As filed with the Securities and Exchange Commission on April 7, 2000
Registration No. 333- _____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
Sedona Corporation
(Exact name of registrant as specified in its charter)
649 North Lewis Road
Suite 220
Limerick, PA 19468
(610) 495-3003
(Address of principal executive offices)
Pennsylvania 95-4091769
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
------------
Marco A. Emrich
President and Chief Executive Officer
Sedona Corporation
649 North Lewis Road
Suite 220
Limerick, PA 19468
(610) 495-3003
(Name, address, including zip code and telephone number,
including area code of agent for service)
------------
Copies to:
Robert B. Murphy, Esq.
Piper Marbury Rudnick & Wolfe LLP
1200 19th Street, N.W.
Washington, D.C. 20036
(202) 861-3900
-----------------
Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
========================== ================ ======================= ===================== ==========================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Registration Fee
Securities To Be Registered Share(1) Price
Registered
- -------------------------- ---------------- ----------------------- --------------------- --------------------------
Common Stock, par value
$0.001 per share 3,320,603 $5.50 $18,263,317 $4,822
========================== ================ ======================= ===================== ==========================
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee, based upon the average of the high and low prices for such
shares of common stock on April 5, 2000, as reported on the Nasdaq SmallCap
Market. Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also covers such additional number of shares of common
stock that may become issuable under any stock split, stock dividend or
anti-dilution provisions in the convertible preferred stock and warrants.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
PROSPECTUS
SEDONA CORPORATION
3,320,603 Shares Common Stock
----------------
The selling shareholders, listed on page 7, may offer from time to time
up to 3,320,603 shares of our common stock under this prospectus. No underwriter
is being used in connection with this offering of common stock. The selling
shareholders may offer and sell their shares to or through broker-dealers, who
may receive compensation in the form of discounts, concessions or commissions
from the selling shareholders, the purchasers of the shares, or both. We will
not receive any of the proceeds from the sale of shares.
The price of the common stock being offered under this prospectus will
most likely be the market price of our common stock. Our common stock is traded
on the Nasdaq Small Cap Market under the symbol SDNA. On April 6, 2000, the
closing price of one share of our common stock was $5.94.
--------------------
Investing in our common stock involves a high degree of risk. You
should carefully read and consider the risk factors beginning on page 2.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April ___, 2000.
<PAGE>
TABLE OF CONTENTS
Page
-----
Sedona................................................................ 1
Risk Factors.......................................................... 2
Use of Proceeds....................................................... 5
Selling Shareholders.................................................. 6
Plan of Distribution.................................................. 9
Legal Matters......................................................... 10
Experts............................................................... 10
Where You Can Find More Information................................... 10
Forward-Looking Statements............................................ 12
<PAGE>
SEDONA
SEDONA Corporation develops, markets, services and supports
Internet-based customer relationship management solutions that provide
organizations with the ability to optimize their return on customer
relationships and greatly improve their customer acquisition, intimacy,
satisfaction and retention capabilities.
The rise of the Internet has opened the door to a whole new level of
competition in business today. In almost every industry, new competitors are
entering the market daily. Companies are aggressively looking to implement new
ebusiness strategies, which combine Internet technology with innovative
marketing to obtain and maintain market share.
In the new economy, there has been an increasing realization that focus
on the customer is of great importance. As the Internet has made the world
smaller, it has also made consumers more demanding than ever before. In order to
acquire and retain customers, enterprises have to find innovative ways to
leverage customer information to build personalized relationships with their
customers by offering customized products and services to them before the
competition does.
A new class of applications is changing the landscape of business
solutions by enabling enterprises with the competitive ability to effectively
personalize their customer relationships as well as identify otherwise unknown
sales and marketing opportunities. To do this in a timely and accurate way, new
technologies are needed which transform raw customer data into dynamically
created and visually presented smart content. Smart content is customer data
enhanced with consumer demographics, behaviors, interests and preferences
information that is then filtered and analyzed visually to provide timely and
precise information on-demand to business users.
SEDONA is an Internet customer relationship management application
provider targeting small and mid-sized financial services companies and the new
breed of ecommerce merchants known as etailers. Working with strategic alliance
partners, SEDONA's technologies can also be found in large-scale customer
relationship management, supply chain management and enterprise resource
management applications within Fortune 1000 organizations.
Our principal executive offices are located at 649 North Lewis Road,
Limerick, Pennsylvania 19468, and our telephone number is (610) 495-3003.
(1)
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors as well as
other information contained in this prospectus or in documents to which we refer
you before deciding to invest in shares of our common stock.
We have a limited operating history with which you can evaluate our business.
We only began focusing exclusively on our Internet-based application
solutions in 1999. As a result, we have only a limited operating history with
which you can evaluate our business and prospects. Our limited operating history
makes predicting our future operating results difficult. In addition, our
prospects must be considered in light of the risks and uncertainties encountered
by companies in the early stages of development in new and rapidly evolving
markets, specifically the rapidly evolving market for knowledge management
solutions. These risks include our ability to:
acquire and retain customers;
build awareness and acceptance of our brand name;
extend existing and develop new strategic partner
relationships;
access additional capital when required;
upgrade and develop our software and systems in a timely and
effective manner; and
attract and retain key personnel.
Our business strategy may not be successful and we may not successfully
address these and other risks and uncertainties related to our limited operating
history.
(2)
<PAGE>
We have limited revenues, have incurred operating losses in recent years and may
not be profitable in the future.
We had total revenues from continuing operations of $244,000, $15,000
and $260,000 and losses from continuing operations of $3.3 million, $3.9 million
and $5.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999, we had an accumulated deficit of $33.1
million. If our current and future products fail to gain acceptance in the
marketplace, we believe it is unlikely that we will be able to reverse our
operating loss trend or assure you of our future profitability.
This offering may depress our stock price.
Under this prospectus, the selling shareholders are registering shares
representing approximately 12.5% of our outstanding common stock as of March 31,
2000. Sales of a substantial number of shares of common stock in the public
market by the selling shareholders may decrease the prevailing market price for
our common stock and could impair our ability to raise capital through the sale
of our equity securities.
The exercise of warrants or options may depress our stock price.
There are a significant number of warrants and options to purchase our
common stock outstanding. Holders may sell the common stock acquired upon
exercise of the warrants and options at a market price that exceeds the exercise
price of the warrants and options paid by the holders. Sales of a substantial
number of shares of common stock in the public market by holders of warrants or
options may depress the prevailing market price for our common stock and could
impair our ability to raise capital through the future sale of our equity
securities. As of March 31, 2000, we had 7,201,039 warrants outstanding at a
weighted average exercise price of $2.74 per share and 2,234,330 options
outstanding with a weighted average exercise price of $2.42 per share.
Approximately 74% of the warrants and 38% of the options were exercisable as of
March 31, 2000.
We do not expect to pay any dividends on our common stock.
We have not paid any cash dividends on our common stock and we do not
expect to pay any dividends in the immediate future. The value of your shares
will be determined solely by the market price of our common stock.
We may require additional capital that may not be available.
We will not receive any of the proceeds from the sale of shares by the
selling shareholders. To conduct our operations as currently contemplated for a
period of at least one year, we may require additional financing. While we are
actively pursuing various sources of asset based loans and new equity infusions
we do not know if additional financing will be available to us on terms that we
can accept.
We may not be able to use our net operating loss carryforwards.
Net operating loss carryforwards may be used to offset taxable income
obtained in future years. As of December 31, 1999, we had approximately $29.8
million in net operating losses at the federal level and $8.5 million at the
state level. The federal net operating losses, if unused, will expire between
2000 and 2019. The state net operating losses will expire between 2005 and 2009.
We cannot assure you that we will generate taxable income to use the net
operating losses before some or all of them expire.
Our software may become obsolete.
Our competitors may develop technologies and software products that are
more attractive than any that we are developing and marketing which would render
some or all of our technologies and products obsolete or noncompetitive.
(3)
<PAGE>
A deterioration of our strategic relationships or a failure to establish new
relationships may have an adverse effect on our business.
We have established strategic relationships with a number of
organizations that we believe are important to our sales, marketing and support
activities and the development and implementation of our products. We have
established non-exclusive strategic relationships with companies such as Oracle
Corporation and Acxiom Corporation. We also have significant relationships with
other application and content providers. If we cannot maintain these
relationships and secure additional relationships on terms acceptable to us, our
revenue growth may be harmed, which would have an adverse affect on our
business.
Third party system integrators are integral to the success of our business.
If we do not adequately train a sufficient number of system integrators
or, if these integrators do not have or devote the resources necessary to
implement our products, our business, operating results and financial condition
could be materially and adversely affected.
The compatibility of our products with the Internet is important to our success.
Our applications communicate through public and private networks over
the Internet. The increased commercial use of the Internet could require
substantial modification and customization of our software products and the
introduction of new products. We may not be able to effectively migrate our
products to the Internet or successfully compete in the Internet-related
products and services market.
If our products fail to meet the evolving requirements of our customers, our
business may be adversely affected.
We may not be successful in developing, marketing and releasing new
products or new versions of our applications that respond to technological
developments, evolving industry standards or changing customer requirements. Our
business, operating results and financial condition could be materially and
adversely affected if we are not able to meet the changing industry standards or
customer demands.
(4)
<PAGE>
We rely on our intellectual property which we may be unable to protect, or we
may be found to infringe the rights of others.
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect our proprietary
rights which afford only limited protection. Others may develop technologies
that are similar or superior to our technology or design around our technology.
Policing unauthorized use of our products is difficult. In addition, the laws of
some foreign countries do not protect our proprietary rights as fully as do the
laws of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate. Further, we cannot guarantee that
third parties will not assert infringement claims against us in the future, that
assertions by such parties will not result in costly litigation, or that we
would prevail in any such litigation or be able to license any valid or
infringed patents from third parties on commercially reasonable terms.
We must recruit and retain qualified professionals to succeed in our business.
Our future success depends in large part on our ability to recruit and
retain qualified professionals skilled in engineering, software development,
production and marketing. Such professionals are in great demand and are likely
to remain a limited resource in the foreseeable future. Competition for
qualified professionals is intense. Any inability to recruit and retain a
sufficient number of qualified employees could hinder the growth of our
business.
Loss of any of our key management or skilled personnel could negatively impact
our business.
Our future success depends to a significant extent on the continued
service and coordination of our executive officers and other key employees. The
loss or departure of any of our officers or key employees could materially
adversely affect our ability to implement our business plan. In addition, if for
any reason our key employees, or any replacement key employees, are not able to
work together effectively or successfully, our business could be materially
adversely affected.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our
common stock by the selling shareholders. If any or all of the warrants held by
the selling shareholders are exercised, we intend to use the net proceeds for
working capital and general corporate purposes. Temporarily, we may invest the
net proceeds from the exercise of the warrants, if any, in high grade short term
interest bearing investments.
(5)
<PAGE>
SELLING SHAREHOLDERS
The common stock offered by this prospectus represents shares issued or
issuable upon conversion of our $1,000,000 series B convertible 869,565
preferred stock, 1,000,000 shares issued or issuable upon conversion of our
$1,000,000 series F convertible preferred stock, 1,171,872 shares issued or
issuable upon conversion of our $3,000,000 series G convertible preferred stock,
204,166 shares issuable upon exercise of warrants and 75,000 outstanding shares.
The number of shares that may be actually sold by each selling
stockholder will be determined by such selling stockholder. Because each selling
stockholder may sell all, some or none of the shares of common stock which it
holds, and because the offering contemplated by this prospectus is not currently
being underwritten, no estimate can be given as to the number of shares of
common stock that will be held by the selling shareholders upon termination of
the offering.
The following table sets forth the beneficial ownership of our common
stock by the selling shareholders as of April 1, 2000. Beneficial ownership
includes shares of outstanding common stock and shares of common stock that a
person has the right to acquire within 60 days of this prospectus. Unless
indicated in the footnotes, each person has the sole power to direct the voting
and investment over the shares owned by them.
The shares of common stock included in the table as owned before the
offering represent good faith estimates of the number of shares of common stock
that will become issuable upon conversion of the convertible preferred stock
based on conversion prices as of April 1, 2000. The actual number of shares of
common stock issuable upon conversion of the convertible preferred stock is
indeterminate, and is subject to adjustment that could materially change the
amounts set forth in the table depending on factors which we cannot predict at
this time, including, among other factors, the future market price of our common
stock.
Pursuant to its terms, the series G convertible preferred stock is
convertible by any holder only to the extent that the number of shares issuable,
together with the number of shares of common stock beneficially owned by such
holder, but not including unconverted shares of convertible preferred stock,
would not equal or exceed 4.9% of the then outstanding common stock as
determined in accordance with section 13(d) of the Securities Exchange Act of
1934, unless the holder provides us with at least 75 days notice prior to the
conversion. However, this 4.9% limit does not prevent any selling stockholder
who does not provide at least 75 days prior notice from selling more than 4.9%
of our common stock because the stockholder can convert the convertible
preferred stock and then sell all of the common stock received upon conversion
to permit it to engage in further conversions.
(6)
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total Common Stock Number of Shares of
Owned Before the Common Stock to be Common Stock Owned After the
Offering Offered Offering
Name
--------------------- ----------------------- ------------------------------
Number Percent
Seaside Partners, L.P....................... 434,783 (1) 869,565 (2) -- --
The Tang Fund............................... 354,610 (3) 500,000 (4)
Oscar Tang.................................. 354,610 (3) 500,000 (4)
AMRO International, S.A..................... 388,697 (5) 720,728 (6) -- --
Markham Holdings Limited.................... 68,594 (5) 127,188 (6) -- --
Aspen International Limited................. 114,322 (5) 211,978 (6) -- --
The Cuttyhunk Fund Limited.................. 57,161 (5) 105,989 (6) -- --
The George S. Sarlo 1995 Charitable
Remainder Trust......................... 57,161 (5) 105,989 (6) -- --
Osprey Partners............................. 37,500 37,500 -- --
David C. Brown.............................. 141,666 141,666 -- --
Total 3,320,603
</TABLE>
- -----------------------
(1) Represents the number of shares issuable upon conversion of series B
convertible preferred stock at a conversion price of $2.30 per share.
The series B convertible preferred stock is convertible at a per share
price equal to the lesser of $2.30 and the average closing price of our
common stock on the Nasdaq SmallCap Market for the consecutive
25-trading day period immediately preceding the conversion date, but in
no event will the conversion price be less than $1.15 per share.
(2) Represents the maximum amount of shares of common stock issuable upon
conversion of series B convertible preferred stock.
(3) Represents the number of shares issuable upon conversion of series F
convertible preferred stock at a conversion price of $1.41 per share.
The series F convertible preferred stock is convertible at a per share
price equal to the lesser of $1.41 and the average closing price of our
common stock on the Nasdaq SmallCap Market for the consecutive
25-trading day period immediately preceding the conversion date, but in
no event will the conversion price be less than $1.00 per share.
(4) Represents the maximum amount of shares of common stock issuable upon
conversion of series F convertible preferred stock.
(5) Represents the number of shares issuable upon conversion of series G
convertible preferred stock at a conversion price of $5.12 per share. The series
G convertible preferred stock is convertible at a per share price equal to
the lesser of $5.12 and 95% of the average of the three lowest closing
bid prices of our common stock on the Nasdaq SmallCap Market during the
20 consecutive trading day period immediately preceding the conversion
date, but in no event will the conversion price be less than $3.50 per
share prior to June 28, 2000. Also includes the number of shares issuable upon
exercise of warrants as follows: 56,666 shares issuable to AMRO International,
10,000 shares issuable to Markham Holdings, 16,666 shares issuable to Aspen
International, 8,333 shares issuable to Cuttyhunk Fund and 8,333 shares issuable
to the Sarlo Trust.
(6) Under a registration rights agreement, we are required to register for
resale by the holders of the series G convertible preferred stock 200%
of the common stock issuable to these holders upon conversion at the
conversion price in effect on April 6, 2000. We are also required to register
for resale the shares issuable upon exercise of the warrants held by the
holders of series G convertible preferred stock.
The tables below set forth the number of shares of our common stock
that the holders of the series B, the series F and the series G convertible
preferred stock would have acquired if they elected to convert the entire
amounts of these series of convertible preferred stock on April 1, 2000. With
respect to the series B and series F convertible preferred stock, the share
amounts are based on $6.95, which is the average closing price of our common
stock for the 25 consecutive trading day period immediately preceding April 1,
2000, and on assumed share prices of $5.21, $3.48 and $1.74, which prices
represent a 25%, 50% and 75% decline, respectively, in that average closing
price. For the series G convertible preferred stock, the share amounts are based
on $6.09, which is the average of the three lowest closing bid prices of our
common stock during the 20 consecutive trading day period immediately preceding
April 1, 2000, and on assumed share prices of $4.57, $3.05 and $1.52, which
prices represent a 25%, 50% and 75% decline, respectively, in that average.
There were 26,745,398 shares of our common stock outstanding on April 1, 2000.
(7)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------- ---------------------- ------------------------- ---------------------------
Series B
- ---------------------------- ---------------------- ------------------------- ---------------------------
Shares of Common Stock
Percentage Decline in Conversion Issued Upon Conversion Percentage of Outstanding
Average Closing Price Price in Effect Common Stock
- ---------------------------- ---------------- ------------------------- ---------------------------
0% ($6.95) $ 2.30 434,783 1.6%
25% ($5.21) 2.30 434,783 1.6
50% ($3.41) 2.30 434,783 1.6
75% ($1.74) 1.74 574,713 2.2
- ---------------------------- ---------------------- ------------------------- ---------------------------
- ---------------------------- ---------------------- ------------------------- ---------------------------
Series F
- ---------------------------- ---------------------- ------------------------- ---------------------------
Shares of Common Stock
Percentage Decline in Conversion Issued Upon Conversion Percentage of Outstanding
Average Closing Price Price in Effect Common Stock
- ---------------------------- ---------------- ------------------------- ---------------------------
0% ($6.95) $ 1.41 709,220 2.7%
25% ($5.21) 1.41 709,220 2.7
50% ($3.41) 1.41 709,220 2.7
75% ($1.74) 1.41 709,220 2.7
- ---------------------------- ---------------------- ------------------------- ---------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Series G
- ------------------------------------------------------------------------------------------------------------------------------
Conversion before June 28, 2000 Conversion on or after June 28, 2000
--------------------------------------------------- ------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Percentage Decline in Shares of Common Percentage Shares of Common Percentage of
Average of Three Lowest Conversion Stock Issued Upon of Conversion Stock Issued Outstanding
Closing Bids Price in Conversion Outstanding Price in Upon Conversion Common Stock
Effect Common Stock Effect
- ------------------------- -------------- --------------------- -------------- -------------- ----------------- ---------------
0% ($6.09) $ 5.12 585,938 2.2% $ 5.12 585,938 2.2%
25% ($4.57) 4.57 656,455 2.5 4.57 656,455 2.5
50% ($3.05) 3.50 857,143 3.2 3.05 983,607 3.7
75% ($1.52) 3.50 857,143 3.2 1.52 1,973,684 7.4
- ------------------------- -------------- --------------------- -------------- -------------- ----------------- ---------------
</TABLE>
(8)
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders.
The shares being registered are owned or may be acquired by the selling
shareholders upon conversion of preferred stock or exercise of warrants. Selling
shareholders, as used in this prospectus, includes donees, pledgees, transferees
or other successors in interest who may receive shares from a named selling
shareholder after the date of this prospectus. The selling shareholders may
offer their shares of our common stock at various times in one or more of the
following transactions:
in ordinary broker's transactions on Nasdaq or any national
securities exchange on which our common stock may be listed at the
time of sale;
in the over-the-counter market;
in private transactions other than in the over-the-counter market;
in connection with short sales of other shares of our common stock
in which shares are redelivered to close out positioning;
by pledge to secure debts and other obligations;
in connection with the writing of non-traded and exchange-traded
call options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options; or
in a combination of any of the above transactions.
The selling shareholders may sell their shares at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices. The selling shareholders may
use broker-dealers to sell their shares. If this happens, broker-dealers will
either receive discounts or commissions from the selling shareholders, or they
will receive commissions from purchasers of shares for whom they acted as
agents.
Selling shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act.
Shareholders must meet the criteria and conform to the requirements of that
rule. The selling shareholders and the broker-dealers to or through whom sale of
the shares may be made could be deemed to be underwriters within the meaning of
the Securities Act, and their commissions or discounts and other compensation
received in connection with the sale of the shares may be regarded as
underwriters' compensation, if the SEC determines that they purchased the shares
in order to resell them to the public.
The selling shareholders have not advised us of any specific plans for
the distribution of the shares covered by this prospectus. When and if we are
notified by any of the selling shareholders that any material arrangement has
been entered into with a broker-dealer or underwriter for the sale of a material
portion of the shares covered by this prospectus, a prospectus supplement or
post-effective amendment to the registration statement will be filed with the
SEC. This supplement or amendment will include the following information:
the name of the participating broker-dealer(s) or underwriters;
the number of shares involved;
the price or prices at which the shares were sold by the selling
shareholders;
the commissions paid or discounts or concessions allowed by the
selling shareholders to the broker-dealers or underwriters; and
other material information.
We have advised the selling shareholders that the anti-manipulation
rules promulgated under the Securities Exchange Act, including Regulation M, may
apply to sales of the shares offered by the selling shareholders. We have agreed
to pay all costs relating to the registration of the shares. Any commissions or
other fees payable to broker-dealers in connection with any sale of the shares
will be paid by the selling shareholders or other party selling the shares.
(9)
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered will be passed upon for
us by Piper Marbury Rudnick & Wolfe LLP.
EXPERTS
The consolidated financial statements of Sedona Corporation appearing
in the Company's annual report on Form 10-K as of December 31, 1999 and 1998 and
for the two years then ended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report included therein and
incorporated herein by reference. The consolidated financial statements of
Sedona Corporation as of December 31, 1997 and the year then ended appearing in
the Company's annual report on Form 10-K for the year ended December 31, 1999,
have been audited by BDO Seidman, LLP, independent certified public accountants,
as set forth in their report included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon these reports given on the authority of such firms as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Sedona is subject to the informational requirements of the Securities
Exchange Act of 1934. We file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference rooms at the SEC's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain information on the operation of this
public reference room by calling 1-800-SEC-0330. Our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov. In
addition, any of our SEC filings may also be inspected and copied at the offices
of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
(10)
<PAGE>
We have filed with the SEC a registration statement on Form S-3
covering the common stock offered by this prospectus. You should be aware that
this prospectus does not contain all of the information contained or
incorporated by reference in that registration statement and its exhibits and
schedules, particular portions of which have been omitted as permitted by the
SEC rules. For further information about Sedona and our common stock, we refer
you to the registration statement and its exhibits and schedules. You may
inspect and obtain the registration statement, including exhibits, schedules,
reports and other information filed by Sedona with the SEC, as described in the
preceding paragraph. Statements contained in this prospectus concerning the
contents of any document we refer you to are not necessarily complete and in
each instance we refer you to the applicable document filed with the SEC for
more complete information.
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is
considered to be part of this prospectus, and the information that we file at a
later date with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below as well as
any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934:
(a) Our annual report on Form 10-K for the fiscal year ended December
31, 1999.
(b) The description of our common stock which is contained in our
registration statement on Form 8-B filed under the Securities Exchange Act,
including any amendment or reports filed for the purpose of updating this
description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Sedona Corporation, 649 North Lewis
Road, Limerick, PA 19468, Attention: Michael A. Mulshine, Corporate Secretary,
(610) 495-3003.
We have not authorized anyone to provide you with information or to
represent anything to you not contained in this prospectus. You must not rely on
any unauthorized information or representations. The selling stockholders are
offering to sell, and seeking offers to buy, only the shares of our common stock
covered by this prospectus, and only under circumstances and in jurisdictions
where it is lawful to do so.
(11)
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operation or financial condition
or state other forward-looking information. Forward-looking statements can be
identified by the use of progressive terminology, such as may, will, expect,
anticipate, estimate, continue or other similar words. These statements are
subject to known and unknown risks and uncertainties that could cause our actual
results to differ materially from those contemplated by the statements. Factors
that might cause such a difference include those discussed in the section titled
Risk Factors beginning on page 2. The information contained in this prospectus
is current only as of its date, regardless of the time of delivery of this
prospectus or of any sale of the shares. You should read carefully the entire
prospectus, as well as the documents incorporated by reference in the
prospectus, before making an investment decision. All references to the terms we
or us in this prospectus means Sedona Corporation and its subsidiaries, except
where it is clear that the term means only the parent corporation.
(12)
<PAGE>
II-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by us in
connection with the sale and distribution of the securities offered in this
offering. All of the amounts shown are estimated except the Securities and
Exchange Commission registration fee.
Securities and Exchange Commission
registration fee $ 4,822
Printing expenses 1,000
Legal fees and expenses 25,000
Accounting fees and expenses 10,000
Miscellaneous expenses 5,000
--------------
Total $ 45,822
--------------
15. Indemnification of Officers and Directors
The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
permits a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any pending,
threatened or completed action or proceeding, and permits such indemnification
against expenses (including attorney's fees) incurred by them in connection with
any pending, threatened or completed derivative action, if the director or
officer has acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Pennsylvania law requires that a corporation indemnify its
directors and officers against expenses (including attorney's fees) actually and
reasonably incurred by them in connection with any action or proceeding,
including derivative actions, to the extent that such person has been successful
on the merits or otherwise in defense of the action or in defense of any claim,
issue or matter therein. Furthermore, Pennsylvania law provides that expenses
incurred in defending any action or proceeding may be paid by the corporation in
advance of the final disposition upon receipt of an undertaking by or on behalf
of the director or officer to repay the amount if it is ultimately determined
that the director or officer is not entitled to be indemnified by the
corporation.
In Pennsylvania, the statutory provisions for indemnification and
advancement of expenses are non-exclusive with respect to any other rights, such
as contractual rights or under a by-law or vote of shareholders or disinterested
directors, to which a person seeking indemnification or advancement of expenses
may be entitled. Such contractual or other rights may, for example, under
Pennsylvania law, provide for indemnification against judgments, fines and
amounts paid in settlement incurred by the indemnified person in connection with
derivative actions. Pennsylvania law permits such derivative action
indemnification in any case except where the act or failure to act giving rise
to the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness.
The provisions of Article VII of the Company's By-laws require or authorize
indemnification of officers and directors in all situations in which it is not
expressly prohibited by law. At the present time, the limitations on
indemnification would be dictated by the BCL and related legislation, which
prohibit indemnification where the conduct is determined by a court to
constitute willful misconduct or recklessness. Subject to these statutory
limitations, the By-laws specifically authorize indemnification against both
judgments and amounts paid in settlement of derivative suits. These provisions
also authorize indemnification for negligence or gross negligence and for
punitive damages and specific liabilities incurred under the federal securities
laws. The By-laws also prohibit indemnification attributable to receipt from the
Company of a personal benefit to which the recipient is not legally entitled.
Under the indemnification provisions of the By-laws a person who has
incurred an indemnifiable expense or liability would have a right to be
indemnified, and that right would be enforceable against the Company as long as
indemnification is not prohibited by law. To the extent indemnification is
permitted only for a portion of a liability, the By-laws also require the
Company to indemnify such portion.
Section 7.03 of the By-laws provides that the financial ability of a person
to be indemnified to repay an advance of indemnifiable expenses is not a
prerequisite to the making of the advance.
Section 7.06 of the By-laws provides that any dispute concerning a person's
right to indemnification or advancement of expenses thereunder will be resolved
only by arbitration by three persons, each of whom is required to have been a
director or executive officer of a corporation whose shares, during at least one
year of such service, were listed on the New York Stock Exchange or the American
Stock Exchange or were quoted on the Nasdaq system. The Company also is
obligated to pay the expenses (including attorney's fees) incurred by any person
who is successful in the arbitration. The arbitration provisions effectively
waive the Company's right to have a court determine the unavailability of
indemnification in cases involving willful misconduct or recklessness.
Section 7.07 of the By-laws provides that in circumstances in which
indemnification is held to be unavailable, the Company must contribute to the
liabilities to which a director or officer may be subject in such proportion as
is appropriate to reflect the intent of the indemnification provisions of the
By-laws. Since the foregoing provisions purport to provide partial relief to
directors and officers in circumstances in which the law or public policy is
construed to prohibit indemnification, substantial uncertainties exist as to the
enforceability of the provisions in such circumstances.
Section 7.10 of the By-laws also contains provisions stating that the
indemnification rights thereunder are not exclusive of any other rights to which
the person may be entitled under any statute, agreement, vote of shareholders or
disinterested directors or other arrangement.
All future directors and officers of the Company automatically would be
entitled to the protections of the indemnification provisions of the By-laws at
the time they assume office.
Pennsylvania law permits a corporation to purchase and maintain insurance
on behalf of any director or officer of the corporation against any liability
asserted against the director or officer and incurred in such capacity, whether
or not the corporation would have the power to indemnify the director or officer
against such liability. The directors and officers of the Company are currently
covered as insureds under a directors' and officers' liability insurance policy.
16. Exhibits
<TABLE>
<S> <C>
Exhibit No. Description
----------- -----------
4.1 Statement of Designation of Class A, Series B Convertible Preferred Stock (incorporated by
reference to Exhibit 4.0 to the Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 1999)
4.2 Statement of Designation of Class A, Series F Convertible Preferred Stock (incorporated by
reference to Exhibit 4.0 to the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1999)
4.3* Certificate of Designations, Preferences and Rights of Class A, Series G Convertible
Preferred Stock
5.1* Opinion of Piper Marbury Rudnick & Wolfe LLP, regarding legality of securities being
registered
10.1 Series B Convertible Preferred Stock Purchase Agreement, dated March 30, 1999, by and
between theCompany and Seaside Partners, L.P. (incorporated by reference to Exhibit 4.0
to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1999)
10.2* Series F Convertible Preferred Stock Purchase Agreement, dated May 24, 1999, by and between
the Company, Oscar Tang, individually, and The Tang Fund
10.3* Series G Convertible Preferred Stock and Warrants Purchase Agreement, dated February 25,
2000, by and between the Company and the investors signatory thereto
10.4* Form of Warrant to purchase shares of common stock of the Company, issued to the investors
signatory to the Series G Convertible Preferred Stock and Warrants Purchase Agreement
10.5* Registration Rights Agreement, dated February 25, 2000, by and between the Company and the
investors signatory thereto
23.1* Consent of Ernst & Young LLP
23.2* Consent of BDO Seidman, LLP
23.3* Consent of Piper Marbury Rudnick & Wolfe LLP (included as part of Exhibit 5.1 hereto)
24.1* Power of Attorney (included in signature page)
</TABLE>
* Filed herewith
17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered hereby which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of its Charter or By-laws or the
Pennsylvania Business Corporation Law of 1988 or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Limerick, Montgomery County, Commonwealth of
Pennsylvania, on the 6th day of April, 2000.
SEDONA CORPORATION
By: /s/ Marco A. Emrich
-------------------------------------
Marco A. Emrich
President and Chief Executive Officer
Each person whose signature appears below constitutesand appoints Marco A.
Emrich and Michael A. Mulshine and each of them, as his lawful attorney-in-fact
and agent, each with full power of substitution and resubstitution for him and
in his name, place and stead in any and all capacities to execute in the name
of each such person who is then an officer or director of the registrant any and
all amendments (including post-effective amendments) to this registration
statement and to file the same therewith with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing required or necessary
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Name Title Date
- ---- ----- ----
/s/ Laurence L. Osterwise Chairman of the Board of April 6, 2000
- -------------------------
Laurence L. Osterwise Directors
/s/ Marco A. Emrich President, Chief Executive April 6, 2000
- ------------------------- Officer and Director (Principal
Marco A. Emrich Executive Officer)
/s/ William K. Williams Vice President and Chief April 6, 2000
- ------------------------- Financial Officer (Principal
William K. Williams Financial and Accounting Officer)
- ------------------------- Director April _, 2000
R. Barry Borden
/s/ Michael A. Mulshine Secretary and Director April 6, 2000
- ------------------------
Michael A. Mulshine
- ------------------------- Director April _, 2000
David S. Hirsch
- ------------------------- Director April _, 2000
James C. Sargent
/s/ Jack A. Pellicci Director April 6, 2000
- -------------------------
Jack A. Pellicci
- ------------------------- Director April _, 2000
Robert M. Shapiro
/s/ James T. Womble Director April 6, 2000
- -------------------------
James T. Womble
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<S> <C>
Exhibit No. Description
----------- -----------
4.1 Statement of Designation of Class A, Series B Convertible Preferred Stock (incorporated by
reference to Exhibit 4.0 to the Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 1999)
4.2 Statement of Designation of Class A, Series F Convertible Preferred Stock (incorporated by
reference to Exhibit 4.0 to the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1999)
4.3* Certificate of Designations, Preferences and Rights of Class A, Series G Convertible
Preferred Stock
5.1* Opinion of Piper Marbury Rudnick & Wolfe LLP, regarding legality of securities being
registered
10.1 Series B Convertible Preferred Stock Purchase Agreement, dated March 30, 1999, by and
between the Company and Seaside Partners, L.P. (incorporated by reference to Exhibit
4.0 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1999)
10.2* Series F Convertible Preferred Stock Purchase Agreement, dated May 24, 1999, by and between
the Company, Oscar Tang, individually, and The Tang Fund
10.3* Series G Convertible Preferred Stock and Warrants Purchase Agreement, dated February 25,
2000, by and between the Company and the investors signatory thereto
10.4* Form of Warrant to purchase shares of common stock of the Company, issued to the investors
signatory to the Series G Convertible Preferred Stock and Warrants Purchase Agreement
10.5* Registration Rights Agreement, dated February 25, 2000, by and between the Company and the
investors signatory thereto
23.1* Consent of Ernst & Young LLP
23.2* Consent of BDO Seidman, LLP
23.3* Consent of Piper Marbury Rudnick & Wolfe LLP (included as part of Exhibit 5.1 hereto)
24.1* Power of Attorney (included in signature page)
</TABLE>
* Filed herewith
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
CLASS A, SERIES G CONVERTIBLE PREFERRED STOCK OF
SEDONA CORPORATION
PURSUANT TO SECTION 1522 OF THE PENNSYLVANIA
BUSINESS CORPORATION LAW
The undersigned, being the President and Chief Executive
Officer of Sedona Corporation, a corporation organized and existing under and by
virtue of the laws of the Commonwealth of Pennsylvania (hereinafter the
"Corporation"), DO HEREBY CERTIFY:
FIRST: That pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of the Corporation's
Articles of Incorporation, said Board of Directors adopted the following
resolution on February 17, 2000 determining the designations, preferences and
rights of its Class A, Series G Convertible Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Articles of Incorporation (the
"Articles of Incorporation"), a series of Preferred Stock of the Corporation be,
and it hereby is, created out of the authorized but unissued shares of the
capital stock of the Corporation, such series to be designated Series G
Convertible Preferred Stock (the "Series G Convertible Preferred Stock"), to
consist of 3,000 shares, par value $2.00 per share, of which the preferences and
relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be as set forth in the Certificate of Designations annexed
hereto:
1. Number of Shares of Series G Convertible Preferred Stock. Of the
360,500 shares of authorized but undesignated Class A Preferred Stock
("Preferred Stock") of the Corporation, three thousand (3,000) shares shall be
designated and known as Series G Convertible Preferred Stock, par value $2.00
per share ("Series G Convertible Preferred Stock").
2. Voting.
(a) Unless required by law, no holder of any shares of Series
G Convertible Preferred Stock shall be entitled to vote at any meeting of
stockholders of the Corporation (or any written actions of stockholders in lieu
of meetings) with respect to any matters presented to the stockholders of the
Corporation for their action or consideration. Notwithstanding the foregoing,
the Corporation shall provide each holder of record of Series G Convertible
Preferred Stock with timely notice of every meeting of stockholders of the
Corporation and shall provide each holder with copies of all proxy materials
distributed in connection therewith.
(b) So long as any shares of Series G Convertible Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by the Pennsylvania Business
Corporation Law) of the holders of at least 85% in interest of the then
outstanding shares of Series G Convertible Preferred Stock:
(i) alter or hange the rights, preferences or
privileges of the Series G Convertible Preferred Stock;
(ii) create any new class or series of capital stock
having parity with or a preference over the Series G Convertible Preferred
Stock as to payment of dividends or distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter
or change the rights, preferences or privileges of any Senior Securities so as
to affect adversely the Series G Convertible Preferred Stock;
(iii) increase the authorized number of shares of
Series G Convertible Preferred Stock; or (iv) do any act or thing not authorized
or contemplated by this Certificate of Designations which would result in
taxation of the holders of shares of the Series G Convertible Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to time
amended).
In the event holders of at least 85% in interest of the then
outstanding shares of Series G Convertible Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or privileges of the
shares of Series G Convertible Preferred Stock, pursuant to subsection (b)
above, so as to affect the Series G Convertible Preferred Stock, then the
Corporation will deliver notice of such approved change to the holders of the
Series G Convertible Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days from the date of notice thereof to convert any
and all shares of then held Series G Convertible Preferred Stock pursuant to the
terms of this Certificate of Designation as in effect prior to such alteration
or change, or else to continue to hold their shares of Series G Convertible
Preferred Stock pursuant to the altered or changed terms.
3. Dividends.
The holders of shares of Series G Convertible Preferred Stock
shall be entitled to receive, before any cash dividend shall be declared and
paid upon or set aside for the Common Stock or any other securities which are
not Senior Securities, in any fiscal year of the Corporation, out of funds
legally available for that purpose, cumulative dividends payable in cash in an
amount per share for such fiscal year equal to $30.00 (3%). Such dividends shall
accrue daily and be payable semi-annually on June 30 and December 31 of each
year, commencing June 30, 2000. In the event that the Corporation's Common Stock
shall cease for any reason to be listed on The Nasdaq SmallCap Market or any
national securities exchange, the cash dividend from such date forward shall be
at the rate of $60 (6%) per share.
4. Liquidation. (a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any such law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidating Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation other than Senior Securities (as defined
above) upon such Liquidating Event unless prior thereto, the holders of shares
of Series G Convertible Preferred Stock shall have received the Liquidation
Preference (as defined in Section 4(c)) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series G Convertible Preferred Stock and
holders of securities ranking pari passu as to preference upon liquidation with
the Series G Convertible Preferred Stock shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution to
the Series G Convertible Preferred Stock and such pari passu securities shall be
distributed ratably among such shares in proportion to the ratio that that
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
(b) At the option of each holder, the sale, conveyance or
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other person or persons when the Corporation is not
the survivor shall be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to such transaction an
amount equal to the Liquidation Preference with respect to each outstanding
share of Series G Convertible Preferred Stock held by such holder in accordance
with and subject to the terms of this Section 4.
(c) The Liquidation Preference shall be the "Stated Value" of
$1,000 per share of Series G Convertible Preferred Stock, plus all accrued but
unpaid dividends.
5. Optional Conversion. The holders of shares of Series G
Convertible Preferred Stock shall have the following conversion rights:
(a) Right to Convert; Conversion Price. Subject to the terms,
conditions, and restrictions of this Section 5, the holder of any shares of
Series G Convertible Preferred Stock shall have the right to convert each such
share of Series G Convertible Preferred Stock (except that upon any Liquidating
Event, the right of conversion shall terminate at the close of business on the
business day fixed for payment of the amount distributable on the Series G
Convertible Preferred Stock) into that number of shares of Common Stock equal to
the Stated Value of such share or shares of Series G Convertible Preferred
Stock, plus any accrued but unpaid dividends thereon, divided by the lesser of
(i) 130% of the closing bid price on the Principal Market on the Original
Issuance Date, and (ii) 95% of the Market Price (the "Conversion Price"),
provided, that prior to the 121st day after the Original Issuance Date, the
Conversion Price shall not be less than $3.50 per share (adjusted for any
subsequent stock splits, dividends payable in shares of Common Stock or reverse
stock splits). Unless the Corporation shall have obtained the approval of
its voting stockholders to such issuance in accordance with the applicable
rules of the Principal Market, if any, the Corporation shall not issue shares of
Common Stock upon conversion of any shares of Series G Convertible Preferred
Stock if such issuance of Common Stock, when added to the number of shares of
Common Stock previously issued by the Corporation upon conversion of shares
of the Series G Convertible Preferred Stock, or issued upon exercise of the
Stock Purchase Warrants issued in conjunction with the issuance of shares of
Series G Convertible Preferred Stock, would exceed 19.9% of the number of shares
of the Corporation's Common Stock which were issued and outstanding on the
Original Issuance Date. The right to convert shares of Series G Convertible
Preferred Stock shall be pro rated among the original purchasers of such shares
and their respective subsequent transferees, if any, in order to comply with
the aforesaid overall limitation. In the event that the Corporation has not
obtained stockholder approval of such issuance prior to receipt of a Conversion
Notice which would otherwise violate this provision, he Corporation shall honor
such conversion request (resulting in an issuance in excess of 19.9%) in cash in
an amount equal to the Redemption Price set forth in Section 7, plus accrued
interest.
(b) Conversion Date. (i) The holder of any shares of Series G
Convertible Preferred Stock may convert the shares of Series G Convertible
Preferred Stock purchased by such holder from the Company at any time on or
after the date on which payment for the sale of the first share of Series G
Convertible Preferred Stock is received by the Corporation, unless otherwise
agreed to in writing by the Corporation and the affected holder (the "Original
Issuance Date"); provided however, that the holder of any shares of Series G
Convertible Preferred Stock may only convert up to fifty percent (50%) of the
Series G Convertible Preferred Stock during any thirty (30) day period and may
not sell any of such shares of Common Stock until at least one hundred twenty
(120) days after the Original Issuance Date.
(ii) In no event shall a holder be permitted to convert any
shares of Series G Convertible Preferred Stock in excess of the number of such
shares upon the conversion of which, (x) the number of shares of Common Stock
beneficially owned by such holder (other than shares of Common Stock issuable
upon conversion of shares of Series G Convertible Preferred Stock) plus (y) the
number of shares of Common Stock issuable upon such conversion of those shares
of Series G Convertible Preferred Stock sought to be converted, would be equal
to or exceed 4.9% of the number of shares of Common Stock then issued and
outstanding, including those shares issuable upon conversion of the Series G
Convertible Preferred Stock held by such holder after application of this
Section 5(b)(ii). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 5(b)(ii) applies, the determination of
whether shares of Series G Convertible Preferred Stock are convertible (in
relation to other securities owned by holder) and of which shares of Series G
Convertible Preferred Stock are convertible shall be in the sole discretion of
such holder, and the submission of shares of Series G Convertible Preferred
Stock for conversion shall be deemed to be such holder's determination of
whether such shares of Series G Convertible Preferred Stock are convertible (in
relation to other securities owned by such holder) and of which shares of Series
G Convertible Preferred Stock are convertible, in each case subject to such
aggregate percentage limitation, and the Corporation shall have no obligation or
right to verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of a holder to convert such shares
of Series G Convertible Preferred Stock at such time as such conversion will not
violate the provisions of this paragraph. The provisions of this Section
5(b)(ii) may be waived by a holder of Series G Convertible Preferred Stock as to
itself (and solely as to itself) upon not less than 75 days' prior notice to the
Corporation, and the provisions of this Section 5(b)(ii) shall continue to apply
until such 75th day (or such later date as may be specified in such notice of
waiver). No conversion in violation of this paragraph but otherwise in
accordance with this Certificate of Designation shall affect the status of the
Common Stock issued upon such conversion as validly issued, fully-paid and
nonassessable.
(c) Notice of Conversion. The right of conversion shall be
exercised by the holder thereof by giving written notice (the "Conversion
Notice") to the Corporation, by facsimile or by registered mail or overnight
delivery service, with a copy by facsimile to the Corporation's then transfer
agent for its Common Stock, as designated by the Corporation from time to time,
that the holder elects to convert a specified number of shares of Series G
Convertible Preferred Stock representing a specified Stated Value thereof into
Common Stock and, if such conversion will result in the conversion of all of
such holder's shares of Series G Convertible Preferred Stock, by surrender
of a certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holders of the Series G Convertible Preferred Stock) at any time during its
usual business hours on the date set forth in the Conversion Notice, together
with a statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued. The Conversion Notice
shall include therein the Stated Value of shares of Series G Convertible
Preferred Stock to be converted, and a calculation (i) of the Market Price,
(ii) the Conversion Price, and (iii) the number of shares of Common Stock to be
issued in connection with such conversion. Such calculations by the holder
shall be conclusive except for manifest error.
(d) Issuance of Certificates; Time Conversion Effected.
(i) Promptly, but in no event more than three (3) Trading Days, after the
receipt of the Conversion Notice referred to in Section 5(c) and surrender
of the certificate or certificates for the share or shares of Series G
Convertible Preferred Stock to be converted (if required), the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock into which such
shares of Series G Convertible Preferred Stock have been converted. Such
conversion shall be deemed to have been effected on the date on which such
Conversion Notice shall have been received by the Corporation and at the
time specified stated in such Conversion Notice, which must be during the
calendar day of such notice, and at such time the rights of the holder of such
share or shares of Series G Convertible Preferred Stock shall cease, and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
Issuance of shares of Common Stock issuable upon conversion which are requested
to be registered in a name other than that of the registered holder shall be
subject to compliance with all applicable federal and state securities laws.
(ii) The Corporation understands that a delay in the
issuance of the shares of Common Stock beyond three (3) Trading Days could
result in economic loss to the holder. As compensation to the holder for such
loss, the Corporation agrees to pay late payments to the holder for late
issuance of shares of Common Stock upon conversion in accordance with the
following schedule (where "No. Trading Days Late" is defined as the number of
Trading Days beyond three (3) Trading Days from the date of receipt by the
Corporation of the Conversion Notice):
<TABLE>
<S> <C>
No. Trading Days Late Late Payment For Each
$10,000 of Stated Value
Amount Being Converted
- ------------------------------------------------------ ----------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Trading Day
Late beyond 10 days
</TABLE>
The Corporation shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit holder's
right to pursue injunctive relief and/or actual damages for the Corporation's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the holder, in the event that the Corporation
fails for any reason to effect delivery of such shares of Common Stock within
five (5) Trading Days of the date of receipt of the Conversion Notice, the
holder will be entitled to revoke the relevant Conversion Notice by delivering a
notice to such effect to the Corporation whereupon the Corporation and the
holder shall each be restored to their respective positions immediately prior to
delivery of such Conversion Notice except that holder shall retain the right to
receive both the late payment amounts set forth above plus the actual cost of
any "buy-in."
(iii) If, at any time (a) the Corporation challenges,
disputes or denies the right of the holder to effect the conversion of the
Series G Convertible Preferred Stock into Common Stock or otherwise dishonors
or rejects any Conversion Notice properly delivered in accordance with this
Section 5 or (b) any third party who is not and has never been an Affiliate
(as defined in Rule 405 under the Securities Act of 1933, as amended) of the
holder obtains a judgment or order from any court or public or governmental
authority which denies, enjoins, limits, modifies, or delays the right of the
holder hereof to effect the conversion of the Series G Convertible Preferred
Stock into Common Shares, then the holder shall have the right, by written
notice to the Corporation, to require the Corporation to promptly redeem
the Series G Convertible Preferred Stock for cash at a redemption price equal to
one hundred twenty percent (120%) of the Stated Value thereof (the "Mandatory
Purchase Amount"). Under any of the circumstances set forth above, the
Corporation shall indemnify a nd hold harmless the holder and be responsible for
the payment of all costs and expenses of the holder, including its reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the
holder). The Corporation shall not refuse to honor any Conversion Notice
unless its has actually been enjoined by a court of competent jurisdiction from
doing so, and if so enjoined, the Corporation shall post with such court a
performance bond equal to 150% of the Stated Value of the shares sought to be
converted by the holder which are the subject of such injunction.
(iv) To the extent permitted by applicable law, the holder
shall be entitled to exercise its conversion privilege notwithstanding the
commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy
Code"). In the event the Corporation is a debtor under the Bankruptcy Code, the
Corporation hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the holder's conversion
privilege. The Corporation agrees, without cost or expense the holder, to take
or consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss. 362.
(e) Fractional Shares. No fractional shares shall be issued upon
conversion of Series G Convertible Preferred Stock into Common Stock. All
fractional shares shall be rounded up to the nearest whole share.
(f) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for Common
Stock, or, in the case of any consolidation, merger or mandatory share exchange
of the Corporation with any other company in which such other company is the
surviving entity then, as a condition of such reorganization, reclassification
or exchange, lawful and adequate provisions shall be made whereby each holder
of a share or shares of Series G Convertible Preferred Stock shall thereupon
have the right to receive, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore receivable upon the conversion of such share or shares of Series
G Convertible Preferred Stock, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such reorganization,
reclassification or exchange not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of such
holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the conversion rights and the fixing of the
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights. For clarity, it is the intention of
the Corporation that the conversion rights of the holders of the Series G
Convertible Preferred Stock shall survive any consolidation, merger or mandatory
share exchange and that the conversion rights granted hereunder shall be
exercisable against any such successor corporation, and shall not be terminated
or fixed as to amount upon the consummation of any such transaction.
(g) Adjustments for Splits, Combinations, etc. The Conversion
Price and the number of shares of Common Stock into which the Series G
Convertible Preferred Stock shall be convertible shall be adjusted for stock
splits, stock dividends, combinations or other similar events. No adjustment to
the Conversion Price will be made for dividends (other than stock dividends), if
any, paid on the Common Stock or for securities issued pursuant to exercise for
fair value of options or warrants.
6. Mandatory Conversion.
(a) Mandatory Conversion Date. If on or after January 31, 2002
(such date as selected by the Corporation being the "Mandatory Conversion
Date"), there remain issued and outstanding any shares of Series G Convertible
Preferred Stock, then the Corporation shall be entitled to require all (but not
less than all) holders of shares of Series G Convertible Preferred Stock then
outstanding to convert their shares of Series G Convertible Preferred Stock
into shares of Common Stock, at the then effective Conversion Price pursuant to
Section 5(a) or into cash equal to the number of shares issuable upon conversion
multiplied by the closing bid price of the Common Stock on the Principal Market
on the Mandatory Conversion Date. The Corporation shall provide written notice
(the "Mandatory Conversion Notice") to the holders of shares of Series G
Convertible Preferred Stock of such mandatory conversion or such mandatory buy-
out. The Mandatory Conversion Notice shall include (i) the Stated Value of the
shares of Series G Convertible Preferred Stock to be converted or bought out,
(ii) the Conversion Price at the Mandatory Conversion Date (which may refer to
a formula for determining such price), and (iii) the number of shares of the
Corporation's Common Stock to be issued (or the amount of cash to be paid in the
event of a buy-out) upon such mandatory conversion or such mandatory buy-out at
the then applicable Conversion Price. Notwithstanding the foregoing, in no
event shall the Corporation convert that portion of the Series G Convertible
Preferred Stock to the extent that (i) the holder will not be able to freely
resell the shares of Common Stock to be received upon such Mandatory Conversion,
either pursuant to an effective registration statement or Rule 144(k) or
(ii) the issuance of Common Stock upon the conversion of such Series G
Convertible Preferred Stock, when combined with shares of Common Stock received
upon other conversions of Series G Convertible Preferred Stock by such holder
and any other holders of Series G Convertible Preferred Stock or upon exercise
of the Stock Purchase Warrants referred to in Section 5(a), would exceed 19.9%
of the Common Stock outstanding on the Original Issuance Date (unless
stockholder approval has been obtained as described in Section 5(a), if
necessary), or (iii) as to any individual holder, make such holder the
beneficial owner of 4.9% or more of the Company's then-outstanding Common Stock.
(b) Surrender of Certificates. On or before the Mandatory
Conversion Date, each holder of shares of Series G Convertible Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such Mandatory Conversion Notice (or
an affidavit of lost certificate in form and content reasonably satisfactory to
the Corporation but which shall not require the posting of any bond), and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled within three (3) Trading Days. On the Mandatory
Conversion Date, all rights with respect to the Series G Convertible Preferred
Stock so converted, including the rights, if any, to receive notices and vote,
will terminate. All certificates evidencing shares of Series G Convertible
Preferred Stock that are required to be surrendered for conversion in accordance
with the provisions whereof, from and after the Mandatory Conversion Date, shall
be deemed to have been retired and cancelled, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action as may be
necessary to reduce the authorized Series G Convertible Preferred Stock
accordingly.
7. Redemption of Series G Convertible Preferred Stock.
(a) Right to Redeem Series G Convertible Preferred Stock. Upon a
thirty (30) day written notice any time after the Original Issuance Date, or
the closing of a consolidation, merger or mandatory share exchange in which the
Corporation is not the surviving entity and in which the only consideration to
be received by the holders of the Corporation's Common Stock is cash, the
Corporation may, in its sole discretion, but shall not be obligated to, redeem,
in whole but not in part, the then issued and outstanding shares of Series G
Convertible Preferred Stock, at a price equal to (i) during the ninety (90) day
period following the Original Issuance Date, one hundred ten percent (110%) of
the Stated Value, (ii) on and after the 91st day and on and before the 120th
day, one hundred fifteen percent (115%) of the Stated Value, (iii) on and after
the 121st day and on and before the 150th day, one hundred twenty percent (120%)
of the Stated Value, (iv) on and after the 151st day and on and before the
180th day, one hundred twenty three percent (123%) of the Stated Value, and
(v) on and after the 181st day, one hundred and twenty eight percent (128%) of
the Stated Value, plus all accrued but unpaid dividends, provided that a
registration statement permitting resale of any shares of Common Stock issuable
upon conversion by the holder is then effective. Each holder shall have until
the close of business on the Redemption Date to elect instead to convert such
shares pursuant to Section 5 hereof, notwithstanding that the shares of Series
G Convertible Preferred Stock are not otherwise convertible at such time. Any
such conversions made pursuant to this Section 7 shall be made at the Conversion
Price established pursuant to Section 5(a).
(b) Notice of Redemption. The Corporation shall provide each
holder of record of the Series G Convertible Preferred Stock being redeemed with
written notice of redemption (the "Redemption Notice") not less than 30 days
prior to any date stipulated by the Corporation for the redemption of the
Series G Convertible Preferred Stock (the "Redemption Date"). The Redemption
Notice shall contain (i) the Redemption Date, (ii) the number of shares of
Series G Convertible Preferred Stock to be redeemed from the holder to whom the
Redemption Notice is delivered, and (iii) instructions for surrender to the
Corporation of the certificate or certificates representing the shares of Series
G Convertible Preferred Stock to be redeemed.
(c) Surrender of Certificates; Payment of Redemption Price. On or
before the Redemption Date, each holder of the shares of Series G Convertible
Preferred Stock to be redeemed shall surrender the required certificate or
certificates representing such shares to the Corporation (or an affidavit of
lost certificate in form and content reasonably satisfactory to the Corporation,
but which shall not require the posting of any bond), in the manner and at the
place designated in the Redemption Notice, and upon payment to the holder of the
Redemption Price, each such surrendered certificate shall be cancelled and
retired. If payment of such redemption price is not made in full by the
Redemption Date the Holder shall again have the right to convert the Series G
Convertible Preferred Stock as provided in Section 5 hereof, and the Company
shall thereafter be precluded from exercising its rights under this Section 7.
If a certificate is surrendered and all the shares evidenced thereby are not
being redeemed with the consent of the holder, the Corporation shall issue new
certificates to be registered in the names of the person(s) whose name(s)
appear(s) as the owners on the respective surrendered certificates and deliver
such certificate to such person(s).
8. Notices. In case at any time:
(a) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other pro rata distribution to the
holders of its Common Stock; or
(b) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights; or
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile or by recognized overnight delivery
service to non-U.S. residents, addressed to each holder of any shares of Series
G Convertible Preferred Stock at the address of such holder as shown on the
books of the Corporation, (i) at least twenty (20) Trading Days' prior written
notice of the date on which the books of the Corporation shall close or a
record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) Trading Days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (i) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto
and (ii) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
9. Stock to be Reserved. The Corporation, upon the effective date
of this Certificate of Designations, has a sufficient number of shares of
Common Stock available to reserve for issuance upon the conversion of all
outstanding shares of Series G Convertible Preferred Stock, assuming immediate
conversion. The Corporation will at all times reserve and keep available out
of its authorized Common Stock, solely for the purpose of issuance upon the
conversion of Series G Convertible Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Series G Convertible Preferred. The Corporation
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued, fully paid and non-assessable. The Corporation will take
all such action as may be so taken without violation of any applicable law
or regulation to have a sufficient number of authorized but unissued shares
of Common Stock to issue upon conversion of the Series G Convertible Preferred
Stock. The Corporation will not take any action which results in any adjustment
of the conversion rights if the total number of shares of Common Stock issued
and issuable after such action upon conversion of the Series G Convertible
Preferred Stock would exceed the total number of shares of Common Stock then
authorized by the Corporation's Articles of Incorporation.
10. No Reissuance of Series G Convertible Preferred Stock. Shares
of Series G Convertible Preferred Stock which are converted into shares of
Common Stock as provided herein shall not be reissued.
11. Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Series G Convertible Preferred Stock shall be made
without charge to the holder for any United States issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series G Convertible Preferred Stock which is being converted.
12. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series G Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any shares of Series G Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series G Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
13. Definitions. As used in this Certificate of Designations, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, $0.001 par value, as constituted on the date of filing of this
Certificate of Designations, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited to
a fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of
Common Stock receivable upon conversion of shares of Series G Convertible
Preferred Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization, reclassification, or stock split of the outstanding shares
thereof, the stock, securities or assets provided for in Subparagraph 5(f)
and (g). Any capitalized terms used in this Certificate of Designations but
not defined herein shall have the meanings set forth in that certain
Convertible Preferred Stock and Warrants Purchase Agreement dated as of February
25, 2000 among the Corporation and the other persons signatory thereto, a copy
of which will be provided to any stockholder of the Corporation upon request to
the Secretary of the Corporation, without charge.
14. Loss, Theft, Destruction of Preferred Stock. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of certificates representing shares of Series G Convertible Preferred
Stock and, in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (which shall not include
the posting of any bond), or, in the case of any such mutilation, upon surrender
and cancellation of the Series G Convertible Preferred Stock certificate, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated certificates for Series G Convertible Preferred Stock,
new certificates for Series G Convertible Preferred Stock of like tenor. The
Series G Convertible Preferred Stock shall be held and owned upon the express
condition that the provisions of this Section 14 are exclusive with respect to
the replacement of mutilated, destroyed, lost or stolen shares of Series G
Preferred Stock and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement of negotiable instruments or other securities
without the surrender thereof.
15. Who Deemed Absolute Owner. The Corporation may deem the person
in whose name the Series G Convertible Preferred Stock shall be registered upon
the registry books of the Corporation to be, and may treat it as, the absolute
owner of the Series G Convertible Preferred Stock for the purpose of
conversion of the Series G Convertible Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and effectual to
satisfy and discharge the liability upon the Series G Convertible Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
16. Register. The Corporation shall maintain a transfer agent, which
may be the
transfer agent for the Common Stock or the Corporation itself, for the
registration of the Series G Convertible Preferred Stock. Upon any transfer of
the Series G Convertible Preferred Stock in accordance with the provisions
hereof, the Corporation shall register or cause the transfer agent to register
such transfer on the Series G Convertible Preferred Stock register.
17. Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
G Convertible Preferred Stock.
18. Headings. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
<PAGE>
IN WITNESS WHEREOF, Marco A. Emrich, President and Chief Executive
Officer of the Corporation, under penalties of perjury, does hereby declare and
certify that this is the act and deed of the Corporation and the facts stated
herein are true and accordingly has signed this Certificate of Designations as
of this _____ day of February, 2000.
SEDONA CORPORATION
By:__________________________________
Marco A. Emrich, President and CEO
[PIPER MARBURY RUDNICK & WOLFE LLP LETTERHEAD]
[Form of Opinion]
[Date]
Sedona Corporation
649 North Lewis Road
Limerick, PA 19468
Gentlemen:
We are acting as counsel to Sedona Corporation, a Pennsylvania
corporation (the "Company"), in connection with the registration of 3,320,603
shares of the Company's Common Stock, par value $0.001 per share (the "Shares"),
pursuant to a Registration Statement on Form S-3 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended. Such Shares will be sold from time to time by the shareholders
named in the Registration Statement (the "Selling Shareholders").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
In examining the foregoing documents, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies, and the authenticity of the originals of
such latter documents. As to various questions of fact material to such opinion,
we have relied, to the extent we deemed appropriate, upon representations,
statements and certificates of officers and representatives of the Company and
others.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and
1) with respect to the outstanding Shares, are validly issued, fully
paid and nonassessable; and
2) with respect to those Shares underlying the convertible preferred
stock and warrants described in the Registration Statement, will be validly
issued, fully paid and nonassessable upon the proper conversion or exercise of
the convertible preferred stock and warrants in accordance with the respective
terms thereof.
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement and
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
PIPER MARBURY RUDNICK & WOLFE LLP
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement ("Agreement") is made as of
this 24th day of May, 1999 by and between Sedona Corporation, a Pennsylvania
corporation (the "Company") and The Tang Fund, with an address at 600 Fifth
Avenue, 8th Floor New York, New York 10020 (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1_ Purchase and Sale of Convertible Preferred Stock.
1_1 Investment by the Investor. Subject to the terms
and conditions of this Agreement, at the Closing (as hereinafter
defined), the Company will issue and sell to the Investor, and the
Investor will purchase, up to an aggregate of 500 shares (the
"Securities") of the Class A, Series F Convertible Preferred Stock, par
value $2.00 per share, of the Company (the "Series F Stock") having the
terms set forth in the Articles of Amendment of the Company, the form
of such Articles of Amendment attached hereto as Exhibit A (the
"Articles of Amendment"), at a purchase price per share of $1,000, for
an aggregate purchase price of $500,000 (the "Investment Amount"). For
purposes of this Agreement, the "Closing Price" shall be $1.41.
1_2 Closing. The purchase and sale of the Securities
(the "Closing") shall take place at the offices of Company on May 24,
1999 (the "Closing Date").
1_3 Use of Proceeds. The Company will use the
proceeds from the sale of the Series F Stock for working capital
purposes.
2_ Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Investor,
except as set forth on the disclosure schedules attached hereto, which
exceptions shall be deemed to be representations and warranties as if
made hereunder, as follows:
2_1 Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. The
Company has all requisite power and authority to carry on its business
as now conducted and as proposed to be conducted. The Company has all
requisite power and authority to enter into and perform this Agreement
and the transactions contemplated hereby and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the failure so to qualify could have a material adverse effect on its
business, properties, operations, earnings, assets, liabilities,
condition (financial or otherwise) or prospects (collectively,
"Condition").
<PAGE>
2_2 Capitalization.
_a_ After giving effect to the
transactions contemplated by the Agreement, and immediately after
the Closing, the capital stock of the Company, as authorized by the
Articles of Incorporation and the Articles of Amendment, will consist
of: (i) 50,000,000 shares of Common Stock, (A) 21,545,346 shares of
which are issued and outstanding, (B) 3,000,000 shares of which are
reserved for issuance to key employees, non-employee directors and
consultants of the Company under the Company's 1992 Long-Term
Incentive Plan, as amended, (C) 500,000 shares of which are reserved
for conversion of the outstanding Class A Preferred Stock, Series
A, par value $2.00 per share (the "Series A Preferred Stock"),
(D) 1,648,915 shares of which remain reserved for conversion of the
outstanding Series E Preferred Stock ("Series E Preferred Stock"),
(E) 2,754,322 shares of which are reserved for exercise of warrants
issued in connection with the Series E Preferred Stock, (F)
approximately 939,130 shares of which are reserved for
conversion of the Class A, Series B Stock (the "Series B Preferred
Stock"), (G) 3,000,016 shares of which are reserved for the exercise of
outstanding warrants issued in connection with the Class A Preferred
Stock, Series D (the "Series D Preferred Stock"), (H) 3,923,043 shares
of which are reserved for the exercise of other outstanding warrants,
including warrants issued in connection with the Class A Preferred
Stock, Series C (the "Series C Preferred Stock"), and (I) 1,000,000
shares of which are reserved for conversion of the Class F Stock; (ii)
2,000,000 shares of Class B Preferred Stock, none of which are issued
and outstanding or available for reissuance; and (iii) 1,000,000 shares
of Class A Preferred Stock, (A) 500,000 shares of which have been
designated Series A Preferred Stock, all of which are issued and
outstanding, (B) 5,000 shares of which have been designated Series B
Preferred Stock, 1,000 shares of which are issued and outstanding, (C)
5,200 shares of which have been designated Series E Preferred Stock,
2,313 shares of which are issued and outstanding, (D) 125,000 shares of
which have been designated as Series C Preferred Stock, none of which
are issued and outstanding or available for reissuance, (E) 3,300
shares of which have been designated as Series D Preferred Stock, none
of which are issued and outstanding or available for reissuance, and
(F) 1,000 shares of which have been designated as Series F Stock, 1,000
of which are issued and outstanding. The rights, privileges and
preferences of the Class B Preferred Stock, the Class A Preferred Stock
(including, without limitation, the Series F Stock) and the Common
Stock are as stated in the Articles of Incorporation and the Articles
of Amendment.
<PAGE>
_b_ Except for Common Stock reserved
for issuance as described in subsection (a) above, as of the Closing,
the Company will not (i) have outstanding any capital stock or other
securities convertible into or exchangeable for any shares of its
capital stock and, except as otherwise contained in the Articles of
Incorporation, the Articles of Amendment or pursuant to the terms of
any of the Purchase Documents, as defined in section 2.3 below, no
person will have any righ to subscribe for or to purchase
(including conversion or preemptive rights), or any options for the
purchase of, or any agreements providing for the issuance (contingent
or otherwise) of, any calls, commitments or other claims of any
character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of the Company;
(ii) have any capital stock, equity interests or other securities
reserved for issuance for any purpose; or (iii) be subject to any
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any convertible
securities, rights or options of the type described in the preceding
clause (i). All of the issued and outstanding shares of Common
Stock, Class B Preferred Stock and Class A Preferred Stock (including,
without limitation, the Series B Stock) have been duly and validly
issued and are fully paid and nonassessable and all of the shares of
Conversion Stock and the Warrant Shares, when issued as contemplated
hereby, will be validly issued, fully paid and nonassessable. To the
best knowledge of the Company, there are no agreements among the
Company's stockholders with respect to the voting or transfer of the
Company's capital stock, other than the agreements regarding transfer
contained herein. Schedule I attached hereto includes a complete
and correct list of the name of each of the Company's current and
former officers, directors, employees or Persons that beneficially own
in excess of 5.0% of the outstanding equity interest of the Company
(each, a "Principal Owner") and the number of shares of Common Stock
owned by each such Principal Owner as of the Closing Date.
<PAGE>
2_3 Authority; Execution and Delivery; Requisite
Consents; Nonviolation. The Company has, and as of the Closing will
have, all requisite power and authority to execute, deliver and perform
this Agreement and each other document or instrument executed by it, or
any of its officers, in connection herewith or therewith or pursuant
hereto or thereto (this Agreement, together with all of the foregoing
documents and instruments, are sometimes collectively referred to
herein as the "Purchase Documents"), and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the other Purchase Documents and the
consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on the part of
the Company. This Agreement and each of the other Purchase Documents
that has been executed as of the date hereof are, and each of the
Purchase Documents will be as of the Closing, duly executed and
delivered by the Company and the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights in general or by general principles
of equity. The execution, delivery and performance of this Agreement
and the other Purchase Documents, the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the offer, sale and delivery by the Company of the
Securities) will not: (a) except for the filing of the Articles of
Amendment, require the consent, license, permit, waiver, approval,
authorization or other action of, by or with respect to, or
registration, declaration or filing with, any court or governmental
authority, department, commission, board, bureau, agency or
instrumentality, domestic or foreign ("Governmental Authority") or any
other individual, partnership, corporation, unincorporated organization
or association, limited liability company, trust or other entity
(collectively, a "Person"); (b) violate or conflict with any provision
of the Articles of Incorporation, the Articles of Amendment or the
By-laws of the Company, a complete and correct copy of which has been
provided to counsel to the Investor; or (c) constitute a default (with
or without notice or lapse of time or both) under, violate or conflict
with, or give rise to a right of termination, cancellation or
acceleration or to a loss of a material benefit under any Law (as
defined in Section 2.6 below), Permit (as defined in Section 2.6
below), Order (as defined in Section 2.5 below), or contract,
agreement, arrangement or understanding, written or oral, to which the
Company is or hereafter may be a party or by which the Company or its
properties are or hereafter may be bound.
2_4 Subsidiaries. Except as set forth on Schedule
2.4, the Company has no subsidiaries and does not, and prior to the
Closing will not, own or control, directly or indirectly, any
partnership interests, stock or other equity interests in any
partnership, corporation or other entity or any voting rights or right
to control the policies and direction of any partnership, corporation
or other entity.
2_5 Litigation. There is no action, suit, proceeding,
investigation or governmental approval process (collectively,
"Actions") pending or, to the best knowledge of the Company, threatened
against it, or affecting any of its properties or assets (including,
without limitation, any of its Permits) which individually or in the
aggregate could have a material adverse effect on its Condition, nor is
there any basis for any such Action. To the best knowledge of the
Company, there is no Action against any of its directors, officers or
employees in connection with its business which, in the event of an
adverse judgment against any such Person, could have a material adverse
effect on the Condition of the Company, nor is there any basis for any
such Action. The foregoing includes, without limitation, any Action
pending or, to the Company's best knowledge, threatened (or any basis
therefor known to the Company) involving the prior employment of any
employees of the Company, their use in connection with the business of
the Company of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any
agreements with prior employers. Neither the Company nor any of its
assets or properties, nor, in connection with its business, any of its
directors, officers or employees, is subject to any order, judgment,
writ, injunction, decree, ruling or decision (collectively, an "Order")
of any Governmental Authority which is material to the Condition of the
Company. There is no Action by the Company currently pending or which
the Company intends to initiate which is material to its Condition.
<PAGE>
2_6 Compliance with Laws; Permits. Assuming the
accuracy of the representations made by the Investor pursuant to
Section 3 hereof, the offer and sale of the Securities to the Investor
will be in compliance with all applicable federal and state securities
laws. The Company has not violated or failed to comply with, in any
material respect, any statute, law, ordinance, rule, regulation or
policy of any Governmental Authority (collectively, "Laws") to which it
or any of its properties or assets is subject. The Company has all
permits, licenses, orders, certificates, authorizations and approvals
of any Governmental Authority (collectively, the "Permits") that are
material to the conduct of its business as presently conducted and as
proposed to be conducted; all such Permits are, and as of the Closing
will be, in full force and effect; no violations or notices of failure
to comply have been issued or recorded in respect of any such Permits;
and the Company has no knowledge of any reason why such Permits may be
revoked or suspended. All applications, reports, notices and other
documents required to be filed by the Company with all Governmental
Authorities have been timely filed and are complete and correct in all
material respects as filed or as amended prior to the date hereof. With
respect to any required Permits, applications for which are either
pending or contemplated to be made pursuant to the business strategy of
the Company, the Company knows of no reason why such Permits should not
be approved and granted by the appropriate Governmental Authority.
Neither the Company nor any of its officers, employees or agents has
made any illegal or improper payments to, or provided any illegal or
improper inducement for, any governmental official or other Person in
an attempt to influence any such Person to take or to refrain from
taking any action relating to the Company.
2_7 Absence of Certain Changes or Events. Since
December 31, 1998, there has been no change in the Condition of the
Company, except for changes in the ordinary course of business
consistent with past practice which have not been, in the aggregate,
materially adverse to the Company.
2_8 Title to Assets. The Company has good and
marketable title to all of its owned assets and properties, free and
clear of any liens, pledges, security interests, claims, encumbrances
or other restrictions of any kind (collectively, "Liens"). With respect
to any assets or properties it leases, the Company holds a valid and
subsisting leasehold interest therein, free and clear of any Liens, is
in compliance, in all material respects, with the terms of the
applicable lease, and enjoys peaceful and undisturbed possession under
such lease. All of the assets and properties of the Company that are
material to the conduct of business as presently conducted or as
proposed to be conducted by it are in good operating condition and
repair, subject to ordinary wear and tear. The inventory of the Company
is in good and marketable condition, does not and will not include any
material quantity of items which are obsolete, damaged or slow moving,
and is salable (or may be leased) in the normal course of business as
currently conducted by it, at current applicable prices and within
normal inventory "turn" experience.
2_9 Contracts. True and correct copies of all
contracts, agreements, notes, instruments, franchises, leases,
licenses, commitments, arrangements or understanding, written or oral
(collectively, "Contracts") which are material to the Condition of the
Company have been made available to the Investor. All of the Contracts
are in full force and effect and constitute legal, valid and binding
obligations of the Company and, to the best knowledge of the Company,
the other parties thereto; the Company and, to the best knowledge of
the Company, each other party thereto, has performed in all material
respects all obligations required to be performed by it under the
Contracts, and no material violation or default exists in respect
thereof, nor any event that with notice or lapse of time, or both,
would constitute a default thereof, on the part of the Company or, to
the best knowledge of the Company, any other party thereto; none of the
Contracts is currently being renegotiated; and the validity,
effectiveness and continuation of all Contracts will not be materially
adversely affected by the transactions contemplated by this Agreement.
<PAGE>
2_10 Intellectual Property. (a) (i) The Company owns,
or has the right to use, all United States and foreign patents,
trademarks, service marks, trade names, brand names, computer software
and programs, franchises, technology, know-how and processes, and
registered copyrights, and any applications for any of the foregoing
(collectively, the "Intellectual Property") of any kind in which the
Company has an interest or which is otherwise used in, or relates to
its business. Schedule II hereto contains a true, correct and complete
list of all registered trademarks and service marks, all reserved trade
names, all registered copyrights and all filed patent applications and
issued patents that are used in the Company's business or are otherwise
necessary for the conduct of its business as heretofore conducted and
all licenses or agreements that in any way affect the rights of the
Company to any of its Intellectual Property or any trade secret
material (the "Intellectual Property Licenses").
(ii) Subject to the limitations set forth
in the Intellectual Property Licenses, the Company has all right, title and
interest in all of the owned Intellectual Property, free and clear of all Liens.
The Company owns or has the exclusive or non-exclusive right to use all
Intellectual Property or trade secrets necessary to conduct its business as
now being conducted or as proposed to be conducted. The Company owns or
possesses sufficient licenses or other rights to use all Intellectual Property
covered by its patents or patent applications necessary to conduct its
business as now being conducted and as proposed to be conducted by the Company.
(iii) The Company has not disclosed, other
than in the ordinary course of business and consistent with past practice and
pursuant to the Intellectual Property Licenses, any proprietary information
relating to the Intellectual Property or the Intellectual Property Licenses
to any person other than the Investor. The Company has at all times maintained
reasonable procedures to protect and have enforced all of its trade secrets.
The Company has disclosed trade secrets to other Persons solely as required
for the conduct of its business and solely under nondisclosure agreements that
are enforceable by the Company. Other than pursuant to the Intellectual
Property Licenses, the Company is not under any contractual or other obligation
to disclose any proprietary information relating to the Intellectual Property,
any trade secret material to the Company or the Intellectual Property Licenses,
nor, to the best knowledge of the Company, is any other party to the
Intellectual Property Licenses under any such obligation to disclose proprietary
information included in or relating to Intellectual Property, any trade secret
material to the Company or the Intellectual Property Licenses to any Person,
and no event has taken place, including the execution and delivery of this
Agreement and the transactions contemplated hereby or any related change in
the business activities of the Company, that would give rise to such obligation.
(iv) The consummation of the transactions
contemplated hereby will not alter, adversely affect or impair the rights of
the Company to any of the Intellectual Property, any trade secret material
to it, or under any of the Intellectual Property Licenses.
<PAGE>
(b) (i) No claim with respect to the
Intellectual Property, any trade secret material to the Company, or any
Intellectual Property License which would adversely affect the ability of the
Company to conduct its business as presently conducted and as proposed to be
conducted is currently pending or, to the best knowledge of the Company,
has been asserted, or overtly threatened by any Person, nor does the Company
know of any grounds for any claim against the Company, (A) to the effect
that any operation or activity of the Company presently occurring or
contemplated, including, inter alia, the manufacture, use or sale of any
product, device, instrument, or other material made or used according to
the patents or patent applications included in the Intellectual Property or
Intellectual Property Licenses, infringes or misappropriates any United States
or foreign copyright, patent, trademark, service mark or trade secret;
(B) to the effect that any other Person infringes on the Intellectual
Property or misappropriates any trade secret or know-how or other proprietary
rights material to the Company; (C) challenging the ownership, validity or
effectiveness of any of the Intellectual Property or trade secret material of
the Company; or (D) challenging the license of the Company or other legally
enforceable right under, any Intellectual Property or the Intellectual Property
Licenses.
(ii) The Company is not aware of any
presently existing United States or foreign patents or any patent applications
which if issued as patents would be infringed by any activity contemplated by
the Company.
(c) (i) The United States and foreign
patents and patent applications owned by the Company listed in Schedule II
hereto (the "Patents and Applications") as part of the Intellectual Property
have been properly prepared and filed on behalf of the Company as named
therein and are being diligently pursued by the Company. The inventions
described in the Patents and Applications are assigned or licensed to the
Company and no other entity or individual has any right or claim in any of
the inventions, Patents and Applications or any patents to be issued therefrom,
except as set forth in the Intellectual Property Licenses. To the Company's
best knowledge, there are no defects in any of the Patents and
Applications that would cause any of them to be held invalid or unenforceable.
All relevant prior art of which the Company is aware has been filed in the
Patents and Applications.
(ii) The Company has delivered to the
Investor all information in its possession or of which it has knowledge
concerning the Patents and Applications and has no knowledge of any objection or
proceeding, pending or threatened, that would affect the validity of any patent
issued pursuant thereto. The Company has furnished to the Investor all prior
art, of which it presently has knowledge, that may be material to the validity
or enforceability of the patent claims being prosecuted in the Patents and
Applications.
(iii) Except in connection with the
prosecution of the patent applications listed in Schedule II hereto, there are
no pending judicial or governmental proceedings, including but not limited
to interferences and oppositions, relating to any of the Patents and
Applications or any other proprietary information to which the Company is a
party or by which any property (such term "property" specifically to include
rights pursuant to licenses or options or other rights to acquire licenses)
of the Company is subject, and no such proceedings are threatened or
contemplated by Governmental Authorities or other Persons.
(d) Nothing has come to the attention of the
Company that has caused it to believe that this Section 2.10, as of the date
hereof and as of the Closing, contains any untrue statement of a material
fact or omits to state a material fact required to b e stated herein or
necessary to make the statements herein not misleading.
2_11 Insurance. The Company has in full force and
effect all insurance policies as are sufficient for compliance with all
requirements of Law and applicable agreements.
<PAGE>
2_12 Labor Union Activities; Employee Relations. No
employee of the Company is represented by any labor union or covered by
any collective bargaining agreement; nor, to the best knowledge of the
Company, has any labor union sought to represent any of its employees
of the Company. There is no strike or other labor dispute involving the
Company pending, or to the best knowledge of the Company, threatened.
To the best knowledge of the Company, no officer or key employee
intends to terminate his employment with it. To the best knowledge of
the Company, no officer or key employee of it is a party to or bound by
any Contract, or subject to any restrictions (including, without
limitation, any non-competition restriction), which would restrict the
right of such person to participate in the affairs of the Company.
2_13 ERISA. The Company does not maintain (nor has it
ever maintained) nor does it have (nor has it ever had) any obligation
under (including, without limitation, any obligation to contribute to)
an employee benefit plan as described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
2_14 Taxes. All federal, state, city, county, local
and foreign income, franchise, sales, use and value added tax returns
and reports, and all other material tax returns and reports required to
be filed by the Company in those or in any other jurisdiction
(collectively, "Returns") have been timely filed. All such Returns are
true, correct and complete in all material respects. All taxes,
assessments, fees, interest, penalties and other charges with respect
thereto (collectively, "Taxes") due or claimed to be due from the
Company have been paid except to the extent reserved against on the
Company's financial statements. No income tax return of the Company has
been audited by the applicable Governmental Authority, and there are in
effect no waivers of the applicable statute of limitations for Taxes in
any jurisdiction for the Company for any period.
2_15 Environmental Matters. The business, assets and
properties of the Company are and have been operated and maintained in
compliance with all applicable federal, state, city, county and local
environmental protection laws and regulations (collectively, the
"Environmental Laws"). No event has occurred which, with or without the
passage of time or the giving of notice, or both, would constitute
non-compliance by the Company with, or a violation by the Company of,
the Environmental Laws. The Company has not caused or permitted to
exist, as a result of an intentional or unintentional act or omission,
a disposal, discharge or release of solid wastes, pollutants or
hazardous substances, on or from any site which currently is or
formerly was owned, leased, occupied or used by it, except where such
disposal, discharge or release was in compliance with the Environmental
Laws.
2_16 Books and Records. The books of account, ledgers
and records of the Company accurately and completely reflect in all
material respects all information relating to its business, the nature,
acquisition, maintenance, location and collection of its assets, and
the nature of all transactions giving rise to its obligations or
accounts receivable. The minute books of the Company fully set forth
all action taken by its Board of Directors, stockholders and, if any,
executive committee (or other committee thereof).
<PAGE>
2_17 Transactions with Affiliates. Except as set
forth on Schedule 2.17, the Company has not had any direct or indirect
dealings with any Principal Owner or with any of such Principal Owner's
Affiliates, associates or relatives. The Company has no obligation to
or claim against any Principal Owner, or any of such Principal Owner's
Affiliates, associates or relatives, and no such Person has any
obligation to or claim against the Company. All products, services or
benefits provided to the Company by any such Person, or provided by the
Company to any such Person are provided at a charge equal to the fair
market value of such products, services or benefits. No Principal
Owner, nor any of such Principal Owner's Affiliates, associates or
relatives, has any direct or indirect interest of any kind in any
business or entity which is competitive with the Company. "Affiliate"
of a specified Person shall mean a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is
under common control with, the Person specified.
2_18 Registration Rights. Except as set forth on
Schedule 2.18, no Person has, and as of the Closing no Person shall
have, demand, "piggy-back" or other rights to cause the Company to file
any registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), relating to any of its securities or to
participate in any such registration statement.
2_19 No Brokers or Finders. Except as set forth on
Schedule 2.19, neither the Company nor any of its respective Affiliates
has entered or will enter into any agreement pursuant to which the
Company or the Investor will be liable, as a result of the transactions
contemplated by this Agreement or any of the Purchase Documents, for
any claim of any person for any commission, fee or other compensation
as finder or broker and the Company agrees to indemnify the Investor
for any liability resulting from any such agreement.
2_20 Investment Company Act. The Company is not an
"investment company" nor is the Company directly or indirectly
controlled by or acting on behalf of any Person which is an "Investment
Company" within the meaning of the Investment Company Act of 1940, as
amended.
2_21 Disclosure. In connection with the purchase of
the Securities by the Investors as contemplated hereby, the Company
has, to its knowledge, disclosed to the Investor all material facts and
information concerning the Company, its Condition and the Securities,
and has not, to its knowledge, made any untrue statement of a material
fact or omitted to state any material fact necessary in order to make
the statements contained herein or in any of the other Purchase
Documents not misleading.
<PAGE>
2_22 Year 2000 Compliance. The Company has reviewed
its products, business and operations which could be adversely affected
by the risk that computer applications developed, marketed, sold and
delivered or used by the Company may be unable to recognize and
properly perform date-sensitive functions involving dates prior to and
after December 31, 1999 (the "Year 2000 Problem"). The Company's
products and services provided or delivered to its customers and the
Company's internal information and business systems will be able to
perform properly date-sensitive functions for all dates before and
after January 1, 2000. In addition, the Company has surveyed those
vendors, suppliers and other third parties (collectively, the "Outside
Parties") with which the Company does business and whose failure to
adequately address the Year 2000 Problem could have a material adverse
effect on the Condition of the Company. Based upon the aforementioned
internal review and surveys of the Outside Parties, the Year 2000
Problem has not resulted in, and is not reasonably expected to have, a
material adverse effect on the Condition of the Company.
2_23 SEC Documents. The Company has filed, pursuant
to the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), all SEC Documents (as defined below)
required to be filed with respect to the business and operations of the
Company under each of the Securities Act and Exchange Act, and the
respective rules and regulations thereunder, and all of the SEC
Documents complied in all material respects with all applicable
requirements of the Securities Act or the Exchange Act, as the case may
be, and the appropriate act and the rules and regulations thereunder in
effect on the date each such report was filed. At the respective dates
they were filed, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state any 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. The consolidated financial statements of the Company
included in the SEC Documents complied as to the form in all material
respects with the applicable accounting requirements and the published
rules and regulations of the Securities and Exchange Commission with
respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied throughout
the period involved (except as may be indicated therein or in the notes
thereto) and fairly present the consolidated financial position,
results of operations and cash flows of the Company as of the dates or
for the periods indicated therein, subject, in the case of the
unaudited statements, to normal year-end adjustments and the absence of
certain footnote disclosures. "SEC Documents" means all material forms,
statements, reports and documents (including all exhibits, amendments
and supplements thereto) required to be filed with respect to the
business and operations of the Company under each of the Securities Act
and the Exchange Act, and the respective rules and regulations
thereunder.
3 Representations and Warranties of the Investor. The
Investor hereby represents and warrants to, and agrees with, the
Company as follows:
3_1 The Investor is, and as of the Closing will be,
duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization.
<PAGE>
3_2 Authorization. The Investor has, and as of the
Closing will have, all requisite power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all necessary action
on the part of the Investor. This Agreement has been duly executed and
delivered by the Investor and constitutes its legal, valid and binding
obligation, enforceable against the Investor in accordance with its
terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights in general or by general principles
of equity.
3_3 No Legal Bar; Conflicts. Neither the execution
and delivery of this Agreement, nor the consummation by the Investor of
the transactions contemplated hereby, violates any law, statute,
ordinance, regulation, order, judgment or decree of any court or
governmental agency applicable to the Investor, or violates, or
conflicts with, any contract, commitment, agreement, understanding or
arrangement of any kind to which the Investor is a party or by which
the Investor is bound.
3_4 No Litigation. No action, suit or proceeding
against the Investor relating to the consummation of any of the
transactions contemplated by this Agreement nor any governmental action
against the Investor seeking to delay or enjoin any such transactions
is pending or, to the Investor's knowledge, threatened.
3_5 Investment Intent. The Investor (i) is an
accredited investor within the meaning of Rule 501(a) under the
Securities Act, (ii) is aware of the limits on resale imposed by virtue
of the nature of the transactions contemplated by this Agreement and is
aware that the certificates representing the Investor's respective
ownership of Series F Stock will bear related restrictive legends and
(iii) except as otherwise set forth herein, is acquiring the shares of
the Company hereunder without registration under the Securities Act in
reliance on the exemption from registration contained in Section 4(2)
of the Securities Act, for investment for its own account, and not with
a view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling such
shares. The Investor has been given the opportunity to ask questions
of, and receive answers from, the officers of the Company regarding the
Company, its current and proposed business operations and the Series F
Stock, and the officers of the Company have made available to the
Investor all documents and information that the Investor has requested
relating to an investment in the Company. The Investor has been
represented by competent legal counsel in connection with its purchase
of the Series F Stock and acknowledges that the Company has relied upon
the Investor's representations in this Section 3 in offering and
selling Series F Stock to the Investor.
3_6 No Brokers or Finders. Neither the Investor nor
any of its respective Affiliates has entered or will enter into any
agreement pursuant to which the Investor or the Company will be liable,
as a result of the transactions contemplated by this Agreement or any
of the Purchase Documents, for any claim of any person for any
commission, fee or other compensation as finder or broker and the
Investor agrees to indemnify the Company for any liability resulting
from any such agreement.
<PAGE>
3_7 Economic Risk; Restricted Securities. The
Investor recognizes that the investment in the Securities involves a
number of significant risks. The foregoing, however, does not limit or
modify the representations, warranties and agreements of the Company in
Section 2 of this Agreement or the right of the Investor to rely
thereon. The Investor is able to bear the economic risks of an
investment in the Securities for an indefinite period of time, has no
need for liquidity in such investment and, at the present time, can
afford a complete loss of such investment.
3_8 Hedging Activities. The Investor has no intention
to engage in, or has any agreement to engage in, any hedging
transactions (including, but not limited to, short sales, put and call
options, cashless collar transactions or other forms of derivative
security transactions) with respect to the Common Stock.
4 Conditions of the Investor's Obligations at Closing. The
obligation of the Investor to purchase the Securities to be purchased
by it at the Closing is subject to the fulfillment to the Investor's
satisfaction, prior to or at the Closing, of each of the following
conditions:
4_1 Representations and Warranties. The
representations and warranties of the Company contained in this
Agreement and the other Purchase Documents shall be true and correct in
all material respects on and as of the date of the Closing as if made
on and as of such date.
4_2 Filing of Articles of Amendment. The Articles of
Amendment shall have been adopted by the Board of Directors of the
Company and filed with the Secretary of State of the Commonwealth of
Pennsylvania.
4_3 Performance. The Company shall have performed and
complied with all agreements and conditions required by this Agreement
and the other Purchase Documents to be performed or complied with by it
prior to or at the Closing.
4_4 Stock Certificates. Etc. At the Closing, the
Company shall have tendered to the Investor a certificate representing
the Investor's shares of Series F Stock, all in form and substance
satisfactory to the Investor and sufficient to transfer to and vest in
the Investor good and valid title to the Securities, free and clear of
any Lien.
4_5 Conduct of Business. The Company shall carry on
its business diligently and shall not make or institute any unusual
methods of management, accounting or operation, except as agreed to in
writing by the Investor. All of the property of the Company shall be
used, operated, repaired and maintained in a normal business manner
consistent with past practice
4_6 Compliance With Laws. The Company will comply in
all material respects with all laws and regulations which are
applicable to it, its ownership of its assets or to the conduct of its
business and will perform and comply in all material respects with all
contracts, commitments and obligations by which it is bound.
4_7 No Material Adverse Change. There shall
not have occurred any material adverse change in the Condition of
the Company.
<PAGE>
4_8 Consents. The Company shall have obtained all
consents, approvals or waivers from Governmental Authorities and third
Persons necessary for the execution, delivery and performance of this
Agreement, the other Purchase Documents and the Articles of Amendment,
and the transactions contemplated hereby and thereby, all without
material cost or other adverse consequences to the Company. Without
limiting the generality of the foregoing, if applicable, each of the
Company's existing stockholders shall have waived any preemptive right
or right of first offer any such stockholder may have to purchase any
of the Securities.
4_9 No Litigation. There shall not be any Action of
or before any Governmental Authority or other Person pending or
threatened with respect to this Agreement, the other Purchase Documents
or the transactions contemplated hereby or thereby or which might
materially adversely affect the Condition of the Company.
4_10 Opinion of Counsel. The Investor shall have
received from Schnader Harrison Segal & Lewis LLP an opinion of counsel
dated as of the Closing Date, in the form attached hereto as Exhibit C.
4_11 Compliance Certificate. The Investor shall have
received a certificate dated as of the day of the Closing executed by
the President and the Chief Financial Officer of the Company certifying
that the conditions specified in this Section 4 have been fulfilled.
4_12 Related Documents. The Purchase Documents shall
have been executed and delivered by each of the parties thereto and in
full force and effect, and the Articles of Amendment, and all
amendments thereto, if any, shall have been filed with the Secretary of
State of the Commonwealth of Pennsylvania and shall be in full force
and effect.
4_13 Due Diligence. The Investor shall have
completed its business, financial and legal due diligence to its
satisfaction, in its sole judgment.
4_14 Proceedings and Documents. All proceedings in
connection with the transactions contemplated hereby and all documents
and instruments incident to such transactions shall be satisfactory in
substance and form to the Investor and its counsel, in all material
respects, and the Investor shall have received all such counterpart
originals or certified or other copies of such documents as the
Investor may reasonably request.
If at the Closing the Company fails to tender to the Investor
the documents specified herein which are required to be delivered to the
Investor at the Closing or if at the Closing any of the conditions specified in
this Section 4 shall not have been fulfilled to the Investor's reasonable
satisfaction, the Investor shall, at its election, be relieved of all further
obligations under this Agreement.
5 Conditions of the Company's Obligations at Closing. The
obligations of the Company to the Investor under this Agreement are
subject to the fulfillment, prior to or at the Closing, of each of the
following conditions:
<PAGE>
5_1 Representations and Warranties. The
representations and warranties of the Investor contained in this
Agreement shall be true and correct in all material respects on and as
of the date of the Closing as if made on and as of such date.
5_2 Payment of Purchase Price. The Investor shall
have delivered to the Company the purchase price specified in Section 1
hereof.
5_3 No Litigation. There shall not be any Action of
or before any Governmental Authority or other Person pending or
threatened with respect to this Agreement or the transactions
contemplated hereby.
5_4 Proceedings and Documents. All proceedings in
connection with the transactions contemplated hereby and all documents
and instruments incident to such transactions shall be satisfactory in
substance and form to the Company and its counsel, and the Company
shall have received all such counterpart originals or certified or
other copies of such documents as it may reasonably request.
If at the Closing the Investor fails to tender to the Company
the payment or documents specified herein which are required to be delivered to
the Company at the Closing or if at the Closing any of the conditions specified
in this Section 5 shall not have been fulfilled to the Company's reasonable
satisfaction, the Company shall, at its election, be relieved of all further
obligations to the Investor under this Agreement.
6 Certain Post-Closing Covenants of the Company. The
Company covenants and agrees with the Investor as follows:
<PAGE>
6_1 Board Meetings; Observer Rights. The Company will
use its best efforts to ensure that its Board of Directors holds
meetings no less than four times per year. The Company shall give to
the Investor notice of each meeting of the Board of Directors of the
Company and of each committee thereof at the same time and in the same
manner as notice is given to the directors of the Company. One designee
of the Investor shall be entitled to attend in person, as an observer,
all meetings held in person and to listen to telephone meetings of the
Board of Directors of the Company and of each committee thereof solely
for the purpose of allowing the Investor to have current information
with respect to the affairs of the Company. The Company shall provide
to the Investor, in connection with each meeting its observer designee
is entitled to attend, whether or not present at such meeting, copies
of all notices, minutes, consents and all other materials or
information that it provides to the directors with respect to such
meeting, at the time such materials and information are given to its
directors (except that materials and information provided to directors
of the Company at meetings at which a designee of the Investor is not
present shall be provided to the Investor promptly after the meeting).
If the Board of Directors of the Company or any committee thereof
proposes to take any action by written consent in lieu of a meeting,
the Company shall give written notice thereof to the Investor prior to
the effective date of such consent describing in reasonable detail the
nature and substance of such action. The Company shall bear all
reasonable travel and related expenses incurred by the observer
designee of the Investor associated with attending meetings. The
Investor's observer rights under this Section 6.1 shall terminate in
the event the Investor holds less than 100 shares of Series F Stock.
6_2 Annual Meetings. The Company will hold an annual
meeting of all stockholders at which information with respect to its
business will be furnished and discussed.
6_3 Information. The Investor and its assignees shall
be entitled to receive, and the Company agrees to provide to the
Investor and its assignees, the following:
_a_ Financial and Related Data.
(i) As soon as available, but in any event not later
than forty-five (45) days after the end of each fiscal quarter, the
Company shall deliver to the Investor its Quarterly Report on Form
10-Q.
(ii) As soon as available, but in any event within
ninety (90) days after the end of each fiscal year of the Company, the
Company shall deliver to the Investor its Annual Report on Form 10-K.
(iii) Promptly, but in any event within ten (10)
days, after any distribution to its stockholders generally or to
specific stockholders by agreement, to its directors, to prospective
investors or to the financial community of an annual report, proxy
statement, registration statement or other similar report or
communication, a copy of each such report, proxy statement,
registration statement or other similar report or communication; and
promptly, but in any event within ten (10) days after any filing with
the Securities and Exchange Commission or with any national securities
exchange or with the National Association of Securities Dealers, Inc.,
of any publicly available annual or periodic or special report or proxy
statement or registration statement, a copy of such report or
statement; and promptly, but in any event within two (2) business days,
after released, copies of all press releases and other statements made
available generally by the Company to the public concerning material
developments.
(iv) From time to time, and promptly, such additional
information and financial data regarding results of operations,
financial condition, business, affairs or prospects of the Company,
which the Investor may reasonably request. Notwithstanding the
foregoing, the Company shall not be required to disclose to the
Investor material non-public information as determined in good faith by
the Board of Directors.
<PAGE>
_b_ Access to Properties. The Company
shall permit representatives designated by the Investor, upon
reasonable prior notice to the Company, to visit and inspect each
of the Company's properties, Notwithstanding the foregoing, the
Company shall not be required to disclose to the Investor material non-
public information as determined in good faith by the Board of
Directors to examine its respective corporate and financial records
(and make copies thereof or extracts therefrom), to discuss its
respective affairs, finances and accounts with the Company's directors
and officers, and, through the President or chief financial officer
of the Company's, as the case may be, its key employees and
accountants, all at such reasonable times as may be requested by the
Investor.
6_4 Exemption from Investment Company Act. The
Company shall conduct its business so that it shall not become an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
6_5 Accounting and Reserves. The Company shall
maintain a standard and uniform system of accounting and shall keep
proper books and records and accounts in which full, true and correct
entries shall be made of its transactions, all in accordance with GAAP
applied on a consistent basis through all periods, and shall set aside
on such books for each fiscal year all such proper reserves for
depreciation, obsolescence, amortization, bad debts and other purposes
in connection with its operations as are required by such principles so
applied.
6_6 Transactions with Affiliates. Except for
arrangements for development research involving aggregate amounts less
than $60,000, the Company shall not, directly or indirectly, enter into
any transaction or agreement with any stockholder of the Company or any
Affiliate of the Company, unless the transaction or agreement is (i)
reviewed and approved by a majority of Disinterested Directors (as
defined below) and (ii) on terms no less favorable to the Company than
those obtainable from a non-Affiliated Person. A "Disinterested
Director" shall mean an individual who is not and who has not been an
officer or employee of the Company and who is not a member of the
family of, controlled by or under common control with, any such officer
or employee.
6_7 Additional Covenants.
_a_ The Company shall timely file all
such SEC Documents required to be filed by it pursuant to the Exchange
Act in order to permit sales under Rule 144 of the Securities Act.
_b_ During any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act,
the Company shall make available information required to be provided
by Rule 144A(d)(4), upon request.
_c_ Upon the request of the Investor
and the certification of the Investor that it qualifies under Rule
144(k) of the Securities Act, the Company shall, without further
requirement, remove all restrictive legends from the Investor's
securities, insofar as such restrictions relate to the transfer of
such securities under the Securities Act.
<PAGE>
6_8 Issuance of Warrants. In the event that upon the
first anniversary of the Closing Date (the "Anniversary Date") the
average of the closing prices of the Common Stock on the Nasdaq
SmallCap Market (or such other quotation system or securities exchange
upon which the Company's Common Stock is then traded) as reported by
the Nasdaq Stock Market on the 25 consecutive trading days immediately
preceding the Anniversary Date (the "Anniversary Price") is less than
1.45 times the Closing Price, the Company shall grant to the Investor
five-year warrants ("Warrants") to purchase, at an exercise price equal
to the Anniversary Price, such number of shares of the Common Stock as
determined in accordance with the following formula:
- --------- ----------------- --- ---------------------------
W= I x ((1.45 x CP) - AP)
--------------- ---------------------------
(1.00) 0.45 x CP
- --------- ----------------- --- ---------------------------
where:
W = the number of Warrants issuable pursuant to this Section 6.8.
I = the Investment Amount.
CP = the Closing Price.
AP = the Anniversary Price.
The form of such Warrants is attached hereto as Exhibit D. It is understood and
agreed that in no event shall the Anniversary Price be deemed to be less than
$1.00.
6_9 Registration of Shares of Conversion Stock
and the Warrant Shares.
_a_ The Company agrees to register the
shares of Conversion Stock by filing a registration Statement on
Form S-3 (or any successor form thereto) with respect to the shares of
Conversion Stock and using its best efforts to have such registration
statement declared effective on or prior to the Anniversary Date.
The Company shall cause such registration statement to remain
effective for three (3) years following the Anniversary Date.
_b_ The Company agrees to use its best
efforts to register the Warrant Shares by filing a registration
statement on Form S-3 (or any successor form thereto), as soon as
practicable after the Anniversary Date, but in no event later than
thirty (30) days after the Anniversary Date, and using its best efforts
to h ave such registration statement become effective as soon as
practicable. The Company shall cause such registration statement
to remain effective for three (3) years following the Anniversary Date.
_c_ In the event the Company fails to
satisfy its obligations to the Investor under this Section 6.9, the
Company shall be obligated to pay to the Investor liquidated damages
in an amount equal to six percent (6%) per month (or any part thereof),
compounded monthly, on the Investment Amount, until such time the
Company is no longer in breach of this Section 6.9. Any payments due to
the Investor pursuant to this Section 6.9(c) shall be made no later
than the fifteenth (15th) day of the month following the month in
which such liquidated damages were incurred.
<PAGE>
6_10 Stockholder Approval. In the event the aggregate
number of shares of Common Stock issuable upon the conversion of the
Securities, the Warrants and any other securities that may be
integrated therewith exceeds 19.9% of the Company's issued and
outstanding capital stock as of the Closing Date, the Company shall use
its best efforts to obtain stockholder approval as required by NASD
Rule 4310(c)(25)(H)(i) as soon as practicable. Until such stockholder
approval is obtained, the maximum number of shares of Common Stock
issuable upon conversion of the Series F Stock and upon exercise of the
Warrants shall not exceed 19.9% of the Company's issued and outstanding
capital stock as of the Closing Date. In the event such stockholder
approval is not obtained by the Anniversary Date then, at any time
after the Anniversary Date until such time such stockholder approval is
obtained, out of any assets of the Company legally available therefor,
the Investor shall have the right to require to Company to redeem
shares of the Series F Stock (the "Redeemed Shares") at a price per
share equal to the closing price of the Common Stock on the Nasdaq
SmallCap Market (or such other quotation system or securities exchange
upon which the Company's Common Stock is then traded) less the
Conversion Price (as defined in the Articles of Amendment) then in
effect. The Company shall pay the Investor for the Redeemed Shares
within five (5) business days after the demand for redemption is made
by the Investor. Such amounts payable to the Investor under this
Section 6.10 shall accrue interest at 8% per annum after such 5-day
period and such accrued interest shall be payable on demand of the
Investor.
6.11 Exchange Right. For the first ninety (90) days following
the Closing Date, if Company shall raise capital or complete any
financing that includes options, warrants, debt or other instruments
exercisable or convertible into equity of the Company with rights and
preferences that vary from the Series F Stock (the "New Security"),
Investor shall have the right, but not the requirement, to exchange all
(but not less than all) of the Series F Stock for an amount of the New
Securities equal to the Investment Amount. Company shall be required to
notify Investor of the proposed issuance of any New Security, and
Investor shall have a period of ten (10) days following such notice to
notify the Company in writing of his intent to exercise his right to
exchange the Series F Stock for the New Securities. In the event that
Investor fails to respond to the Company within such ten (10) day
period, such failure to respond shall be deemed to be a waiver of the
exchange right by Investor. The Company's notice under this Section
6.11 shall include all terms of the proposed New Securities and related
documentation to enable Investor to make an informed decision. The
Company shall make its appropriate officers and representatives
available to Investor and his representatives to make full and
reasonable inquiry into the terms of the New Securities.
7_ Certain Post-Closing Covenants of the Investor. The
Investor covenants and agrees with the Company as follows:
7_1 Hedging Activities. The Investor shall not engage
in any hedging transactions (including short sales, put and call
options, cashless collar transactions or other forms of derivative
security transactions) with respect to the Common Stock that may have
an impact on the market price of the Common Stock.
<PAGE>
7_2 Limitation on Sales. Except for block sales of
25,000 shares or more, commencing on the Anniversary Date, during any
10-day trading period, the Investor agrees that all sales of shares of
Conversion Stock or Warrant Shares, if any, made by the Investor during
such 10-day trading period shall not exceed twenty-five percent (25%)
of total reported sales of shares of Common Stock during the
immediately preceding 10-day trading period. Notwithstanding the
foregoing, in the event there are additional Investors purchasing the
Series F Stock at the Closing each such Investor shall be entitled to
sell only such Investor's pro rata share of such shares of Conversion
Stock or Warrant Shares, as the case may be, determined in accordance
with the Investment Amount paid by each such Investor compared to the
Total Investment Amount. The "Total Investment Amount" shall mean the
sum of all Investment Amounts paid by each Investor purchasing the
Series F Stock at the Closing.
8_ Miscellaneous.
8_1 Expenses. The Company will each bear all
reasonable legal and other expenses incurred by the Investor with
respect to the execution of this Agreement and the execution of each of
the Purchase Documents.
8_2 Publicity. Except as may be required by Law, or
in connection with a public offering, the Company shall neither use the
name of, nor make reference to, the Investor or any of its Affiliates
in any press release or in any public manner without the Investor's
prior written consent.
8_3 Indemnification. The Company agrees to indemnify
the Investor and each officer, director, employee, agent, partner,
stockholder and Affiliate of the Investor (collectively, the
"Indemnified Parties") for, and hold each Indemnified Party harmless
from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation,
judgments and costs of settlement, and (ii) any and all out-of-pocket
costs and expenses of any and every kind, including, without
limitation, reasonable fees and disbursements of counsel for such
Indemnified Parties (all of which expenses periodically shall be
reimbursed as incurred), in each case, arising out of or suffered or
incurred in connection with any of the following: (a) any
misrepresentation or any breach of any warranty made by the Company
herein or in any of the other Purchase Documents, (b) any breach or
non-fulfillment of any covenant or agreement made by the Company herein
or in any of the other Purchase Documents, and (c) any claim relating
to or arising out of a violation of applicable federal or state
securities laws by the Company in connection with the sale of the
Securities by the Company to the Investor.
8_4 Survival. All representations, warranties,
covenants and agreements contained in or made pursuant to this
Agreement or contained in any certificate delivered pursuant to this
Agreement, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any party
hereto, and shall survive the transfer and payment for the Securities
and the consummation of the transactions contemplated hereby; provided,
however, that the representations and warranties of the parties set
forth in Sections 2 and 3 shall survive until May __, 2000.
<PAGE>
8_5 Assignment. This Agreement and all the provisions
hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, if any,
except that neither this Agreement nor any rights or obligations
hereunder shall be assigned or delegated by the Company without the
prior written consent of the Investor. After the Closing, except as set
forth on Schedule 8.5, the Investor and its successors and assigns may,
without the consent of the Company, assign this Agreement and the
Investor's rights hereunder and under the other Purchase Documents
(including, without limitation, the Securities purchased by the
Investor), in whole or in part, to (i) any Affiliate of the Investor;
(ii) any other transferee of at least 20% of the Securities acquired by
the Investor; or (iii) in connection with an estate transfer, provided,
however, that the Company shall not be required to permit such
Assignment if such Assignment is in violation of federal securities
regulations or relevant state "blue sky" laws.
8_6 Amendment; Waiver. Any term, covenant, agreement
or condition of this Agreement may be amended, and compliance therewith
may be waived (either generally or in a particular circumstance and
either retroactively or prospectively), by one or more substantially
concurrent written instruments signed by the Company and by the
Investor. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Investor and the Company.
8_7 Applicable Law. The laws of the State of New York
shall govern the interpretation, validity and performance of the terms
of this Agreement, regardless of the law that might be applied under
principles of conflicts of law.
8_8 Judicial Proceedings. Any judicial proceeding
involving any dispute, controversy or claim arising out of or relating
to this Agreement or the rights or interests of the Investor or the
Company or the breach or alleged breach of this Agreement, whether
arising during or at or after the termination of this Agreement (each
of the foregoing disputes, controversies and claims hereinafter
referred to as an "agreement dispute"), shall be brought only in a
federal or state court located in the state of New York, and each of
the parties hereto (i) unconditionally accepts the exclusive
jurisdiction of such courts and any related appellate court and
irrevocably agrees to be bound by any judgment rendered thereby and
(ii) irrevocably waives any objection such party may now have or
hereafter has as to the venue of any such proceeding brought in such a
court or that such court is an inconvenient forum. Each of the parties
hereto hereby waives trial by jury in any judicial proceeding to which
they are parties involving an agreement dispute.
8_9 Notices. All notices and other communications
provided for herein shall be dated and in writing and shall be deemed
to have been duly given (x) on the date of delivery, if delivered
personally or by telecopier, receipt confirmed, (y) on the second
following business day, if delivered by a recognized overnight courier
service, or (z) seven days after mailing, if sent by registered or
certified, return receipt requested, postage prepaid, in each case, to
the party to whom it is directed at the following address (or at such
other address as any party hereto shall hereafter specify by notice in
writing to the other parties hereto):
<PAGE>
(i) If to the Company, to it at the following address:
Sedona Corporation
649 North Lewis Road, Suite 220
Limerick, PA 19468
Attn: President
Telephone: (610) 495-3003
Telecopier: (610) 495-3092
with a copy to:
Schnader Harrison Segal & Lewis LLP
1300 Eye Street, N.W., 11th Floor East
Washington, DC 2005
Attention Robert B. Murphy, Esq.
Telephone: (202) 216-4200
Telecopier (202) 775-8741
(ii) If to the Investor, to him at the following
address:
The Tang Fund
600 Fifth Avenue, 8th Floor
New York, New York 10020
Telephone: (212) 830-5301
Telecopier (212) 265-9752
with a copy to:
Seward & Kissel LLP
1 Battery Park Plaza
New York, New York 10004
Attn: Robert VanGrover, Esq.
Telephone: (212) 574-1205
Telecopier: (212) 480-8421
8_10 Integration. This Agreement and the documents
referred to herein or delivered pursuant hereto or pursuant to such
documents, including all exhibits and schedules, contain the entire
understanding of the parties with respect to their subject matter and
supersede all prior agreements and understandings between the parties
with respect to their subject matter.
8_11 Severability. Each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
prohibited or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement.
<PAGE>
8_12 Descriptive Headings. The section and other
headings contained in this Agreement are for convenience of reference
only and shall not affect the meaning or interpretation of this
Agreement.
8_13 Counterparts. This Agreement may be executed in
two or more counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which together shall be
deemed to be one and the same agreement.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written:
COMPANY:
Sedona Corporation
By:_________________________________
Name: Laurence L. Osterwise
Title: President and Chief Executive Officer
INVESTOR:
The Tang Fund
By:_________________________________
Name:
Title:
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
Between
Sedona Corporation
and
the Investors Signatory Hereto
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of
February 25, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Sedona Corporation, a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $3,000,000 Stated Value
of Convertible Preferred Stock (as defined below) and (ii) Warrants (as defined
below) to purchase up to 100,000 shares of Common Stock at an exercise price
equal to 130% of the closing bid price for such Common Stock on the Closing
Date).
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) and/or 4(6) of the Securities Act of 1933, as amended, (the
"Securities Act") and/or Regulation D ("Regulation D") and the other rules and
regulations promulgated under the Securities Act, and/or upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights,
or obligations that are convertible into or exchangeable for or give any right
to subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.4. "Certificate of Designations" shall mean the Certificate of
Designations setting forth the terms of the Convertible Preferred Stock in the
form of Exhibit A hereto.
Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Convertible Preferred tock and Warrants pursuant to Section 2.1.
Section 1.5. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $.001 par
value per share.
Section 1.7. "Conversion Shares" shall mean the shares of C ommon Stock
issuable upon conversion of the Convertible Preferred Stock.
Section 1.8. "Convertible Preferred Stock" shall mean the $3,000,000 Stated
Value of Series G Convertible Preferred Stock, as described in the Certificate
of Designations to be issued to the Investors pursuant to this Agreement.
Section 1.9. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.10. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.11. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.12. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.13. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the lowest three (3)
day average on the Principal Market (as reported by Bloomberg L.P.) of the
Common Stock during the twenty (20) consecutive Trading Day period ending on
the Trading Day immediately prior to the date for which the Market Price is to
be determined.
Section 1.16. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
Section 1.17. "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date
as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect
of outstanding scrip or any certificates representing fractional interests
in such Shares; provided, however, that "Outstanding" shall not mean any
such Shares then directly or indirectly owned or held by or for the account of
the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a partnership,
a limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.19. "Principal Market" shall mean the American Stock Exchange,
the New York Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap
Market or the OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock, based upon share volume.
Section 1.20. "Purchase Price" shall mean the Stated Value per share of
Convertible Preferred Stock, as defined in the Certificate of Designations.
Section 1.21. "Registrable Securities" shall mean the Conversion Shares and
the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have
been disposed of pursuant to the Registration Statement, (ii) all Conversion
Shares and Warrant Shares have been sold under circumstances under which all of
the applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all Conversion Shares
and Warrant Shares have been otherwise transferred to holders who may trade
such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend or (iv) such time as, in the opinion of counsel
to the Company, all Conversion Shares and Warrant Shares may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as
of the Closing Date in the form annexed hereto as Exhibit C.
Section 1.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with
the provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for
the registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.25. "SEC" shall mean the Securities and Exchange Commission.
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.29. "Senior Securities" shall mean all existing Series of Preferred
Stock which by their terms are required to be senior in right of payment of
dividends and/or liquidation proceeds to any after-created Series of Preferred
Stock.
Section 1.30. "Shares" shall have the meaning set forth in Section 1.17.
Section 1.31. "Stated Value" shall have the meaning set forth in the
Certificate of Designations.
Section 1.32. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.33. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Investors hereunder.
Section 1.34. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Preferred Stock and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the Company
agrees to sell, and the Investors agree to purchase the Convertible Preferred
Stock together with the Warrants at the Purchase Price on the Closing Date as
follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent
immediately available funds in their proportionate
amount of the Purchase Price as set forth on the
signature pages hereto, and the Company shall deliver
the Convertible Preferred Stock certificates and the
Warrants to the Escrow Agent, in each case to be held
by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b), the losing ("Closing") shall occur
at the offices of the Escrow Agent at which time the
Escrow Agent (x) shall release the Convertible
Preferred Stock and the Warrants to the Investors and
(y) shall release the Purchase Price (after all fees
have been paid as set forth in the Escrow Agreement),
pursuant to the terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the party to be
benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price
of the Convertible Preferred Stock and the Warrants,
as more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as
of the Closing Date (as a condition to the
Investors' obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Preferred Stock and
Warrants, or shall have the availability of
exemptions therefrom;
(vi) the sale and issuance of the Convertible Preferred
Stock and the Warrants hereunder, and the proposed
issuance by the Company to the Investors of the
Common Stock underlying the Convertible Preferred
Stock and the Warrants upon the conversion or
exercise thereof shall be legally permitted by all
laws and regulations to which the Investors and
the Company are subject and there shall be no
ruling, judgment or writ of any court prohibiting
the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Preferred Stock certificates and Warrants
certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Piper
Marbury Rudnick & Wolfe LLP, counsel to the Company,
in the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F; and
(x) delivery to the Escrow Agent of the Registration
Rights Agreement.
Section 2.2. Liquidated Damages.
The parties hereto acknowledge and agree that the sums payable pursuant to
the Registration Rights Agreement shall constitute liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such agreement bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable
loss likely to be incurred by the Investors in connection with the failure by
the Company to timely cause the registration of the Registrable Securities
and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Organization.
The Investor is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization.
Section 3.2. Intent.
The Investor is entering into this Agreement for its own account and not
with a view to or for sale in connection with any distribution of the Common
Stock. The Investor has no present arrangement (whether or not legally binding)
at any time to sell the Convertible Preferred Stock, the Warrants, any
Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at
any time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.3. Sophisticated Investor.
The Investor is a sophisticated investor (as described in Rule 506(b)(2)
(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of
Regulation D), and Investor has such experience in business and financial
matters that it has the capacity to protect its own interests in connection with
this transaction and is capable of evaluating the merits and risks of an
investment in the Convertible Preferred Stock, the Warrants and the underlying
Common Stock. The Investor acknowledges that an investment in the Convertible
Preferred Stock, the Warrants and the underlying Common Stock is speculative and
involves a high degree of risk.
Section 3.4. Authority.
This Agreement and each agreement attached as an Exhibit hereto which is
required to be executed by Investor has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.5. Not an Affiliate.
The Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
Section 3.6. Absence of Conflicts.
The execution and delivery of this Agreement and each agreement which is
attached as an Exhibit hereto and executed by the Investor in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, and compliance with the requirements hereof and thereof by the
Investor, will not violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Investor or (a) violate any provision of
any indenture, instrument or agreement to which Investor is a party or is
subject, or by which Investor or any of its assets is bound; (b) conflict with
or constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investor to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any of
its assets, operations or management may be subject.
Section 3.7. Disclosure; Access to Information.
The Investor has received all documents, records, books and other publicly
available information pertaining to Investor's investment in the Company that
have been requested by the Investor. The Company is subject to the periodic
reporting requirements of the Exchange Act, and the Investor has reviewed copies
of all SEC Documents deemed relevant by Investor.
Section 3.8. Manner of Sale.
At no time was Investor presented with or solicited by or through any
leadlet, public promotional meeting, television advertisement or any other
form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company.
The Company is a corporation duly incorporated and existing in good standing
under the laws of the Commonwealth of Pennsylvania and has all requisite
corporate authority to own its properties and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not own
more that fifty percent (50%) of or control any other business entity except as
set forth in the SEC Documents. The Company is duly qualified and is in good
standing as a foreign corporation to do business in every jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2. Authority.
(i) The Company has the requisite corporate power and corporate authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Escrow Agreement, and the Warrants and to issue the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares pursuant to their respective terms, (ii) the execution, issuance and
delivery of this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designations, the Convertible Preferred Stock
certificates and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Convertible Preferred
Stock certificates and the Warrants have been duly executed and delivered by the
Company and at the Closing shall constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application and
except the Company makes no representation or warranty with respect to the
enforceability of any terms of these agreements which require the Company to
issue Conversion Shares upon conversion of the Convertible Preferred Stock and
Warrant Shares upon the exercise of the Warrants notwithstanding the
commencement of any case under 11 USC Sec. 101 et seq. (the "Bankruptcy Code")
or, in the event it is a debtor under the Bankruptcy Code, to waive any rights
to relief it may have under 11USC Sec. 362 in respect of the conversion of the
Convertible Preferred Stock and the exercise of the Warrants, or which prohibit
the Company form seeking affirmative judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the conversion of the Convertible Preferred Stock and for the
exercise of the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares and, upon any redemption of the Warrants, the Warrant Shares.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Convertible Preferred Stock and Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Certificate
of Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company and, to the extent permitted under the Bankruptcy Code,
notwithstanding the commencement of any case under the Bankruptcy Code. The
Company shall not seek affirmative judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code, although the Company reserves
the right to defend any action brought by any Investor or third party. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. ss. 362 in respect of the conversion of the Convertible Preferred Stock
and the exercise of the Warrants. The Company agrees, without cost or expense to
the Investors, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization.
The authorized capital stock of the Company consists of (i) 50,000,000 shares
of Common Stock, $0.001 par value per share, of which 24,972,966 shares are
issued and outstanding as of February 3, 2000, (ii) 1,000,000 shares of Class A
preferred stock; of which (A) 500,000 have been designated as Series A
Convertible Preferred Stock, par value $2.00 per share, 500,000 of which shares
are issued and outstanding, (B) 5,000 have been designated as Series B
Convertible Preferred Stock, par value $2.00 per share, 1,000 of which are
issued and outstanding; (C) 125,000 of which have been designated as Series C
Convertible Preferred Stock, par value $2.00 per share, none of which are issued
and outstanding; (D) 3,300 of which have been designated as Series D Convertible
Preferred Stock, par value $2.00 per share, none of which are issued and
outstanding; (E) 5,200 have been designated as Series E Convertible Preferred
Stock, par value $1,000 per share, none of which are outstanding, and (F) 1000
have been designated as Series F Convertible Preferred Stock, par value $2.00,
1,000 of which are issued and outstanding; and (iii) 2,000,000 shares of Class B
preferred stock, none of which are issued and outstanding. The Company has duly
and validly designated 3,000 shares of its Class A preferred stock as Series G
Convertible Preferred Stock. Except for (i) the outstanding Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series F Convertible
Preferred Stock, (ii) outstanding options and warrants as set forth in the SEC
Documents, and (iii) as set forth in the Disclosure Schedule, there are no
outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock.
The Company has registered its Common Stock pursuant to Section 12(b) or (g)
of the Exchange Act and is in full compliance with all reporting requirements of
the Exchange Act, and the Company is in compliance with all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on, the Principal Market. As of the date hereof, the
Principal Market is the Nasdaq SmallCap Market and the Company has not received
any notice regarding, and to its knowledge there is no threat, of the
termination or discontinuance of the eligibility of the Common Stock for such
listing.
Section 4.5. SEC Documents.
The Company has made available to the Investors true and complete copies of
the SEC Documents. The Company has not provided to the Investors any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and rules and
regulations of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit 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. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis 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 exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances.
Subject to the accuracy of the Investors' representations in Article III, the
sale of the Convertible Preferred Stock, the Conversion Shares, the Warrants and
the Warrant Shares will not require registration under the Securities Act and/or
any applicable state securities law. When issued and paid for in accordance with
the Warrants and validly converted in accordance with the terms of the
Convertible Preferred Stock, the Conversion Shares and the Warrant Shares will
be duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares pursuant to, nor the Company's performance of its obligations
under, this Agreement, the Registration Rights Agreement, the Escrow Agreement,
the Certificate of Designations or the Warrants will (i) result in the creation
or imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Convertible Preferred Stock, the Conversion
Shares, the Warrants and the Warrant Shares shall not subject the Investors to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction.
Neither the Company nor any of its affiliates nor, to the knowledge of the
Company, any person acting on its or their behalf (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Preferred Stock or the Warrants, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Convertible Preferred Stock, the
Conversion Shares, the Warrants or the Warrant Shares under the Securities Act.
Section 4.8. No Conflicts.
The execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby,
including without limitation the issuance of and payment of dividends upon the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares, do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
material default (or an event that 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 material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect),
provided, that the Company makes no representation or warranty that any rights
of the Investors under this Agreement, the Certificate of Designations or the
Warrants will be enforceable in any bankruptcy proceeding involving the Company,
nor that the enforcement of the rights of the Investors under this Agreement or
the Certificate of Designations does not conflict with or create an event of
default under the governing documents respecting the creation and sale of the
Company's Series B Convertible Preferred Stock or Series F Convertible Preferred
Stock. Further, the Company does not represent or warrant that any terms of this
Agreement, the Certificate of Designations, the Warrants, the Registration
Rights Agreement or the Convertible Preferred Stock, Conversion Shares and
Warrant Shares issuable pursuant to such documents requiring the Company to
honor redemption requests during bankruptcy or insolvency, or to honor
redemption requests which cause such bankruptcy or insolvency, do not result in
a violation of any federal or sate law, rule or regulation applicable to the
Company. The business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Preferred Stock or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change.
Since September 30, 1999, no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances.
Since September 30, 1999, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, prospects, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering.
Other than pursuant to an effective registration statement under the
Securities Act, or pursuant to the issuance or exercise of employee stock
options, or pursuant to its discussion with the Investors in connection with the
transactions contemplated hereby, the Company has not issued, offered or sold
the Convertible Preferred Stock, the Warrants or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Convertible Preferred Stock, the Warrants or Common Stock, or any securities
convertible into, exchangeable or exercisable for the Convertible Preferred
Stock or Common Stock or any such other securities) within the six-month period
next preceding the date hereof, and the Company shall not permit any of its
directors, officers or affiliates directly or indirectly, to take any action
(including, without limitation, any offering or sale to any Person of the
Convertible Preferred Stock, Warrants or shares of Common Stock), so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Investors of the Convertible Preferred
Stock (and the Conversion Shares) or the Warrants (and the Warrant Shares) as
contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings.
Except as disclosed in the SEC Documents, there are no lawsuits or proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any subsidiary, nor has the Company received any written or oral notice of any
such action, suit, proceeding or investigation, which could reasonably be
expected to have a Material Adverse Effect. Except as set forth in the SEC
Documents, no judgment, order, writ, injunction or decree or award has been
issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.13. No Misleading or Untrue Communication.
The Company and, to the knowledge of the Company, any person representing the
Company, or any other person selling or offering to sell the Convertible
Preferred Stock or the Warrants in connection with the transaction contemplated
by this Agreement, have not made, at any time, any oral communication in
connection with the offer or sale of the same which contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under which they
were made, not misleading.
Section 4.14. Material Non-Public Information.
The Company has not disclosed to the Investors any material non-public
information that (i) if disclosed, would reasonably be expected to have a
material effect on the price of the Common Stock or (ii) according to applicable
law, rule or regulation, should have been disclosed publicly by the Company
prior to the date hereof but which has not been so disclosed.
Section 4.15. Insurance.
The Company and each subsidiary maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it
is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are, to the Company's
knowledge, no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the Company or
any subsidiary; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other review
has been received by the Company or any subsidiary from any foreign, federal,
state or local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to and is not required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries, does not have any
knowledge that the IRS has proposed any such adjustment or change in accounting
method, and does not have any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f)of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that
is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not
a party to any tax sharing agreement. The Company has not made any payments,
is not obligated to make payments and is not a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property.
Neither the Company nor any of its subsidiaries owns any real property. Each
of the Company and its subsidiaries has good and marketable title to all
personal property owned by it, free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company; and to the Company's knowledge any real prop erty,
mineral or water rights, and buildings held under lease by the Company as tenant
are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
Section 4.18. Intellectual Property.
Each of the Company and its subsidiaries owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC Documents neither the
Company nor any of its subsidiaries is infringing upon or in conflict with any
right of any other person with respect to any Intangibles. Except as disclosed
in the SEC Documents, no adverse claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
Section 4.19. Internal Controls and Procedures.
The Company maintains books and records and internal accounting controls which
provide reasonable assurance that (i) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are executed with
management's authorization; (ii) the recorded accounting of the Company's
consolidated assets is compared with existing assets at regular intervals; (iii)
access to the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions.
Neither the Company, any subsidiary, nor any of its directors, officers or, to
its knowledge, other employees has (i) used any Company funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful expense
relating to political activity; (ii) made any direct or indirect unlawful
payment of Company funds to any foreign or domestic government official or
employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.
Section 4.21. No Misrepresentation.
The representations and warranties of the Company contained in this Agreement,
any schedule, annex or exhibit hereto and a ny agreement, instrument or
certificate furnished by the Company to the Investors pursuant to this
Agreement, do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law.
The Investor's trading activities with respect to shares of the Company's
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed.
Section 5.2. Limitation on Short Sales.
The Investor agrees that it will make no short sales (as defined in any
applicable SEC or NASD rules) of the Company's Common Stock while any of the
Convertible Preferred Stock owned by such Investor remains issued and
outstanding. The foregoing limitation shall not apply on any Trading Day when
the closing bid price of the Common Stock on the previous Trading Day exceeds
three (3) times the closing bid price on the Closing Date.
Section 5.3. Observance of 120 Day Limitation on Sales of Common Stock.
The Investor acknowledges the limitation on resales of the Conversion Shares
contained in Section 5(b)(i) of the Certificate of Designations, notwithstanding
that the Effective Date may have occurred prior to such time.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights.
The Company shall cause the Registration Rights Agreement to remain in full
force and effect and the Company shall comply in all material respects with the
terms thereof.
Section 6.2. Reservation of Common Stock.
As of the date hereof, the Company has reserved and the Company shall continue
to reserve and keep available at all times, free of preemptive rights, shares of
Common Stock for the purpose of enabling the Company to issue the Conversion
Shares and the Warrant Shares pursuant to any conversion of the Convertible
Preferred Stock or exercise of the Warrants. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered pursuant to any
conversion of the Convertible Preferred Stock or exercise of the Warrants and
the number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be obligated to issue by reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock.
The Company hereby agrees to maintain the listing of the Common Stock on a
Principal Market, and as soon as reasonably practicable following the Closing
to list the Conversion Shares and the Warrant Shares on the Principal
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Conversion Shares and the Warrant Shares, and will take such other action as
is necessary or desirable in the opinion of the Investors to cause the
Conversion Shares and Warrant Shares to be listed on such other Principal Market
as promptly as possible. The Company will take all action to continue the
listing and trading of its Common Stock on a Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market and shall provide Investors with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Investors have disposed of all of their
Registrable Securities. The Company agrees to present a proposal for stockholder
approval at the next annual meeting of stockholders, which the Company in good
faith expects to be held no later than June 30, 2000, to permit the Company to
issue a number of Conversion Shares and Warrant Shares which is in excess of
19.9% of the number of the Company's issued and outstanding shares of Common
Stock on the Closing Date, with the recommendation of the Board of Directors
that such proposal be approved. If such proposal is not approved, the Company
shall either (i) voluntarily de-list its Common Stock from any Principal Market
which requires such approval or (ii) redeem any un-exchangeable Exchangeable
Preferred Stock pursuant to Section 7 of the Certificate of Designations, within
five (5) Trading Days of such vote.
Section 6.5. Exchange Act Registration.
The Company will cause its Common Stock to continue to be registered under
Section 12(b) or (g) of the Exchange Act, will use its best efforts to comply in
all respects with its reporting and filing obligations under the Exchange Act,
and will not take any action or file any document (whether or not permitted by
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act until the Investors have disposed of all of their Registrable
Securities.
Section 6.6. Legends.
Except as may be required by any change in laws or regualtions applicable
thereto enacted after the date hereof, the certificates evidencing the
Registrable Securities shall be free of legends, except as set forth in Article
IX.
Section 6.7. Corporate Existence; Conflicting Agreements.
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company. The Company shall not enter into any
agreement, the terms of which agreement would restrict or impair the right or
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto or under the Certificate
of Designations.
Section 6.8. Consolidation; Merger.
The Company shall not, at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all or substantially
all of the assets of the Company to, another entity (a "Consolidation Event")
unless the resulting successor or acquiring entity (if not the Company) assumes
by written instrument or by operation of law the obligation to deliver to the
Investors such shares of stock and/or securities as the Investors are entitled
to receive pursuant to this Agreement and the Certificate of Designations.
Section 6.9. Issuance of Convertible Preferred Stock and Warrant Shares.
The sale of the Convertible Preferred Stock and the Warrants and the issuance
of the Warrant Shares pursuant to exercise of the Warrants and the Conversion
Shares upon conversion of the Convertible Preferred Stock shall be made in
accordance with the provisions and requirements of Section 4(2), 4(6) or
Regulation D and any applicable state securities law. The Company shall make any
necessary SEC and "blue sky" filings required to be made by the Company in
connection with the sale of the Securities to the Investors as required by all
applicable laws, and shall provide a copy thereof to the Investors promptly
after such filing.
Section 6.10. Limitation on Future Financing.
The Company agrees that it will not enter into any sale of its securities for
cash at a discount to Market Price until 120 days after the effective date of
the Registration Statement except for any sales (i) pursuant to any presently
existing employee benefit plan which plan has been approved by the Company's
stockholders, (ii) pursuant to any compensatory plan for a full-time employee or
key consultant, (iii) pursuant to a shelf registration, or (iv) with the prior
approval of a majority in interest of the Investors, which will not be
unreasonably withheld, in connection with a strategic partnership or other
business transaction, the principal purpose of which is not simply to raise
money.
Section 6.11. Pro-Rata Redemption.
The Company agrees that if it shall redeem any of the Convertible Preferred
Stock, that it shall make such redemption pro-rata among all Investors in
proportion to their respective initial purchases of such securities pursuant to
this Agreement.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival.
The representations, warranties and covenants made by each of the Company and
each Investor in this Agreement, the annexes, schedules and exhibits hereto and
in each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby; provided, however, that the
representations and warranties of the parties set forth in Articles 3 and 4
shall survive until February 25, 2003. In the event of a breach or violation of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement, irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date.
Section 7.2. Indemnity.
(a) The Company hereby agrees to indemnify and hold harmless the Investors,
their respective Affiliates and their respective officers, directors, partners
and members (collectively, the "Investor Indemnitees"), from and against any and
all Damages in excess of $50,000, and agrees to reimburse the Investor
Indemnitees for all reasonable out-of-pocket expenses (including the reasonable
fees and expenses of legal counsel), in each case promptly as incurred by the
Investor Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties
contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of t he Company who is not an
Affiliate of an Investor, with respect to any of the
transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify and
hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages in excess of $50,000, and agrees to reimburse
the Company Indemnitees for reasonable all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact, or breach of
any of the Investor's representations or warranties
contained in this Agreement, the annexes, schedules
or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor
pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement, the
annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or
delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice.
Promptly after receipt by either party hereto seeking indemnification pursuant
to Section 7.2 (an "Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the party
from whom indemnification pursuant to Section 7.2 is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission so to notify
the Indemnifying Party shall not relieve it from any liability that it otherwise
may have to the Indemnified Party, except to the extent that the Indemnifying
Party is actually prejudiced by such omission or delay. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party reasonably shall have concluded that
representation of the Indemnified Party and the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or (z)
the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims.
In the event one party hereunder should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review.
Subject to Section 8.2, the Company shall make available for inspection and
review by the Investors, advisors to and representatives of the Investors (who
may or may not be affiliated with the Investors and who are reasonably
acceptable to the Company), any underwriter participating in any disposition of
the Registrable Securities on behalf of the Investors pursuant to the
Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, Nasdaq or other filing, all SEC Documents
and other filings with the SEC, and all other publicly available corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material non-
public information to the Investors or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends.
Unless otherwise provided below, each certificate representing the Convertible
Preferred Stock, Warrants or Registrable Securities will bear the following
legend or equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR STATE
SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND STATE
SECURITIES LAWS OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH
REGISTRATION.
Section 9.2. Transfer Agent Instructions.
Upon the execution and delivery hereof, the Company is issuing to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions substantially in the form of Exhibit F
hereto. Such instructions shall be irrevocable by the Company from and after the
date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions.
No legend other than the one specified in Section 9.1 has been or shall be
placed on the share certificates representing the Registrable Securities and no
instructions or "stop transfer orders," "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX or pursuant
to Section 6.6.
Section 9.4.Investors' Compliance.
Nothing in this Article shall affect in any way each Investor's obligations to
comply with all applicable securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1 Governing Law/Arbitration.
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made in New York by persons
domiciled in New York City and without regard to its principles of conflicts of
laws. Any dispute under this Agreement shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected according to the rules governing the AAA. The
Board of Arbitration shall meet on consecutive business days in New York City,
New York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the amount,
if any, which the losing party is required to pay to the other party in respect
of a claim filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New York unless the
matter at issue is the corporation law of the company's state of incorporation,
in which event the corporation law of such jurisdiction shall govern such issue.
To the extent practical, decisions of the Board of Arbitration shall be rendered
no more than thirty (30) calendar days following commencement of proceedings
with respect thereto. The Board of Arbitration shall cause its written decision
to be delivered to all parties involved in the dispute. Any decision made by the
Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the parties
to the dispute, and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorney's fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
to any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorney's fees, in connection with such proceeding.
ARTICLE XI
Assignment
Section 11.1. Assignment.
Neither this Agreement nor any rights of the Investors or the Company
hereunder may be assigned by either party to any other person. Notwithstanding
the foregoing, (a) the provisions of this Agreement shall inure to the benefit
of, and be enforceable by, any permitted transferee of any of the Convertible
Preferred Stock or Warrants purchased or acquired by any Investor hereunder with
respect to the Convertible Preferred Stock or Warrants held by such person, and
(b) upon the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any other person or entity
(including any Affiliate of the Investor) who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement. The Investor shall not assign its rights under this Agreement
to any Person identified to the Investor by the Company as a competitor of the
Company.
ARTICLE XII
Notices
Section 12.1. Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
<TABLE>
<S> <C>
If to the Company: Sedona Corporation
649 North Lewis Road
Limerick, PA 19468
Attention: Marco A. Emrich
Facsimile:
with a copy to (shall not constitute Piper Marbury Rudnick & Wolfe LLP
notice): 1200 Nineteenth Street, NW
Washington, DC 20036
Attention: Robert B. Murphy, Esq.
Telephone: 202-861-3900
Facsimile: 202-223-2085
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
</TABLE>
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments.
This Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Section 13.2. Entire Agreement.
This Agreement, the agreements attached as Exhibits hereto, which include, but
are not limited to the Certificate of Designations, the Warrants, the Escrow
Agreement, and the Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3. Severability.
In the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be ineffective if it materially changes
the economic benefit of this Agreement to any party.
Section 13.4. Headings.
The headings used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
Section 13.5. Number and Gender.
There may be one or more Investors parties to this Agreement, which Investors
may be natural persons or entities. All references to plural Investors shall
apply equally to a single Investor if there is only one Investor, and all
references to an Investor as "it" shall apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the trading price or
trading volume of the Common Stock on any given Trading Day for the purposes of
this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investors and the Company shall be required to employ any
other reporting entity.
Section 13.7. Replacement of Certificates.
Upon (i) receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of a certificate representing the
Convertible Preferred Stock or any Conversion Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form to the Company (which shall not include the posting of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses.
Each of the Company and the Investors agrees to pay its own expenses incident
to the performance of its obligations hereunder, except that the Company shall
pay the fees, expenses and disbursements of Epstein Becker & Green, P.C.,
counsel to the Investors, in an amount equal to $15,000, all as set forth in the
Escrow Agreement.
Section 13.9. Brokerage.
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party except for Ladenburg
Thalman & Co., Inc., whose fee shall be paid by the Company. The Company on the
one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 13.1. Publicity.
The Company agrees that it will not issue any press release or other public
announcement of the transactions contemplated by this Agreement without
the prior consent of the Investors, which shall not be unreasonably withheld nor
delayed by more than two (2) Trading Days from their receipt of such proposed
release. No release shall name the Investors without their express consent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
<TABLE>
<S> <C>
SEDONA CORPORATION
By:__________________________________
Marco A. Emrick, President and CEO
Address: c/o Ultrafinanz AG AMRO International, S.A.
Grossmuensterplatz 26
Zurich CH-8022 Switzerland
Fax: 011-411-262-5515 By:__________________________________
Amount: $1,700,000 H. U. Bachofen, Director
Address: Suite 7B and 8B Markham Holdings Limited
50 Town Range
Gibraltar
Fax: 011-350-40404 By:__________________________________
Amount: $300,000 J. David Hassan, Authorized Signatory
Address: Charlotte House Aspen International Limited
Charlotte Street
Nassau, Bahamas
Fax: 242-323-7918 By:__________________________________
Amount: $500,000 Authorized Signatory
Address: The Cuttyhunk Fund Limited
Amount: $250,000
By:____________________________________
Authorized Signatory
Address: The George S. Sarlo 1995 Charitable Remainder Trust
Amount: $250,000
By:___________________________________
Authorized Signatory
</TABLE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER LAWS. NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED,
TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND SUCH STATE LAWS OR IN A
TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE
SECURITIES ACT AND SUCH LAWS.
STOCK PURCHASE WARRANT
To Purchase _____ Shares of Common Stock of
SEDONA CORPORATION
THIS CERTIFIES that, for value received, _____________ (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after February 28, 2000 (the "Initial Exercise
Date") and on or prior to the close of business on February 28, 2003 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
Sedona Corporation, a corporation incorporated in Pennsylvania (the "Company"),
up to __________________ shares (the "Warrant Shares") of Common Stock, $.001
par value, of the Company (the "Common Stock"). The purchase price of one share
of Common Stock (the "Exercise Price") under this Warrant shall be $5.037 (130%
of the closing bid price of the Common Stock on the Principal Market on the
Closing Date). The Exercise Price and the number of shares for which the Warrant
is exercisable shall be subject to adjustment as provided herein. In the event
of any conflict between the terms of this Warrant and the Convertible Preferred
Stock and Warrants Purchase Agreement dated February 25, 2000 (the "Purchase
Agreement"), the Purchase Agreement shall control. Capitalized terms used and
not otherwise defined herein shall have the meanings set forth for such terms in
the Purchase Agreement.
<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). 3.
Exercise of Warrant. Except as provided in Section 4 herein, exercise of the
purchase rights represented by this Warrant may be made at any time or times on
or after the Initial Exercise Date, and before the close of business on the
Termination Date by the surrender of this Warrant and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company) and upon payment of the Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States bank, the
holder of this Warrant shall be entitled to receive a certificate for the number
of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within three (3) Trading Days
after the date on which this Warrant shall have been exercised as aforesaid.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes required
to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of
such shares, have been paid. If this Warrant shall have been exercised in part,
the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical with
this Warrant. . If there is no registration in effect permitting the resale by
the Holder of the Warrant Shares at any time from and after one year from the
issuance date of this Warrant, then the Holder shall have the right to a
"cashless exercise" in which the Holder shall be entitled to receive a
certificate for the number of shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
(X) = the number of shares issuable upon exercise of the Warrant in accordance
with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the Exercise
Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its shareholder books or
records in any manner which prevents the timely exercise of this Warrant.
7. Transfer,Division and Combination. (a) Subject to compliance with any
applicable securities laws, transfer of this Warrant and all rights hereunder,
in whole or in part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at the principal
office of the Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by Holder or its agent
or attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. Upon such surrender and, if required, such payment,
the Company shall executeand deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of shares of Common Stock without having a new
Warrant issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by Holder or its agent or attorney. Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 7.
(d) The Company agrees to maintain, at its aforesaid office, books
for the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price, the Warrant Shares so purchased shall
be and be deemed to be issued to such holder as the record owner of such shares
as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock
Splits, etc. The number and kind of securities purchasable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment from time to
time upon the happening of any of the following. In case the Company shall
(i) pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of them Company which
he would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
12. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant, reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
holder of this Warrant notice of such adjustment or adjustments setting forth
the number of Warrant Shares (and other securities or property) purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares (and
other securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 16(d).
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the rights of
Holder against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing the
current Exercise Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Exercise Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any successors
or assigns of the Company. This Warrant shall constitute a contract under the
laws of New York without regard to its conflict of law, principles or rules, and
be subject to arbitration pursuant to the terms set forth in the Purchase
Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Warrant;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final non-appealable judgment by a court to have resulted from
Holder's negligence, bad faith or willful misconduct in its capacity as a
stockholder or warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
(j) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant. (k) Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: February _____, 2000
SEDONA CORPORATION
By:_______________________________________
Marco A. Emrich, President and CEO
<PAGE>
NOTICE OF EXERCISE
To: SEDONA CORPORATION
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of Sedona Corporation pursuant to the
terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
____________________________________
(Name)
____________________________________
(Address)
____________________________________
Dated:
_______________________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the
warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_________________________________________________________________.
_________________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _______________________________
_______________________________
Signature Guaranteed: __________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 25,
2000, between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and Sedona Corporation, a Pennsylvania corporation
(the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Investor is purchasing from the Company, pursuant to a
Convertible Preferred Stock and Warrants Purchase Agreement dated the date
hereof (the "Purchase Agreement"), $3,000,000 Stated Value of Convertible
Preferred Stock and 100,000 Warrants to purchase shares of the Company's Common
Stock (terms not defined herein shall have the meanings ascribed to them in the
Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the Conversion Shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock
purchased pursuant to the Purchase Agreement and shares of Common Stock issuable
upon exercise of the Warrants (hereinafter referred to as the "Stock" or
"Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared effective by the Commission, and all Securities have been
disposed of pursuant to the Registration Statement, (ii) all Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Securities have been otherwise transferred to
holders who may trade such Securities without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. Restrictions on Transfer. Each Investor
acknowledges and understands that prior to the registration of the Securities as
provided herein, the Securities are "restricted securities" as defined in Rule
144 promulgated under the Securities Act. Each Investor understands that no
disposition or transfer of the Securities may be made by Investor in the absence
of (i) an opinion of counsel to the Investor, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.
With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission 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) comply with the provisions of paragraph (c)(1) of
Rule 144; and
(b) file with the Commission in a timely manner all
reports and other documents required to be filed with the Commission pursuant
to Section 13 or 15(d) under the Exchange Act by companies subject to either
of such sections, irrespective of whether the Company is then subject to such
reporting requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and
file with the Securities and Exchange Commission ("Commission"), no later than
April 10, 2000 a registration statement (on Form S-3, or other appropriate
registration statement form) under the Securities Act (the "Registration
Statement"), at the sole expense of the Company (except as provided in Section
3(c) hereof), in respect of the Investors, so as to permit a public offering and
resale of the Securities under the Act by the Investors as selling stockholders
and not as underwriters.
The Company shall use its best efforts to cause such
Registration Statement to become effective within one hundred twenty (120) days
from the filing date, or, if earlier, within five (5) days of SEC clearance to
request acceleration of effectiveness. The number of shares designated in the
Registration Statement to be registered shall include all the Warrant Shares, at
least two hundred percent (200%) of the shares issuable upon the conversion of
Series G Convertible Preferred Stock based upon the Conversion Price in
effect on the date prior to the filing date issuable upon conversion of the
Convertible Preferred Stock, and shall include appropriate language regarding
reliance upon Rule 416 to the extent permitted by the Commission. The Company
will notify the Investors and its transfer agent of the effectiveness of the
Registration Statement within one Trading Day of such event. In the event that
the number of shares so registered shall prove to be insufficient to register
the resale of all of the Securities, then the Company shall be obligated to
to file, within thirty (30) days of notice from any Investor, a further
Registration Statement registering such remaining shares and shall use diligent
best efforts to prosecute such additional Registration Statement to
effectiveness within ninety (90) days of the date of such notice.
(b) The Company will maintain the Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investors, that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all Securities have been otherwise
transferred to persons who may trade such shares without restriction under
the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictrive
legend, (v) all Securities may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) or any similar provision then in
effect under the Securities Act in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Investor (the "Effectiveness
Period"), or (vi) four (4) years from the Effective Date.
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the preparation
and filing of the Registration Statement under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees of the Company) shall be borne by the Company.
The Investors shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Securities being registered and
the fees and expenses of their counsel. The Investors and their counsel shall
have a reasonable period, not to exceed five (5) Trading Days, to review the
proposed Registration Statement or any amendment thereto, including a copy of
the Company's proposed response to any staff comments, prior to filing with the
Commission, and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within
two (2) Trading Days of receipt thereof and shall communicate any oral
advice from the Commission as to whether or not the Registration Statement will
be reviewed, and if so, how extensively. The Company shall qualify any of the
securities for sale in such states as any Investor reasonably designates and
shall furnish indemnification in the manner provided in Section 6 hereof.
However, the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or the
sellers, or which will require the Company to qualify to do business in such
state or require the Company to file therein any general consent to service of
process. The Company at its expense will supply the Investors with copies of the
applicable Registration Statement and the prospectus included therein and other
related documents in such quantities as may be reasonably requested by the
Investors.
(d) The Company shall not be required by this
Section 3 to include an Investor's Securities in any Registration Statement
which is to be filed if, in the opinion of counsel for both the Investor and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the Investor and
the Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the Securities Act.
(e) In the event that (i) the Registration
Statement to be filed by the Company pursuant to Section 3 (a) above is not
filed with the Commission by April 10, 2000, (ii) such Registration Statement is
not declared effective by the Commission within 120 (5) days of clearance by the
Commission to request effectiveness, (iii) such Registration Statement is not
maintained as effective by the Company for the period set forth in Section 3(b)
above or (iv) the additional Registration Statement referred to in Section 3(a)
is not filed within thirty (30) days or declared effective within ninety (90)
days as set forth therein (each a "Registration Default") then the Company will
pay Investor (pro rated on a daily basis), as liquidated damages for such
failure and not as a penalty two percent (2%) of the aggregate market value of
shares of Common Stock purchased from the Company (including the Conversion
Shares which would be issuable upon conversion of the Convertible Preferred
Stock on any date of determination, and whether or not the Convertible
Preferred Shares are then Convertible pursuant to their terms) and held by the
Investor for each month thereafter until such Registration Statement has been
filed, and in the event of late effectiveness (in case of clause (ii) above)
or lapsed effectiveness (in the case of clause (iii) above), two percent (2%)
of the aggregate market value of shares of Common Stock purchased from the
Company and held by the Investor (including the Conversion Shares which would
be issuable upon conversion of the Convertible Preferred Stock on any date of
determination, and whether or not the Convertible Preferred Stock are then
convertible pursuant to their terms) for each month thereafter (regardless
of whether one or more such Registration Defaults are then in existence)
until such Registration Statement has been declared effective. Such payment
of the liquidated damages shall be made to the Investors in cash, within five
(5) calendar days of demand, provided, however, that the payment of such
liquidated damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section. The market value of the
Common Stock for this purpose shall be the closing price (or last trade, if so
reported) on the Principal Market for each day during such Registration
Default. Notwithstanding anything to the contrary contained herein, a failure to
maintain the effectiveness of an filed Registration Statement or the ability
of an Investor to use an otherwise effective Registration Statement to effect
resales of Securities during the period after 45 days and within 90 days from
the end of the Company's fiscal year resulting solely from the need to update
the Company's financial statements contained or incorporated by reference in
such Registration Statement shall not constitute a Registration Default and
shall not trigger the accrual of liquidated damages hereunder.
If the Company does not remit the payment to the
Investors as set forth above, the Company will pay the Investors reasonable
costs of collection, including attorneys' fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall
not affect or limit the Investors' other rights or remedies as set forth in
this Agreement.
(f) No provision contained herein shall preclude the
Company from selling securities pursuant to any Registration Statement in
which it is required to include Securities pursuant to this Section 3.
(g) If at any time or from time to time after the
effective date of any Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below), the Investors shall not offer or sell any Securities or engage in
any other transaction involving or relating to Securities, from the time of the
giving of notice with respect to a Potential Material Event until the Investors
receive written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so suspend the
right to such holders of Securities for more than twenty (20) days in the
aggregate during any twelve month period, during the period the Registration
Statement is required to be in effect, and if such period is exceeded, such
event shall be a Registration Default. If a Potential Material Event shall
occur prior to the date a Registration Statement is required to be filed,
then the Company's obligation to file such Registration Statement shall be
delayed without penalty for not more than twenty (20) days, and such delay or
delays shall not constitute a Registration Default. The Company must, if
lawful, give the Investors notice in writing at least two (2) Trading Days
prior to the first day of the blackout period.
(h) "Potential Material Event" means any of the
following: (i) the possession by the Company of material information not ripe
for disclosure in a registration statement, if determined in good faith by
the Chief Executive Officer or the Board of Directors of the Company; or
(ii) any material engagement or activity by the Company which would, in the
good faith determination of the Chief Executive Officer or the Board of
Directors of the Company, be adversely affected by disclosure in a
registration statement at such time, which determination shall be accompanied
by a good faith determination by the Chief Executive Officer or the Board of
Directors of the Company that the applicable Registration Statement would be
materially misleading absent the inclusion of such information.
Section 4. Cooperation with Company. The Investors will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
(which shall include all information regarding the Investors and proposed manner
of sale of the Registrable Securities required to be disclosed in any
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable
Securities and entering into and performing their obligations under any
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering. Nothing in this Agreement shall obligate any Investor to
consent to be named as an underwriter in any Registration Statement. The
obligation of the Company to register the Registrable Securities shall be
absolute and unconditional as to those Securities which the Commission will
permit to be registered without naming the Investors as underwriters. Any delay
or delays caused by the Investors by failure to cooperate as required hereunder
shall not constitute a Registration Default.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Investors' assistance and cooperation as reasonably
required with respect to each Registration Statement:
(a)(i) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Act with respect to
the sale or other disposition of all securities covered by such registration
statement whenever the Investors shall desire to sell or otherwise dispose of
the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful
action such that each of (A) the Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (B) the prospectus forming part of the
Registration Statement, and any amendment or supplement thereto, does not at any
time during the Registration Period include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(b) (i) prior to the filing with the Commission of
any Registration Statement (including any amendments thereto) and (including
the distribution or delivery of any prospectus any supplements thereto),
provide draft copies thereof to the Investors as required by Section 3(c)
and reflect in such documents all such comments as the Investors (and their
counsel) reasonably may propose respecting the Selling Shareholders and Plan of
Distribution sections (or equivalents) and (ii) furnish to each Investor such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity
with the requirements of the Act, and such other documents, as such Investor
may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such Investor;
(c) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors shall reasonably request
subject to the limitations set forth in Section 3(c) above), and do any and all
other acts and things which may be necessary or advisable to enable each
Investor to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Investor;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then permitted under
the rules of such Principal Market;
(e) notify each Investor at any time when a
prospectus relating thereto covered by the Registration Statement is required
to be delivered under the Act, of the happening of any event of which it
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 omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and the Company shall prepare and file a
curative amendment under Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware
of such event, notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of
the issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Investors to facilitate
the timely preparation and delivery of certificates for the Registrable
Securities to be offered pursuant to the Registration Statement and enable
such certificates for the Registrable Securities to be in such denominations
or amounts, as the case may be, as the Investors reasonably may request and
registered in such names as the Investors may request; and, within three (3)
Trading Days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor provided
in the prospectus which are customary for issuers to perform under the
circumstances;
(i) in the event of an underwritten offering,
promptly include or incorporate in a prospectus supplement or post-effective
amendment to the Registration Statement such information as the managers
reasonably agree should be included therein and to which the Company does not
reasonably object and make all required filings of such prospectus supplement
or post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or post-
effective amendment; and
(j) maintain a transfer agent and registrar for its
Common Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law,
the Company agrees to indemnify and hold harmless the Investors and each
person, if any, who controls an Investor within the meaning of the
Securities Act (each a "Distributing Investor") against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees and expenses),
to which the Distributing Investor may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement, or any related final prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent, and only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Distributing Investor, its
counsel, affiliates or any underwriter, specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) To the maximum extent permitted by law, each
Distributing Investor agrees that it will indemnify and hold harmless the
Company, and each officer and director of the Company or person, if any,
who controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees and expenses) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, or any related final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, final prospectus or amendment or supplement thereto in reliance upon,
and in conformity with, written information furnished to the Company by such
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. Notwithstanding anything to the contrary
contained herein, the Distributing Investor shall be liable under this Section
6(b) only for that amount as does not exceed the net proceeds to such
Distributing Investor as a result of the sale of Registrable Securities pursuant
to the Registration Statement.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in respect thereof
is to be made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any
indemnified party except to the extent the failure of the indemnified party to
provide such written notification actually prejudices the ability of the
indemnifying party to defend such action. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified parties as a group shall have the right to employ one separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party unless (i)
the employment of such counsel has been specifically authorized in writing by
the indemnifying party, or (ii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the indemnifying
party and the indemnified party shall have been advised by its counsel that
there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the indemnified party or any other indemnified party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the indemnified party,
which firm shall be designated in writing by the indemnified party). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld so long as such settlement includes a full release of
claims against the indemnified party. All fees and expenses of the indemnified
party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such proceeding in a manner
not inconsistent with this Section) shall be paid to the indemnified party as
incurred, within ten (10) Trading Days of written notice thereof to the
indemnifying party (regardless of whether it is ultimately determined that an
indemnified party is not entitled to indemnification hereunder; provided that
the indemnifying party may require such indemnified party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such indemnified party is not entitled to indemnification
hereunder).
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party,
then the Company and the applicable Distributing Investor shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), in either such case (after contribution from
others) on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Investor on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Investor agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the dollar amount of the proceeds received by such
Investor from the sale of such Investor's Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) pursuant to
any Registration Statement under which such Registrable Securities are
registered under the Securities Act and (ii) underwriter be required to
undertake liability to any person hereunder for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the Registrable Securities underwritten by it and distributed
pursuant to such Registration Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be delivered as provided
in the Purchase Agreement.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. The rights granted the Investors under this
Agreement may be assigned as permitted by the Purchase Agreement.
Section 10. Additional Covenants of the Company. The Company
agrees that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when together shall constitute but one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each party hereto and delivered to the other parties. In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.
Section 12. Remedies. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise prevents the Company from complying with all of its
obligations hereunder.
Section 14. Headings. The headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made in New York by persons domiciled in New York
City and without regard to its principles of conflicts of laws. Any dispute
under this Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter referred to as the "Board of
Arbitration") selected as according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York City, New York,
and shall reach and render a decision in writing (concurred in by a majority of
the members of the Board of Arbitration) with respect to the amount, if any,
which the losing party is required to pay to the other party in respect of a
claim filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
in any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorneys' fees, in connection with such injunctive
proceeding.
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IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
SEDONA CORPORATION
By:________________________________________
Marco A. Emrich, President and CEO
AMRO International, S.A.
By:________________________________________
H. U. Bachofen, Director
Markham Holdings Limited
By:________________________________________
H. U. Bachofen, Director
Aspen International Limited
By:________________________________________
Authorized Signatory
The Cuttyhunk Fund Limited
By:________________________________________
Authorized Signatory
The George S.Sarlo 1995 Charitable Remainder Trust
By:________________________________________
Authorized Signatory
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Sedona Corporation
for the registration of 3,320,603 shares of its common stock and to the
incorporation by reference therein of our report dated March 16, 2000, with
respect to the consolidated financial statements of Sedona Corporation included
in its Annual Report (Form 10-K) for the year ended December 31, 1999, filed
with the Securities and Exchange Commission.
Philadelphia, Pennsylvania
April 5, 2000
Consent of Independent Certified Public Accountants
Sedona Corporation
Limerick, Pennsylvania
We hereby consent to the incorporation by reference into Registration Statement
on Form S-3 and related prospectus for the registration of 3,320,603 shares of
common stock of our report dated March 13, 1998, except for Note 14 which is
dated March 27, 1998, relating to the consolidated statements of operations,
stockholders' equity, and cash flows for the year ended December 31, 1997 of
Sedona Corporation (formerly Scan-Graphics, Inc.) included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Philadelphia, Pennsylvania
April 5, 2000
