notes or the Options to be included in the
Registration
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Statement initially filed pursuant to this Section 2(a) until the effective date
of the Amendment, the Company shall amend such Registration Statement to include
such Registrable Securities (if such Registration Statement is not yet effective
by the time of the effective date of the Amendment) or shall file a new
Registration Statement (on the short form available therefore, if applicable)
registering such Registrable Securities, in each case, as soon as practicable,
but in any event within fifteen (15) days after the effective date of the
Amendment. The provisions of Section 2(c) shall be applicable with respect to
each Registration Statement filed pursuant to this Section 2(a).
b. UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investors, shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.
c. PAYMENTS BY THE COMPANY. The Company shall use its best efforts
to obtain effectiveness of each Registration Statement filed hereunder as soon
as practicable. If (i) the initial Registration Statement filed by the Company
pursuant to Section 2(a) hereof is not declared effective by the SEC within
ninety (90) days after the Trigger Date (other than by reason of any act or
failure to act by the Investors) or (ii) if a Registration Statement (or an
amendment or supplement to the Registration Statement referred to in clause (i)
of this sentence) covering any additional Registrable Securities required to be
registered under the 1933 Act pursuant to the penultimate sentence of Section
2(a) hereof is not declared effective by the SEC within ninety (90) days after
the effective date of the Amendment (other than by reason of any act or failure
to act by the Investors), or (iii) if, after the Registration Statement has been
declared effective by the SEC, sales cannot be made pursuant to the Registration
Statement (by reason of stop order, or the Company's failure to update the
Registration Statement) other than because of an Allowed Delay (as defined in
Section 3(f) hereof), or (iv) the Common Stock is not listed or included for
quotation on the NASDAQ National Market (the "NASDAQ-NMS"), the New York Stock
Exchange (the "NYSE") or the American Stock Exchange (the "AMEX"), then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of Registerable Securities an amount equal to the aggregate "Value"
(as defined below) of the Registrable Securities held by such Investors
(including, without limitation, Note Shares and Option Shares then issued or, if
the Amendment is effective, then issuable upon conversion of the Notes and
exercise of the Option) (the "AGGREGATE SHARE VALUE") multiplied by three
hundredths (.03) times the sum of: (i) the number of months (prorated for
partial months) after the end of such 90-day period and prior to the date the
Registration Statement is declared effective by the SEC, provided, however, that
there shall be excluded from such period any delays which are solely
attributable to changes required by the Investors in the Registration Statement
with respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors
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<PAGE>
to conduct their review of the registration statement pursuant to Section 2(a)
above in a reasonably prompt manner; (ii) the number of months (prorated for
partial months) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective; and (iii) the
number of months (prorated for partial months) that the Common Stock is not
listed or included for quotation on the NASDAQ-NMS, NYSE or AMEX after the
Registration Statement has been declared effective. (For example, if the
Registration Statement becomes effective one (1) month after the end of such
90-day period, the Company would pay $30,000 for each $1,000,000 of Aggregate
Share Value until any subsequent adjustment; if thereafter, sales could not be
made pursuant to the Registration Statement for an additional period of one (1)
month, the Company would pay an additional $30,000 for each $1,000,000 of
Aggregate Share Value.) Such amounts shall be paid in cash or, at each
Investor's option, may be convertible into Common Stock at the "CONVERSION
PRICE" (as defined in the Notes). Any shares of Common Stock issued upon
conversion of such amounts shall be Registrable Securities. If the Investors
desire to convert the amounts due hereunder into Registrable Securities it shall
so notify the Company in writing within two (2) business days of the date on
which such amounts are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth under Article II of the Notes),
beginning on the last day upon which the cash amount would otherwise be due in
accordance with the following sentence. Payments of cash pursuant hereto shall
be made within five (5) days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for more than thirty
(30) days, interim payments shall be made for each such thirty (30) day period.
The term "Value" means the greater of (i) the purchase price paid or then
payable to the Company by the Initial Investors for the Registrable Securities
and (ii) the market price of the Registrable Securities based on the average of
the closing prices of the Common Stock of the Company on the NASDAQ-NMS, or the
principal quotation system or stock exchange on which the Common Stock is then
listed for trading, for the five (5) consecutive trading days prior to the
beginning of the delay in respect of which payments hereunder are due.
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall 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 equity securities (other
than on Form S-4 or Form S-8 or their then equivalents relating to equity
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 send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of such
determination and, if within fifteen (15) days after the effective date 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, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder.
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Any exclusion of Registrable Securities shall be made pro rata among the
Investors seeking to include Registrable Securities, in proportion to the number
of Registrable Securities sought to be included by such Investors; PROVIDED,
HOWEVER, that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not entitled to inclusion of such securities in such Registration Statement
or are not entitled to pro rata inclusion with the Registrable Securities; and
PROVIDED, FURTHER, HOWEVER, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed 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.
e. ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Buyer and any other Investors of the Registrable Securities and the
Company shall file all reports required to be filed by the Company with the SEC
in a timely manner so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not
later than fifteen (15) days after the Trigger Date and the effective date of
the Amendment, as applicable, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Initial Investors) may be immediately sold
without registration (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.
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b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the 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 the Registration Statement until such time
as all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities issued or issuable upon
conversion of the Notes, exercise of the Options, as Damage Shares, pursuant to
Section 2(c) hereof and pursuant to Section 4(l) of the Securities Purchase
Agreement, the Company shall amend the Registration Statement, or file an
additional Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable Securities, in each
case, as soon as practicable, but in any event within fifteen (15) days after
the necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
provisions of Section 2(c) above shall be applicable with respect to such
obligation, with the ninety (90) days running from the date on which the Company
reasonably first determines (or should have determined) the need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto each preliminary prospectus and prospectus and each amendment
or supplement thereto (including any information filed with the SEC which is
incorporated by referenced into the Registration Statement), and, in the case of
the Registration Statement referred to in Section 2(a), each letter written by
or on behalf of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (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;
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PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, or
(d) make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
e. In the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering (with the approval of the
Initial Investors) select underwriters for the offering, the Company shall enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided, that for up to an aggregate of thirty (30) consecutive or
nonconsecutive days in any twelve month period, 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, in the best interest of the Company and, in the
opinion of counsel to the Company, otherwise required (an "ALLOWED DELAY");
provided, further, that the Company shall promptly (i) notify the Investors in
writing of the existence of material non-public information giving rise to an
Allowed Delay and (ii) advise the Investors in writing to cease all sales under
the Registration Statement until the end of the Allowed Delay. Upon expiration
of the Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise thereto.
.
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,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC.
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i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (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.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from 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
underwriters, if any, and the Investors and (ii) 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, addressed to the underwriters, in any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (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 to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other 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. 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 (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
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l. 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 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 or any other agreement. 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 notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by the Registration Statement to be listed on
a national securities exchange and on each additional national 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-NMS 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.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to the Registration Statement.
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4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. 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. At least three
(3) business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor 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 the Registration Statement.
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 the 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 the Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
d. 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(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any
10
<PAGE>
underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to Section 5 below.
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, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Section 2(b) hereof (up
to $15,000, inclusive of fees payable pursuant to Section 4(f) of the Securities
Purchase Agreement) shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investors within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), if any, and (iii) any
underwriter (as defined in the 1933 Act) for the Investors; and the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated 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 (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
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<PAGE>
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees 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 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 any Indemnified Person or
underwriter for 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(c) hereof; (ii) 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; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advise, used it. 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 severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) 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) 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 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
12
<PAGE>
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
Registration Statement shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
Registration Statement was corrected in a writing provided to the Company by the
Investor prior to the occurrence of the Violation upon which the Claim is based.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to 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 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. The indemnifying party shall pay for only one separate legal
counsel for the Indemnified Persons or the Indemnified Parties, as applicable,
and such legal counsel shall be selected by Investors holding a majority-in-
interest of the Registrable Securities included in the Registration Statement
to which the Claim relates (with the approval of the Initial Investors if it
holds Registrable Securities included in such Registration Statement), if the
Investors are entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. 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 actually prejudiced in its
ability to defend such action. 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 such expense, loss, damage or liability is
incurred and is due and payable.
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
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
13
<PAGE>
of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (iii) contribution by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) the Investors
agree in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
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, (v) such transfer shall have been made in accordance with the
applicable
14
<PAGE>
requirements of the Securities Purchase Agreement, and (vi) such transferee
shall be an "ACCREDITED INVESTOR" as that term defined in Rule 501 of Regulation
D promulgated under the 1933 Act.
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 written consent of the Company, the Initial
Investors and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities 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. Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid,
if to the Company:
Noise Cancellation Technologies, Inc.
1025 West Nursery Road
Linthicium, Maryland 21090
Telecopy: (410) 636-5989
Attention: Michael Parrella
with a copy to:
John B. Horton
One Dock Street, Suite 300
Stamford, Connecticut 06902
Telecopy: (203) 348-4106
15
<PAGE>
if to the Initial Investors addressed to such Investors at,
c/o Kingdon Capital Management Corp.
152 West 57th Street
New York, New York 10019
Telecopy: (212) 582-2636
Attention: Michael Markbreiter
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Wayne D. Bloch, Esq.
and if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four days after deposit with the United States Postal Service.
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. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in New York County in
the State of New York with respect to any dispute arising under this Agreement
or the transactions contemplated hereby.
e. This Agreement and the Securities Purchase Agreement 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 and the Securities Purchase Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
16
<PAGE>
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the 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 two or more 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
NOISE CANCELLATION TECHNOLOGIES, INC.
By:
--------------------------
Name:
------------------------
Its:
-------------------------
INITIAL INVESTORS
KINGDON ASSOCIATES, L.P.
By: Kingdon Capital Management Corp.,
its general partner
By:
-----------------------------
Mark Kingdon
President
KINGDON PARTNERS, L.P.
By: Kingdon Capital Management Corp.,
its general partner
By:
-----------------------------
Mark Kingdon
President
M. KINGDON OFFSHORE NV
By: Kingdon Capital Management Corp.,
its investment advisor
By:
-----------------------------
Mark Kingdon
President
18
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE BORROWER
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
SECURED CONVERTIBLE NOTE
April 10, 1996 $180,000
FOR VALUE RECEIVED, NOISE CANCELLATION TECHNOLOGIES, INC., a Delaware
corporation (hereinafter called the "Borrower") hereby promises to pay to the
order of Kingdon Associates, L.P. or registered assigns (the "Holder") the sum
of One Hundred and Eighty Thousand Dollars ($180,000) on the earlier of (a)
October 31, 1996 and (b) the expiration of the option (the "Option") granted to
the Holder pursuant to Section 1(b) of the Securities Purchase Agreement, dated
as of April 8, 1996, by and between the Borrower and the Holder (the "Purchase
Agreement") (the earlier of (a) and (b) is referred to herein as the "Scheduled
Maturity Date"), and to pay interest on the unpaid principal balance hereof at
the rate of ten percent (10%) per annum from the date hereof (the "Issue Date")
until the same becomes due and payable, whether at maturity or upon acceleration
or otherwise. Any amount of principal of or interest on this Note which is not
paid when due shall bear interest at the rate of fifteen percent (15%) per annum
from the due date thereof until the same is paid. Interest shall commence
accruing on the Issue Date and, to the extent not converted in accordance with
the provisions of Article II below, shall be payable in arrears on the date the
principal amount in respect of which it has accrued is paid, whether at maturity
or upon acceleration or by prepayment or otherwise. All payments of principal
and interest (to the extent not converted in accordance with the terms hereof)
shall be made in lawful money of the United States of America. All payments
shall be made at such address as the Holder shall hereafter give to the Borrower
by written notice made in accordance with the provisions of this Note. In the
event the Amendment (as defined in the Purchase Agreement) is not effective
prior to October 31, 1996, in addition to paying to the Holder on such date the
sum of (i) the then outstanding principal amount of this Note plus (ii) accrued
and unpaid interest on the principal amount of this Note to the
<PAGE>
date of payment, the Borrower shall pay to the Holder, together with the
aforementioned sum, an amount equal to the product of (x) the then outstanding
principal amount of this Note, multiplied by (y) 10%.
The following terms shall apply to this Note:
ARTICLE I
NO PREPAYMENT
1.1 PREPAYMENT. This Note is not subject to prepayment. This Note is
subject to mandatory conversion in accordance with Section 2.7 below.
ARTICLE II
CONVERSION AND PURCHASE RIGHTS; PAYMENT OF OPTION EXERCISE PRICE
2.1 CONVERSION RIGHT. The Holder shall have the right (the "Conversion
Right") from and after the effective date of the Amendment and then at any time
on or prior to the day this Note is paid in full (whether or not the Borrower
has sent a Mandatory Conversion Notice to the Holder pursuant to Section 2.7
hereof), to convert at any time all or from time to time any part of the
outstanding and unpaid principal amount of this Note of at least $50,000, or
such lesser amount as shall remain unpaid at the time of the conversion, into
fully paid and non-assessable shares of common stock, par value $.01 per share,
of the Borrower as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price determined
as provided herein (the "Conversion Price"). Upon the surrender of this Note,
accompanied by a Notice of Conversion of Secured Convertible Note in the form
attached hereto as Exhibit 1, properly completed and duly executed by the Holder
(a "Conversion Notice"), the Borrower shall issue and, within two (2) business
days after such surrender of this Note with the Conversion Notice, deliver to or
upon the order of the Holder (i) that number of shares of Common Stock for the
portion of the Note converted as shall be determined in accordance herewith and
(ii) a new Note in the form hereof for the balance of the principal amount
hereof, if any.
The number of shares of Common Stock to be issued upon each conversion
of this Note shall be determined by dividing (i) the sum of (A) that portion of
the principal amount of the Note to be converted plus (B) the "Conversion Date
Interest" (as defined below), by (ii) the Conversion Price in effect on the date
the Conversion Notice is delivered to the Borrower by the Holder. Conversion
Date Interest means the product of (i) the principal amount of the Note to be
converted, multiplied by (ii) a fraction (A) the numerator of which is the
number of days elapsed since the date of issuance of this Note and (B) the
denominator of which is 365, multiplied by (iii) 0.10 (or, for the period of
time after the occurrence of an Event of Default, 0.15).
2.2 CONVERSION PRICE.
(a) The Conversion Price shall be the lesser of (i) fifty percent
(50%) of the average of the closing bid prices for the Common Stock on the
NASDAQ National Market or on the principal securities
2
<PAGE>
exchange or other securities market on which the Common Stock is then being
traded, for the five (5) consecutive Trading Days (as defined herein) ending
one (1) Trading Day prior to the date the Conversion Notice is sent by the
Holder to the Borrower via facsimile (the "Conversion Date"), and (ii) the Fixed
Conversion Price. The Conversion Price shall be subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalization,
reclassifications and similar events. The Fixed Conversion Price shall
initially be $0.35 and shall be subject to adjustment as provided in Section
2.2(b) hereof. "Trading Day" shall mean any day on which the Common Stock is
traded for any period on the NASDAQ National Market, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded.
(b) In the event that the Borrower shall, at any time or from time to
time after the date of issuance of this Note and prior to the full repayment or
conversion of this Note, issue or sell shares of Common Stock or any securities
exercisable for, convertible into or exchangeable for Common Stock ("Convertible
Securities") for a New Price (as defined in the Purchase Agreement) less than
the Fixed Conversion Price then in effect, other than in an Excluded Issuance
(as defined in the Purchase Agreement), then the Fixed Conversion Price shall on
and after the date of issuance of such Common Stock or securities be reduced to
an amount which equals the New Price. The Fixed Conversion Price shall also be
subject to equitable adjustments for stock splits, stock dividends,
combinations, reclassifications and similar events.
(c) Borrower shall promptly notify each Holder of any adjustment (and
event that requires adjustment) to the Conversion Price or the Fixed Conversion
Price pursuant to this Section 2.2.
2.3 AUTHORIZED SHARES. The Borrower covenants that during the period the
Conversion Right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full conversion of this Note. The Borrower represents
that upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. The Borrower (i) acknowledges that it will irrevocably instruct
its transfer agent as soon as practicable after the filing of the Amendment to
issue certificates for the Common Stock issuable upon conversion of this Note
and (ii) agrees that its issuance of this Note shall constitute full authority
to its officers and agents, who are charged with the duty of executing stock
certificates, to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.4 METHOD OF CONVERSION. Except as otherwise provided in this Note or
agreed to by the Holder, this Note may be converted by the Holder in whole at
any time or in part (provided such partial conversion is at least $50,000) from
time to time by (i) submitting to the Borrower a Conversion Notice (by facsimile
dispatched on the Conversion Date and confirmed by U.S. mail or overnight mail
service sent within two Trading Days thereafter) and (ii) surrendering this Note
with the mailed confirmation of the Conversion Notice at the principal office of
the Borrower. Upon partial exercise of the conversion rights provided hereby, a
new Note containing the same date and provisions as this Note shall be issued by
the Borrower to the Holder for the principal balance of this Note which shall
not have been converted. By its acceptance of this Note, each Holder agrees to
be bound by the terms of the Purchase Agreement. This Note has been issued by
the Borrower pursuant to the exemption from registration provided by Regulation
D under the Securities Act of 1933, as amended (the "Act").
3
<PAGE>
2.5 RESTRICTIONS ON SHARES. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i) they first
shall have been registered under the Act and applicable state securities laws,
(ii) the Borrower shall have been furnished with an opinion of legal counsel (in
form, substance and scope reasonably acceptable to Borrower) to the effect that
such sale or transfer is exempt from the registration requirements of the Act or
(iii) they are sold pursuant to Rule 144 under the Act. Except as otherwise
provided in the Purchase Agreement, each certificate for shares of Common Stock
issuable upon conversion of this Note that have not been so registered and that
have not been sold pursuant to an exemption that permits removal of the legend,
shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Borrower shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if (i) with such request, the Borrower
shall have received either (A) an opinion of counsel, reasonably satisfactory to
the Borrower in form, substance and scope, to the effect that any such legend
may be removed from such certificate, or (B) satisfactory representations from
the holder that such holder is eligible to sell immediately all of the Common
Stock issuable upon conversion of the Note (to the extent such securities are
deemed to have been acquired on the same date) pursuant to Rule 144 (or a
successor rule) or (ii) a registration statement under the Act covering such
securities is in effect. Nothing in this Note shall (i) limit the Borrower's
obligation under the Registration Rights Agreement, dated as of April 8, 1996,
by and among the Company and the other signatories thereto (the "Registration
Rights Agreement") or (ii) affect in any way the Holder's obligations to comply
with applicable securities laws upon the resale of the securities referred to
herein.
2.6 EFFECT OF MERGER, CONSOLIDATION, ETC. If at anytime when this Note is
issued and 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 Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially
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all of the assets of the Borrower other than in connection with a plan of
complete liquidation of the Borrower, then the Holder of this Note shall
thereafter have the right to receive upon conversion of this Note, upon the
bases and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock then issuable upon conversion of this Note (assuming the
occurrence of the Amendments whether or not that has then occurred), such stock,
securities or assets which the Holder would have been entitled to receive in
such transaction had this Note 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 Holder of this Note to the end that
the provisions hereof (including, without limitation, provisions for adjustment
of the Conversion Price and of the number of shares issuable upon conversion of
this Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the exercise
hereof. The Borrower shall not effect any transaction described in this Section
2.6 unless the resulting successor or acquiring entity (if not the Borrower)
assumes by written instrument the obligations of this Section 2.6.
2.7 MANDATORY CONVERSION. So long as no Event of Default (as defined in
Article III below) shall have occurred and be continuing, the Amendment has
become effective and the Borrower has reserved a sufficient number of shares of
its Common Stock to provide for the conversion in full of this Note, the
Borrower shall have the right, exercisable on not less than thirty (30) days
prior written notice to the Holder, to force the conversion of all or any part
of the outstanding and unpaid principal amount of this Note (together with
accrued and unpaid interest thereon) of not less than $250,000 principal amount
in accordance with this Section 2.7. Any notice of mandatory conversion (a
"Mandatory Conversion Notice") shall be sent by facsimile to the Holder at least
thirty (30) days prior to the Scheduled Maturity Date at its registered address
appearing on the records of the Borrower and shall state (i) that the Borrower
is exercising its right to force the conversion of all or a portion of the
principal amount of this Note, (ii) the principal amount to be so converted and
(iii) the date of the Mandatory Conversion, which date shall be the Schedule
Maturity Date. On the date fixed for Mandatory Conversion (the "Mandatory
Conversion Date"), the Note shall automatically convert into that number of
shares of Common Stock as determined in accordance with Section 2.1 hereof and,
upon the tender of this Note to the Borrower, the Borrower shall issue such
number of shares of Common Stock to the Holder. If less than all of the
outstanding principal amount is so converted, the unconverted principal balance
of this Note, together with accrued and unpaid interest thereon, shall be
payable to the Holder in accordance with the first paragraph of this Note.
Notwithstanding anything to the contrary contained in this Section 2.7, the
Holder shall at all times maintain the right to convert all or any part of this
Note in accordance with this Article II and any amounts so converted after
receipt of a Mandatory Conversion Notice and prior to the Mandatory Conversion
Date set forth in such notice shall be deducted from the principal amount which
is otherwise subject to Mandatory Conversion pursuant to such notice.
ARTICLE III
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of
Default" ) shall occur:
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3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails (i) to pay
the principal hereof when due, whether at maturity upon acceleration or
otherwise or (ii) to pay any installment of interest hereon when due and, in the
case of this clause (ii) only, such failure continues for a period of five (5)
days after the due date thereof;
3.2 CONVERSION. The Borrower fails to issue shares of Common Stock to the
Holder upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Note, and any such failure shall continue
uncured for five (5) business days after the Borrower shall have been notified
thereof in writing by the Holder;
3.3 BREACH OF COVENANT. The Borrower breaches any material covenant or
other material term or condition of this Note (other than as specifically
provided in Sections 3.1 and 3.2 hereof), the Purchase Agreement, the
Registration Rights Agreement or the Security Agreement executed by the Borrower
in connection with the issuance of this Note (the "Security Agreement") and such
breach continues for a period of ten (10) business days after written notice
thereof to the Borrower from the Holder.
3.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement, the Registration Rights
Agreement and the Security Agreement), shall be false or misleading in any
material respect when made and the breach of which would have a material adverse
effect on the Borrower or the prospects of the Borrower or a material adverse
effect on the Holder or the rights of the Holder with respect to this Note or
the shares of Common Stock issuable upon conversion of this Note;
3.5 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business; or such a receiver or trustee shall otherwise be
appointed;
3.6 JUDGMENTS. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $250,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld; or
3.7 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower.
3.8 MATERIAL ADVERSE CHANGE. Any material adverse change in the financial
condition or business of the Debtor, or any material adverse change in Debtor's
business plans and/or operations, as determined by the Secured Party in its sole
and reasonable discretion.
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3.9 MATERIAL LOSS OR THEFT. Material loss of theft, substantial damage or
destruction or unauthorized sale or encumbrance of any material portion of the
Collateral (as defined in Article IV hereof) in excess of reasonably expected
recoveries under insurance policies, or the making of any levy on, or seizure or
attachment of or entry of a judgment against a material portion of the
Collateral.
3.10 REPORTS. A material omission or misstatement in any of the Debtor's
previously or hereafter filed reports pursuant to the requirements of the
Securities and Exchange Act of 1934, as amended, or the rules and regulations
promulgated thereunder.
Then, upon the occurrence and during the continuation of any Event of Default
specified in Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.8, 3.9 or 3.10 hereof, at the
option of the Holder hereof, and upon the occurrence of any event of default
specified in Sections 3.5 or 3.7 hereof, the Borrower shall pay to the Holder,
in satisfaction of its obligation to pay the outstanding principal amount of
this Note and accrued and unpaid interest thereon, an amount equal to the sum of
(i) the product of (x) the then outstanding principal amount of this Note
multiplied by (y) 110% plus (ii) accrued and unpaid interest on the unpaid
principal amount of this Note to the date of payment (the "Default Amount") and
such Default Amount, together with all other ancillary amounts payable hereunder
shall immediately become due and payable, all without demand, presentment or
notice, all of which hereby are expressly waived, together with all costs,
including, without limitation, legal fees and expenses of collection, and the
Holder shall be entitled to exercise all other rights and remedies available at
law or in equity.
If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default, to
require the Borrower, upon written notice, to immediately issue (in accordance
with the terms of Article II hereof), in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by
the Conversion Price then in effect.
ARTICLE IV
COLLATERAL
This Note is secured by a security interest in Borrower's now owned or
hereafter acquired inventory and receivables in respect thereof and all products
and proceeds thereof, all as more particularly described in the Security
Agreement and Exhibit A thereto (the "Collateral").
ARTICLE V
MISCELLANEOUS
5.1 FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part of
the Holder 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. All rights and remedies existing hereunder
are cumulative to, and not
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exclusive of, any rights or remedies otherwise available.
5.2 NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission)
or sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 1025 West
Nursery Road, Linthicum, Maryland 21090; Facsimile Number: (410) 636-5989. Both
the Holder and the Borrower may change the address for service by service of
written notice to the other as herein provided.
5.3 AMENDMENT PROVISION. This Note and any provision hereof may only be
amended by an instrument in writing signed by the Borrower and the Holder. The
term "Note" and all references thereto, as used throughout this instrument,
shall mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns and shall inure to be the benefit of the Holder and its
successors and assigns; PROVIDED, HOWEVER, that so long as no Event of Default
has occurred, this Note shall only be transferable in whole or in increments of
$100,000 to "Accredited Investors" (as defined in Rule 501(a) under the Act).
5.5 COST OF COLLECTION. If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
5.6 GOVERNING LAW. This Note shall be governed by the internal laws of the
State of Delaware, without regard to conflicts of laws principles. The parties
hereto hereby submit to the exclusive
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jurisdiction of the United States Federal Courts located in New York County in
the State of New York with respect to any dispute arising under this Note.
5.7 DAMAGES SHARES. The shares of Common Stock that may be issuable to
the Holder pursuant to Article III hereof and pursuant to Section 2(c) of the
Registration Rights Agreement ("Damages Shares") shall be treated as Common
Stock issuable upon conversion of this Note for all purposes hereof and shall be
subject to all of the limitations and afforded all of the rights of the other
shares of Common Stock issuable hereunder, including, without limitation, the
right to be included in the Registration Statement filed pursuant to the
Registration Rights Agreement. For purposes of calculating interest payable on
the outstanding principal amount hereof, amounts convertible into Damages Shares
("Damages Amounts") shall not bear interest but must be converted prior to the
conversion of any outstanding principal amount hereof, until the outstanding
Damages Amount is zero.
5.8 DENOMINATIONS. At the request of the Holder, upon surrender of this
Note, the Borrower shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$50,000 as the Holder shall request.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer this day of April, 1996.
---
NOISE CANCELLATION TECHNOLOGIES, INC.
By:
----------------------------
Name:
Title:
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EXHIBIT 1
NOTICE OF CONVERSION
OF SECURED CONVERTIBLE NOTE
TO: [ ]
----------------------
(1) Pursuant to the terms of the attached Secured Convertible Note (the
"Note"), the undersigned hereby elects to convert $________principal amount of
the Note into shares of Common Stock of Noise Cancellation Technologies, Inc., a
Delaware corporation (the "Borrower"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Note.
(2) Please issue a certificate or certificates for the number of shares of
Common Stock into which such principal amount of the Note is convertible in the
name(s) specified immediately below or, if additional space is necessary, on an
attachment hereto:
-------------------------------- --------------------------------
Name Name
-------------------------------- --------------------------------
Address Address
-------------------------------- --------------------------------
SS or Tax ID Number SS or Tax ID Number
(3) In the event of partial exercise, please reissue an appropriate
Note(s) for the principal balance which shall not have been converted.
(4) If the shares of Common Stock issuable upon conversion of the Note
have not been registered under the Securities Act of 1933, as amended (the
"Act"), the undersigned represents and warrants that (i) such shares of Common
Stock are being acquired for the account of the undersigned for investment, and
not with a present view to, or for resale in connection with, the distribution
thereof, and that the undersigned has no present intention of distributing or
reselling such securities, in each case, other than pursuant to a registration
statement under the Act and (ii) the undersigned is an "Accredited Investor" as
defined in Regulation D under the Act. The undersigned further agrees that (A)
such securities shall not be sold or transferred unless either (i) they first
shall have been registered under the Act and applicable state securities laws or
(ii) the Borrower first shall have been furnished with either (x) an opinion of
legal counsel (in form, substance and scope reasonably satisfactory to Borrower)
to the effect that such sale or transfer is exempt from the registration
requirements of the Act or (y) satisfactory representations from the undersigned
that the undersigned may immediately sell all of such securities (to the extent
such securities are deemed to have been
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acquired on the same date) pursuant to Rule 144 under the Act (or a successor
thereto) and (B) the Borrower may place a legend on the certificate(s) for such
securities to that effect and place a stop transfer restriction in its records
relating to such securities. Nothing in this Notice of Conversion shall limit
the Borrower's obligations under the Registration Rights Agreement and the
Purchase Agreement.
Date
----------------------------- ---------------------------------
Signature of Registered Holder
(must be signed exactly as name appears
in the Note. The signature must be
guaranteed by a member firm of the New
York Stock Exchange or the National
Association of Securities Dealers or by
a commercial bank or trust having an
office in the United States)
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