SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 30, 1996
Glasgal Communications, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-20688 94-2914253
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
151 Veterans Drive, Northvale, New Jersey 07647
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(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 768-8082
N/A
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
On September 30, 1996, October 29, 1996, and November 15,
1996, the Company consummated three separate financings with Southbrook
International Investments, Ltd. ("Southbrook"). The financings were consummated
pursuant to a Convertible Preferred Stock Purchase Agreement dated September 30,
1996 (the "Series A Stock Purchase Agreement") and a Convertible Preferred Stock
Purchase Agreement dated October 29, 1996 (the "Series B and C Stock Purchase
Agreement" and together with the Series A Stock Purchase Agreement, the "Stock
Purchase Agreements"). Copies of the Stock Purchase Agreements are attached
hereto as exhibits and incorporated herein by reference.
In connection with the Stock Purchase Agreements, the
Registrant issued to Southbrook 250,000 shares of Series A Convertible Preferred
Stock (the "Series A Preferred Shares"), 25,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Shares"), and 75,000 shares of Series C
Convertible Preferred Stock (the "Series C Preferred Shares" and together with
the Series A Preferred Shares and the Series B Preferred Shares, the "Preferred
Shares"). The gross proceeds received by the Registrant from the issuances of
the Preferred Shares was $7,000,000, which resulted in net proceeds of
approximately $6,590,000. The Registrant is using such net proceeds to fund its
working capital needs and the working capital needs of its recently acquired
subsidiary, Datatec Industries Inc.
The Preferred Shares are convertible into the Registrant's
Common Stock at variable prices based upon their respective conversion formulas.
The conversion formula for the Series A Preferred Shares is equal to the
Adjusted Face Amount (as defined below) on the date of conversion divided by the
lower of (i) the average per share closing bid price of the Common Stock for the
five (5) trading days immediately preceding the original issue date for the
Series A Preferred Shares, or (ii) 80% of the average closing bid price per
share of Common Stock for the five (5) trading days immediately preceding the
conversion date. The conversion formula for the Series B Preferred Shares and
the Series C Preferred Shares is equal to the Adjusted Face Amount on the date
of conversion divided by the lower of (i) the average per share closing bid
price of the Common Stock for the five (5) trading days immediately preceding
the original issue date for the Series B Preferred Shares or the Series C
Preferred Shares, as the case may be, or (ii) 69.5% of the average closing bid
price per share of Common Stock for the five (5) trading days immediately
preceding the conversion date of such shares. The "Adjusted Face Amount" in
respect of each of the Preferred Shares shall equal the sum of (i) $20.00, plus
(ii) an amount equal to 6% per annum, which dividend rate shall accrue daily
commencing the original issue date for the Series A Preferred Shares, the Series
B Preferred Shares, or the Series C Preferred Shares, as the case may be, and
which shall continue to accrue until all amounts in respect of the Preferred
Shares shall have
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been paid in full to the holders thereof, calculated at the date of payment to
the holder of such stock. Reference is made to the Certificates of Designation
for the respective Preferred Shares and the Restated Registration Rights
Agreement dated as of October 29, 1996, each of which are attached hereto as
exhibits, for additional information concerning the rights, preferences and
privileges of the Preferred Shares, as well as the future obligations of the
Registrant.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(c) Exhibits:
(4.1) Certificate of Designation of Series A Convertible
Preferred Stock of Glasgal Communications, Inc.
(4.2) Certificate of Designation of Series B Convertible
Preferred Stock of Glasgal Communications, Inc.
(4.3) Certificate of Designation of Series C Convertible
Preferred Stock of Glasgal Communications, Inc.
(10.1) Convertible Preferred Stock Purchase Agreement,
dated as of September 30, 1996, by and between
Glasgal Communications, Inc. and Southbrook
International Investments, Ltd.
(10.2) Convertible Preferred Stock Purchase Agreement,
dated as of October 29, 1996, by and between
Glasgal Communications, Inc. and Southbrook
International Investments, Ltd.
(10.3) Amended and Restated Registration Rights
Agreement, dated as of October 29, 1996, by and
between Glasgal Communications, Inc. and
Southbrook International Investments, Ltd.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLASGAL COMMUNICATIONS, INC.
By: /s/ James Caci
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James Caci
Chief Financial Officer
DATE: November 27, 1996
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Exhibit Index
(4.1) Certificate of Designation of Series A Convertible
Preferred Stock of Glasgal Communications, Inc.
(4.2) Certificate of Designation of Series B Convertible
Preferred Stock of Glasgal Communications, Inc.
(4.3) Certificate of Designation of Series C Convertible
Preferred Stock of Glasgal Communications, Inc.
(10.1) Convertible Preferred Stock Purchase Agreement,
dated as of September 30, 1996, by and between
Glasgal Communications, Inc. and Southbrook
International Investments, Ltd.
(10.2) Convertible Preferred Stock Purchase Agreement,
dated as of October 29, 1996, by and between
Glasgal Communications, Inc. and Southbrook
International Investments, Ltd.
(10.3) Amended and Restated Registration Rights
Agreement, dated as of October 29, 1996, by and
between Glasgal Communications, Inc. and
Southbrook International Investments, Ltd.
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CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
GLASGAL COMMUNICATIONS, INC.
The undersigned, Ralph Glasgal and James Caci hereby certify that:
I. They are the duly elected and acting President and Secretary,
respectively, of Glasgal Communications, Inc., a Delaware corporation (the
"Company").
II. The Certificate of Incorporation of the Company authorizes
4,000,000 shares of preferred stock, par value $.001 per share, none of which
are issued and outstanding.
III. The following is a true and correct copy of resolutions duly
adopted by the Board of Directors at a meeting duly held September 26, 1996,
which constituted all requisite action on the part of the Company for adoption
of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") is authorized to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof;
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid, to designate a new series of preferred stock, set the number of
shares constituting such series and fix the rights, preferences, privileges and
restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of preferred stock and the number of shares constituting
such series and fixes the rights, preferences, privileges and restrictions
relating to such series as follows:
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of Preferred
Stock shall be designated as the Series A Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 250,000. The
par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $20 per share (the "Stated Value").
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Section 2. DIVIDENDS.
(a) Holders of Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor,
and the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 6% per annum, payable, in
cash or shares of Common Stock, in arrears on the Conversion Date (as
hereinafter defined) or such earlier time as the Company shall determine.
Dividends on the Preferred Stock shall accrue daily commencing on the Original
Issue Date (as defined in Section 7) and shall be deemed to accrue on such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for any
dividend payment will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such dividend payment date,
without regard to any sale or disposition of such Preferred Stock subsequent to
the applicable record date but prior to the applicable dividend payment date.
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued to any class of Preferred Stock, such
payment shall be distributed ratably among the holders of such class based upon
the number of shares held by each holder.
(b) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 7),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities unless all
dividends on the Preferred Stock for all past dividend periods shall have been
paid.
Section 3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise provided by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of the
shares of the Preferred Stock then outstanding, (i) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or (ii) authorize
or create any class of stock ranking as to dividends or distribution of assets
upon a Liquidation (as defined below) senior to, prior to or pari passu with the
Preferred Stock.
Section 4. LIQUIDATION. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the holders
of shares of Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value, plus an amount equal to
accrued but unpaid dividends per share, whether declared or not, but without
interest, before any distribution or payment shall be made to the holders of
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any Junior Securities, and if the assets of the Company shall be insufficient to
pay in full such amounts, then the entire assets to be distributed shall be
distributed among the holders of Preferred Stock ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. A sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of shall be deemed a
Liquidation; PROVIDED that, a consolidation or merger of the Company with or
into any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such liquidation, not less than 60 days prior to the
payment date stated therein, to each record holder of Preferred Stock.
Section 5. CONVERSION.
(a) Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Ratio (as defined in Section 7) at the option of
the holder in whole or in part at any time after the expiration of the earlier
to occur of (i) 75 days after the Original Issue Date and (ii) the date that the
Securities and Exchange Commission (the "Commission") declares effective under
the Securities Act of 1933, as amended (the "Securities Act"), the registration
statement contemplated by the Registration Rights Agreement, dated the Original
Issue Date (the "Registration Rights Agreement"), by and between the Company and
the original holder of Preferred Stock relating to the Preferred Stock and the
shares of Common Stock into which the Preferred Stock is convertible in
accordance with the terms hereof. The holder shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as EXHIBIT A (the "Holder Conversion Notice")
in the manner set forth in Section 5(i). Each Holder Conversion Notice shall
specify the number of shares of Preferred Stock to be converted and the date on
which such conversion is to be effected, which date may not be prior to the date
the Holder delivers such Notice by facsimile (the "Holder Conversion Date").
Subject to Section 5(c) and, as to the original Holder (or its sole designee),
subject to Section 4.13 of the Purchase Agreement (as defined in Section 7),
each Holder Conversion Notice, once given, shall be irrevocable. If the holder
is converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the holder with the Holder Conversion
Notice, the Company shall promptly deliver to the holder a certificate for such
number of shares as have not been converted.
(b) Provided that ten (10) Trading Days (as defined in Section 7 shall
have elapsed from the date the Commission declared the registration statement
contemplated by the Registration Rights Agreement effective under the Securities
Act and such registration statement is then effective, each share of the
Preferred Stock shall be convertible into shares of Common Stock at the
Conversion Ratio at the option of the Company in whole or in part at any time on
or after the expiration of one year after the Original Issue Date, upon not less
than 10 days notice; PROVIDED, HOWEVER, that the Company is not permitted to
deliver a
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Company Conversion Notice (as defined below) within ten (10) days of issuing any
press release or other public statement relating to such conversion. The Company
shall effect such conversion by delivering to the holders of such shares of
Preferred Stock to be converted a written notice in the form attached hereto as
EXHIBIT B (the "Company Conversion Notice"), which Company Conversion Notice,
once given, shall be irrevocable. Each Company Conversion Notice shall specify
the number of shares of Preferred Stock to be converted and the date on which
such conversion is to be effected, which date will be at least one (1) Trading
Day after the date the Company delivers such Notice by facsimile to the holder
(the "Company Conversion Date"). The Company shall give such Company Conversion
Notice in accordance with Section 5(i) below at least one (1) Trading Day before
the Company Conversion Date. Any such conversion shall be effected on a pro rata
basis among the holders of Preferred Stock. Upon the conversion of shares of
Preferred Stock pursuant to a Company Conversion Notice, the holders of the
Preferred Stock shall surrender the certificates representing such shares at the
office of the Company or of any transfer agent for the Preferred Stock or Common
Stock. If the Company is converting less than all shares of the Preferred Stock,
the Company shall, upon conversion of such shares subject to such Company
Conversion Notice and receipt of the certificate or certificates representing
such shares of Preferred Stock deliver to the holder or holders a certificate
for such number of shares of Preferred Stock as have not been converted. Each of
a Holder Conversion Notice and a Company Conversion Notice is sometimes referred
to herein as a "Conversion Notice," and each of a "Holder Conversion Date" and a
"Company Conversion Date" is sometimes referred to herein as a "Conversion
Date."
(c) Not later than three (3) Trading Days after the Conversion Date,
the Company will deliver to the holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
then required by law and as set forth in the Purchase Agreement, representing
the number of shares of Common Stock being acquired upon the conversion of
shares of Preferred Stock and (ii) one or more certificates representing the
number of shares of Preferred Stock not converted; PROVIDED, HOWEVER that the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the holder notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate security
reasonably acceptable to the Company) satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection therewith. The Company
shall, upon request of the holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 5(c) electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. In the case of a
conversion pursuant to a Holder Conversion Notice, if such certificate or
certificates are not delivered by the date required under this Section 5(c), the
holder shall be entitled by written notice to the Company at any time on or
before such holder's receipt of such certificate or certificates thereafter, to
rescind such conversion, in
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which event the Company shall immediately return the certificates representing
the shares of Preferred Stock tendered for conversion.
(d) (i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
the average Per Share Market Value for the five (5) Trading Days immediately
preceding the Original Issue Date or (b) 80% of the average Per Share Market
Value for the five (5) Trading Days immediately preceding the Conversion Date;
PROVIDED, HOWEVER, (x) if the registration statement to be filed by the Company
in accordance with the Registration Rights Agreement is not filed with and
declared effective by the Commission on or prior to the Effectiveness Date (as
defined in the Registration Rights Agreement), or (y) if such registration
statement filed is declared effective but thereafter ceases to be effective at
any time during the Effectiveness Period (as defined in the Registration Rights
Agreement) without being succeeded within 30 days by a subsequent registration
statement filed with and declared effective by the Commission (any such failure
being hereinafter referred to as an "Event", and for purposes of clause (x), the
date on which such Event occurs, or for purposes of clause (y), the date on
which such 30-day limit is exceeded, being hereinafter referred to as an "Event
Date"), the Conversion Price shall be decreased by 3% for each of the first two
months after such Event Date (i.e., 77% at the commencement of the first such
month and 74% at the commencement of the second such month). Commencing on the
third month after an Event Date, the 3% monthly penalty shall be paid to the
Holder in cash on the first day of each such month.
(ii) If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Junior Securities payable in shares of its
capital stock (whether payable in shares of its Common Stock or of capital stock
of any class), (b) subdivide outstanding shares of Common Stock into a larger
number of shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the Conversion Price designated in
Section 5(d)(i) shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section 5(d)(ii) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred Stock
are outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value of Common Stock at the record
date mentioned below, the Conversion Price designated in Section 5(d)(i) shall
be multiplied by a fraction, of which the denominator shall be the number of
shares of Common Stock (excluding treasury shares, if any)
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outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price designated in Section
5(d)(i) pursuant to this Section 5(d)(iii), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price designated in
Section 5(d)(i) shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion Price
made pursuant to the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Section 5(d)(iii) above) then in each such case the Conversion Price at which
each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith; PROVIDED, HOWEVER that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock; and PROVIDED, FURTHER that the
Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in which case the fair market value
shall be equal to the average of the determinations by each such Appraiser. In
either case the adjustments shall be described in a statement provided to all
holders of Preferred Stock of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be
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made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to Section
5(d)(ii),(iii), (iv) or (v), the Company shall promptly mail to each holder of
Preferred Stock, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such shares only into the
shares of stock and other securities and property receivable upon or deemed to
be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities or property as the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the holder of Preferred Stock the right to receive the securities or
property set forth in this Section 5(d)(vii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
a. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
b. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
c. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
d. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
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Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other
securities, cash or property; or
e. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; PROVIDED, HOWEVER, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Preferred Stock, such number of shares of Common Stock
as shall be issuable (taking into account the adjustments and restrictions of
Section 5(b) and Section 5(d) hereof) upon the conversion of all outstanding
shares of Preferred Stock, which number of shares shall not be less than twice
the number of shares of such Common Stock that would be issuable upon conversion
in full of the Preferred Stock were such conversion effected on the Original
Issue Date. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid and nonassessable.
(f) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make
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such a cash payment, the holder of a share of Preferred Stock shall be entitled
to receive, in lieu of the final fraction of a share, one whole share of Common
Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
(i) Each Holder Conversion Notice shall be given by facsimile and by
mail, postage prepaid, addressed to the attention of the Chief Financial Officer
of the Company at the facsimile telephone number and address of the principal
place of business of the Company. Each Company Conversion Notice shall be given
by facsimile and by mail, postage prepaid, addressed to each holder of Preferred
Stock at the facsimile telephone number and address of such holder appearing on
the books of the Company or provided to the Company by such holder for the
purpose of such Company Conversion Notice, or if no such facsimile telephone
number or address appears or is so provided, at the principal place of business
of the holder. Any such notice shall be deemed given and effective upon the
earliest to occur of (i)(a) if such Conversion Notice is delivered via facsimile
at the facsimile telephone number specified in this Section 5(i) prior to 7:30
p.m. (Eastern Standard Time) on any date, such date (or, in the case of a
Company Conversion Notice, the next Trading Day) or such later date as is
specified in the Conversion Notice, and (b) if such Conversion Notice is
delivered via facsimile at the facsimile telephone number specified in this
Section 5(i) after 11:59 p.m. (Eastern Standard Time) on any date, the next date
(or, in the case of a Company Conversion Notice, the next Trading Day after such
next day) or such later date as is specified in the Conversion Notice, (ii) five
days after deposit in the United States mails or (iii) upon actual receipt by
the party to whom such notice is required to be given.
Section 6. REDEMPTION AT THE OPTION OF THE COMPANY.
(a) The Company shall have the right, exercisable at any time upon 20
days notice to the Purchaser given in the manner set forth in Section 5(i) (the
"Optional Redemption Notice"), to redeem, from funds legally available therefor
at the time of such redemption, all or any portion of the shares of Preferred
Stock then owned by the Purchaser at a price per share of Preferred Stock (the
"Optional Redemption Price") equal to the product of (i) the average Per Share
Market Value for the five Trading Days immediately
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<PAGE>
preceding (1) the date of the Optional Redemption Notice or (2) the date of
payment in full by the Company of the Optional Redemption Price, whichever is
greater, and (ii) the Conversion Ratio calculated on (1) the date of the
Optional Redemption Notice or (2) the date of payment by the Company of the
Optional Redemption Price, whichever date yields a lower Conversion Price
denominator for the determination of the Conversion Ratio. Subject to the
provisions of paragraph (b) below, the entire Optional Redemption Price shall be
paid in cash.
(b) If the Optional Redemption Notice is delivered after the date on
which the Commission has declared effective under the Securities Act the
registration statement contemplated by the Registration Rights Agreement (and
such registration statement is at such time, and at the time of payment of the
Optional Redemption Price, effective), then the Company shall have the right to
pay in shares of Common Stock such portion of the Optional Redemption Price as
equals the Optional Redemption Premium. The "Optional Redemption Premium" equals
the difference of (1) the Optional Redemption Price, as calculated pursuant to
paragraph (a) above, and (2) the Optional Redemption Price calculated as if the
average Per Share Market Value for the five Trading Days immediately preceding
the Original Issue Date was greater than the average Per Share Market Value for
the five Trading Days immediately preceding (x) the date of the Optional
Redemption Notice or (y) the date of payment in full by the Company of the
Optional Redemption Price, whichever is greater.
(c) If the Optional Redemption Price shall not be paid, and/or if the
Company shall have elected to pay the Optional Redemption Premium in shares of
Common Stock as provided in paragraph (b) above but shall not have delivered
such shares of Common Stock to the Purchaser, in either such case, within three
Trading Days of the 20th day after the Conversion Date, then the Company shall
pay as liquidated damages and not as a penalty the sum of $2,000 per day in cash
until such Optional Redemption Price, together with all such liquidated damages,
is paid in full. In addition, if the Company shall have failed to pay any of the
cash portion of the Optional Redemption Price within such three Trading Day
period, then the Purchaser may demand that the Company (i) convert all or any
portion of its shares of Preferred Stock for which the cash portion of the
Optional Redemption Price shall not have been paid (the "Unredeemed Shares") at
a Conversion Price per Share calculated as at the date the Company provided the
Optional Redemption Notice or the date of such conversion, whichever is lower,
or (ii) promptly return all of the Unredeemed Shares to the Purchaser.
(d) Nothing contained in this Section 6 shall affect the Purchaser's
right to convert shares of Preferred Stock for the 20 days from the date it
receives the Optional Redemption Notice.
Section 7. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
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<PAGE>
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York are authorized or required by law or other government actions to close.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, par value $.001, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq Small Cap
Market or other national securities exchange on which the Common Stock has been
listed or if there is no such price on such date, then the closing bid price on
such national securities exchange or market on the date nearest preceding such
date, or (b) if the Common Stock is not listed on the Nasdaq Small Cap Market or
any national securities exchange or market, the closing bid for a share of
Common Stock in the over-the-counter market, as reported by the Nasdaq Small Cap
Market at the close of business on such date, or (c) if the Common Stock is not
quoted on the Nasdaq Small Cap Market, the closing bid price for a share of
Common Stock in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), or (d) if the Common Stock is no longer
reported by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), then the average of
the "Pink Sheet" quotes for the relevant conversion period as determined by the
Holder, or (e) if the Common Stock is no longer publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser (as defined in
Section 5(d)(iv) above) selected in good faith by the Holders of a majority in
interest of the shares of the Preferred Stock; PROVIDED, HOWEVER, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
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<PAGE>
"Purchase Agreement" means the Convertible Preferred Stock Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Small Cap Market or principal national securities exchange or market
on which the Common Stock has been listed, or (b) if the Common Stock is not
listed on the Nasdaq Small Cap Market or any stock exchange or market, a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the Nasdaq Small Cap Market, or (c) if the Common Stock is not quoted on the
Nasdaq Small Cap Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
RESOLVED FURTHER, that the President and Secretary of the Company be,
and they hereby are, authorized and directed to prepare, execute, verify, and
file in Delaware, a Certificate of Designation in accordance with these
resolutions and as required by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, Glasgal Communications, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by Ralph
Glasgal, its President, and attested by James Caci, its Secretary, this 30th day
of September, 1996.
GLASGAL COMMUNICATIONS, INC.
By: /s/ Ralph Glasgal
--------------------------------
Ralph Glasgal, President
Attest:
By: /s/ James Caci
--------------------------------
James Caci, Secretary
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series A Convertible Preferred Stock indicated below, into shares of Common
Stock, par value U.S.$.001 per share (the "Common Stock"), of Glasgal
Communications, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
------------------------------------
Date to Effect Conversion
------------------------------------
Number of shares of Preferred Stock
to be Converted
------------------------------------
Applicable Conversion Price
------------------------------------
Signature
------------------------------------
Name:
------------------------------------
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, the holder may, within one day of its
receipt of the notice from the Company, revoke the conversion requested hereby
to the extent that it determines that such conversion would result in it owning
in excess of 4.9% of the outstanding shares of Common Stock on such date, and
the Company shall issue to the holder one or more certificates representing
shares of Preferred Stock which have not been converted as a result of this
provision. If the holder waives the applicability of this limitation by notice
to the Company delivered upon its receipt of the Company's notice regarding the
number of outstanding shares of Common Stock or if the Purchaser fails to
respond to the Company's notice within one day thereafter, the Company shall
effect in full the conversion requested in this notice.
<PAGE>
EXHIBIT B
GLASGAL COMMUNICATIONS, INC.
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Glasgal Communications, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert [ ] shares of its Series A Convertible
Preferred Stock held by the Holder into shares of Common Stock, par value
U.S.$.001 per share (the "Common Stock") of the Company according to the terms
hereof, as of the date written below. No fee will be charged to the holder for
any conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person other
than the person to whom this notice is addressed.
Conversion calculations:
------------------------------------
Date to Effect Conversion
------------------------------------
Number of Shares of Preferred Stock
to be Converted
------------------------------------
Applicable Conversion Price
------------------------------------
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
------------------------------------
Signature
------------------------------------
Name:
------------------------------------
Address:
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
GLASGAL COMMUNICATIONS, INC.
The undersigned, Isaac Gaon and James Caci hereby certify
that:
I. They are the duly elected and acting Chief Executive
Officer and Secretary, respectively, of Glasgal Communications, Inc., a Delaware
corporation (the "Company").
II. The Certificate of Incorporation of the Company authorizes
4,000,000 shares of preferred stock, par value $.001 per share, of which 250,000
shares of Series A Convertible Preferred Stock, par value $.001 per share (the
"Series A Preferred Stock"), have been authorized and issued through the date
hereof.
III. The following is a true and correct copy of resolutions
duly adopted by the Board of Directors at a meeting duly held October 23, 1996,
which constituted all requisite action on the part of the Company for adoption
of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") is authorized to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof;
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
Preferred Stock shall be designated as the Series B Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 25,000.
The par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $20 per share (the "Stated Value").
<PAGE>
Section 2. DIVIDENDS.
(a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally available
therefor, and the Company shall pay, cumulative dividends at the rate per share
(as a percentage of the Stated Value per share) equal to 6% per annum, payable,
in cash or shares of Common Stock, in arrears on the Conversion Date (as
hereinafter defined) or such earlier time as the Company shall determine.
Dividends on the Preferred Stock shall accrue daily commencing on the Original
Issue Date (as defined in Section 7) and shall be deemed to accrue on such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for any
dividend payment will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such dividend payment date,
without regard to any sale or disposition of such Preferred Stock subsequent to
the applicable record date but prior to the applicable dividend payment date.
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued to any class of Preferred Stock, such
payment shall be distributed ratably among the holders of such class based upon
the number of shares held by each holder.
(b) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid.
(c) The Preferred Stock shall rank pari passu with respect to
dividends, liquidation and other rights with the Series A Preferred Stock and
with the Series C Preferred Stock (as defined in Section 7), if and to the
extent Series C Preferred Stock is issued pursuant to the Purchase Agreement (as
defined in Section 7).
Section 3. VOTING RIGHTS. Except as otherwise provided herein
and as otherwise provided by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority of
the shares of the Preferred Stock then outstanding, (i) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or (ii)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined below) senior to, prior to or (except
as provided in paragraph (c) of this Section 3) pari passu with the Preferred
Stock.
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<PAGE>
Section 4. LIQUIDATION. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of shares of Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for each
share of Preferred Stock an amount equal to the Stated Value, plus an amount
equal to accrued but unpaid dividends per share, whether declared or not, but
without interest, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of shall be deemed a
Liquidation; PROVIDED that, a consolidation or merger of the Company with or
into any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such liquidation, not less than 60 days prior to the
payment date stated therein, to each record holder of Preferred Stock.
Section 5. CONVERSION.
(a) Each share of Preferred Stock shall be convertible into
shares of Common Stock at the Conversion Ratio (as defined in Section 7) at the
option of the holder in whole or in part at any time after the expiration of the
earlier to occur of (i) 75 days after the Original Issue Date and (ii) the date
that the Securities and Exchange Commission (the "Commission") declares
effective under the Securities Act of 1933, as amended (the "Securities Act"),
the registration statement contemplated by the Registration Rights Agreement
dated as of September 30, 1996 by and between the Company and the original
holder of Preferred Stock, as amended by the Amended and Restated Registration
Rights Agreement dated as of October 29, 1996 between such parties (the
"Registration Rights Agreement") relating to shares of Common Stock into which
the Series A Preferred Stock and the Preferred Stock is convertible. The holder
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with the form of conversion notice attached hereto as EXHIBIT A (the
"Holder Conversion Notice") in the manner set forth in Section 5(i). Each Holder
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Notice by facsimile (the
"Holder Conversion Date"). Subject to Section 5(c) and, as to the original
Holder (or its sole designee), subject to Section 4.13 of the Purchase
Agreement, each Holder Conversion Notice, once given, shall be irrevocable. If
the holder is converting less than all shares of Preferred Stock represented by
the certificate or certificates tendered by the holder with the Holder
Conversion Notice, the Company shall promptly deliver to the holder a
certificate for such number of shares as have not been converted.
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<PAGE>
(b) Provided that ten (10) Trading Days (as defined in Section
7 shall have elapsed from the date the Commission declared the registration
statement to be filed by the Company in accordance with the Registration Rights
Agreement relating to the shares of Common Stock into which Preferred Stock is
convertible effective under the Securities Act and such registration statement
is then effective, each share of the Preferred Stock shall be convertible into
shares of Common Stock at the Conversion Ratio at the option of the Company in
whole or in part at any time on or after the expiration of one year after the
Original Issue Date, upon not less than 10 days notice; PROVIDED, HOWEVER, that
the Company is not permitted to deliver a Company Conversion Notice (as defined
below) within ten (10) days of issuing any press release or other public
statement relating to such conversion. The Company shall effect such conversion
by delivering to the holders of such shares of Preferred Stock to be converted a
written notice in the form attached hereto as EXHIBIT B (the "Company Conversion
Notice"), which Company Conversion Notice, once given, shall be irrevocable.
Each Company Conversion Notice shall specify the number of shares of Preferred
Stock to be converted and the date on which such conversion is to be effected,
which date will be at least one (1) Trading Day after the date the Company
delivers such Notice by facsimile to the holder (the "Company Conversion Date").
The Company shall give such Company Conversion Notice in accordance with Section
5(i) below at least one (1) Trading Day before the Company Conversion Date. Any
such conversion shall be effected on a pro rata basis among the holders of
Preferred Stock. Upon the conversion of shares of Preferred Stock pursuant to a
Company Conversion Notice, the holders of the Preferred Stock shall surrender
the certificates representing such shares at the office of the Company or of any
transfer agent for the Preferred Stock or Common Stock. If the Company is
converting less than all shares of the Preferred Stock, the Company shall, upon
conversion of such shares subject to such Company Conversion Notice and receipt
of the certificate or certificates representing such shares of Preferred Stock
deliver to the holder or holders a certificate for such number of shares of
Preferred Stock as have not been converted. Each of a Holder Conversion Notice
and a Company Conversion Notice is sometimes referred to herein as a "Conversion
Notice," and each of a "Holder Conversion Date" and a "Company Conversion Date"
is sometimes referred to herein as a "Conversion Date."
(c) Not later than three (3) Trading Days after the Conversion
Date, the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those then required by law and as set forth in the Purchase Agreement,
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock and (ii) one or more certificates
representing the number of shares of Preferred Stock not converted; PROVIDED,
HOWEVER that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon conversion of any shares of Preferred
Stock until certificates evidencing such shares of Preferred Stock are either
delivered for conversion to the Company or any transfer agent for the Preferred
Stock or Common Stock, or the holder notifies the Company that such certificates
have been lost, stolen or destroyed and provides a bond (or other adequate
security reasonably acceptable to the Company) satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. The
Company
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<PAGE>
shall, upon request of the holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 5(c) electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. In the case of a
conversion pursuant to a Holder Conversion Notice, if such certificate or
certificates are not delivered by the date required under this Section 5(c), the
holder shall be entitled by written notice to the Company at any time on or
before such holder's receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
(d) (i) The conversion price for each share of Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(a) the average Per Share Market Value for the five (5) Trading Days immediately
preceding the Original Issue Date or (b) 69.5% of the average Per Share Market
Value for the five (5) Trading Days immediately preceding the Conversion Date;
PROVIDED, HOWEVER, (x) if the registration statement to be filed by the Company
in accordance with the Registration Rights Agreement relating to shares of
Common Stock into which the Series A Preferred Stock and the Preferred Stock is
convertible is not filed with the Commission on or prior to the Initial Filing
Date (as defined in the Registration Rights Agreement), (y) if such registration
statement is not declared effective by the Commission on or prior to the Initial
Effectiveness Date (as defined in the Registration Rights Agreement) or (z) if
such registration statement is filed and declared effective but thereafter
ceases to be effective at any time during the Effectiveness Period (as defined
in the Registration Rights Agreement) therefor without being succeed within 30
days by a subsequent registration statement filed with and declared effective by
the Commission (any such failure being hereinafter referred to as an "Event",
and for purposes of clause (x) and (y), the date on which such Event occurs, or
for purposes of clause (z), the date on which such 30-day limit is exceeded,
being hereinafter referred to as an "Event Date"), the Conversion Price shall be
decreased by 3% for each of the first two months after such Event Date (i.e.,
66.5% at the commencement of the first such month and 63.5% at the commencement
of the second such month). Commencing on the third month after an Event Date,
the 3% monthly penalty shall be paid to the Holder in cash on the first day of
each such month. Such decrease in the Conversion Price and/or payment in cash,
as the case may be, shall be paid as liquidated damages, and not as a penalty,
to each Holder; PROVIDED, that such liquidated damages will, in each case, cease
to accrue (subject to the occurrence of another Event) on the date in which such
registration statement is no longer subject to an order suspending the
effectiveness thereof or Proceedings (as defined in the Registration Rights
Agreement) relating thereto or a subsequent registration Statement (as defined
in the Registration Rights Agreement) is declared effective.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of its capital stock (whether payable in shares of its Common Stock or
of capital stock of any class), (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of
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<PAGE>
Common Stock into a smaller number of shares, or (d) issue by reclassification
of shares of Common Stock any shares of capital stock of the Company, the
Conversion Price designated in Section 5(d)(i) shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 5(d)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Conversion Price designated in Section
5(d)(i) shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Per Share Market Value. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price designated in Section
5(d)(i) pursuant to this Section 5(d)(iii), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price designated in
Section 5(d)(i) shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion Price
made pursuant to the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to holders of Preferred Stock) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any security (excluding those
referred to in Section 5(d)(iii) above) then in each such case the Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of
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<PAGE>
Common Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors in
good faith; PROVIDED, HOWEVER that in the event of a distribution exceeding ten
percent (10%) of the net assets of the Company, such fair market value shall be
determined by a nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock; and PROVIDED, FURTHER that the
Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in which case the fair market value
shall be equal to the average of the determinations by each such Appraiser. In
either case the adjustments shall be described in a statement provided to all
holders of Preferred Stock of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted
pursuant to Section 5(d)(ii),(iii), (iv) or (v), the Company shall promptly mail
to each holder of Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such shares only into the
shares of stock and other securities and property receivable upon or deemed to
be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities or property as the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the holder of Preferred Stock the right to receive the securities or
property set forth in this Section 5(d)(vii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
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<PAGE>
(viii) If:
a. the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
b. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
c. the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any
shares of capital stock of any
class or of any rights; or
d. the approval of any stockholders of
the Company shall be required in
connection with any
reclassification of the Common
Stock of the Company (other than a
subdivision or combination of the
outstanding shares of Common
Stock), any consolidation or merger
to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of
the Company, or any compulsory
share exchange whereby the Common
Stock is converted into other
securities, cash or property; or
e. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or
winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; PROVIDED, HOWEVER, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
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<PAGE>
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
persons other than the holders of Preferred Stock, such number of shares of
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(b) and Section 5(d) hereof) upon the conversion of all
outstanding shares of Preferred Stock, which number of shares shall not be less
than twice the number of shares of such Common Stock that would be issuable upon
conversion in full of the Preferred Stock were such conversion effected on the
Original Issue Date. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
preferred stock.
(i) Each Holder Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to the attention of the Chief Financial
Officer of the Company at the facsimile telephone number and address of the
principal place of business of the Company. Each Company Conversion Notice shall
be given by facsimile and by mail, postage prepaid, addressed to each holder of
Preferred Stock at the facsimile telephone number and address of such holder
appearing on the books of the Company or provided to the Company by such holder
for the purpose of such Company Conversion Notice, or if no such facsimile
telephone number or address appears or is so provided, at the principal place of
business of the holder. Any such notice shall be deemed given and effective upon
the earliest to occur of (i)(a) if such Conversion Notice is delivered via
facsimile at the facsimile telephone number specified in this Section 5(i) prior
to 7:30 p.m. (Eastern Standard Time) on
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<PAGE>
any date, such date (or, in the case of a Company Conversion Notice, the next
Trading Day) or such later date as is specified in the Conversion Notice, and
(b) if such Conversion Notice is delivered via facsimile at the facsimile
telephone number specified in this Section 5(i) after 11:59 p.m. (Eastern
Standard Time) on any date, the next date (or, in the case of a Company
Conversion Notice, the next Trading Day after such next day) or such later date
as is specified in the Conversion Notice, (ii) five days after deposit in the
United States mails or (iii) upon actual receipt by the party to whom such
notice is required to be given.
Section 6. REDEMPTION AT THE OPTION OF THE COMPANY.
(a) The Company shall have the right, exercisable at any time
upon 20 days notice to the Purchaser given in the manner set forth in Section
5(i) (the "Optional Redemption Notice"), to redeem, from funds legally available
therefor at the time of such redemption, all or any portion of the shares of
Preferred Stock then owned by the Purchaser at a price per share of Preferred
Stock (the "Optional Redemption Price") equal to the product of (i) the average
Per Share Market Value for the five Trading Days immediately preceding (1) the
date of the Optional Redemption Notice or (2) the date of payment in full by the
Company of the Optional Redemption Price, whichever is greater, and (ii) the
Conversion Ratio calculated on (1) the date of the Optional Redemption Notice or
(2) the date of payment by the Company of the Optional Redemption Price,
whichever date yields a lower Conversion Price denominator for the determination
of the Conversion Ratio. Subject to the provisions of paragraph (b) below, the
entire Optional Redemption Price shall be paid in cash.
(b) If the Optional Redemption Notice is delivered after the
date on which the Commission has declared effective under the Securities Act the
registration statement to be filed by the Company in accordance with the
Registration Rights Agreement (and such registration statement is at such time,
and at the time of payment of the Optional Redemption Price, effective) relating
to the shares of Common Stock into which the Preferred Stock is convertible,
then the Company shall have the right to pay in shares of Common Stock such
portion of the Optional Redemption Price as equals the Optional Redemption
Premium. The "Optional Redemption Premium" equals the difference of (1) the
Optional Redemption Price, as calculated pursuant to paragraph (a) above, and
(2) the Optional Redemption Price calculated as if the average Per Share Market
Value for the five Trading Days immediately preceding the Original Issue Date
was greater than the average Per Share Market Value for the five Trading Days
immediately preceding (x) the date of the Optional Redemption Notice or (y) the
date of payment in full by the Company of the Optional Redemption Price,
whichever is greater.
(c) If the Optional Redemption Price shall not be paid, and/or
if the Company shall have elected to pay the Optional Redemption Premium in
shares of Common Stock as provided in paragraph (b) above but shall not have
delivered such shares of Common Stock to the Purchaser, in either such case,
within three Trading Days of the 20th day after the Conversion Date, then the
Company shall pay as liquidated damages and not as a penalty the
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<PAGE>
sum of $2,000 per day in cash until such Optional Redemption Price, together
with all such liquidated damages, is paid in full. In addition, if the Company
shall have failed to pay any of the cash portion of the Optional Redemption
Price within such three Trading Day period, then the Purchaser may demand that
the Company (i) convert all or any portion of its shares of Preferred Stock for
which the cash portion of the Optional Redemption Price shall not have been paid
(the "Unredeemed Shares") at a Conversion Price per Share calculated as at the
date the Company provided the Optional Redemption Notice or the date of such
conversion, whichever is lower, or (ii) promptly return all of the Unredeemed
Shares to the Purchaser.
(d) Nothing contained in this Section 6 shall affect the
Purchaser's right to convert shares of Preferred Stock for the 20 days from the
date it receives the Optional Redemption Notice.
Section 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, par value $.001, of the Company and stock of any other
class into which such shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends, and of which
the denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company other than the Series A Preferred Stock and the
Series C Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number transfers
of any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq Small
Cap Market or other national securities exchange on which the Common Stock has
been listed or if there is no such price on such date, then the closing bid
price on such national securities exchange or market on the date nearest
preceding such date, or (b) if the Common Stock is not listed on the Nasdaq
Small Cap Market or any national securities exchange or market, the closing bid
for a share of Common Stock in the over-the-counter market, as reported by the
Nasdaq
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<PAGE>
Small Cap Market at the close of business on such date, or (c) if the Common
Stock is not quoted on the Nasdaq Small Cap Market, the closing bid price for a
share of Common Stock in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), or (d) if the Common Stock is no longer
reported by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), then the average of
the "Pink Sheet" quotes for the relevant conversion period as determined by the
Holder, or (e) if the Common Stock is no longer publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser (as defined in
Section 5(d)(iv) above) selected in good faith by the Holders of a majority in
interest of the shares of the Preferred Stock; PROVIDED, HOWEVER, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of October 29, 1996, between the Company and the
original Holder of the Preferred Stock.
"Series C Preferred Stock" means the Company's Series C
Convertible Preferred Stock, par value $.001 per share, issuable in accordance
with the terms of the Purchase Agreement.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq Small Cap Market or principal national securities exchange
or market on which the Common Stock has been listed, or (b) if the Common Stock
is not listed on the Nasdaq Small Cap Market or any stock exchange or market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the Nasdaq Small Cap Market, or (c) if the Common Stock is not
quoted on the Nasdaq Small Cap Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
RESOLVED FURTHER, that the Chief Executive Officer and
Secretary of the Company be, and they hereby are, authorized and directed to
prepare, execute, verify, and file in Delaware, a Certificate of Designation in
accordance with these resolutions and as required by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, Glasgal Communications, Inc. has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Isaac Gaon, its Chief Executive Officer, and attested by James Caci, its
Secretary, this 29th day of October, 1996.
GLASGAL COMMUNICATIONS, INC.
By: /s/ Isaac Gaon
-------------------------------------
Isaac Gaon, Chief Executive Officer
Attest:
By: /s/ James Caci
-------------------------------------
James Caci, Secretary
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series B Convertible Preferred Stock indicated below, into shares of Common
Stock, par value U.S.$.001 per share (the "Common Stock"), of Glasgal
Communications, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
--------------------------------------------
Date to Effect Conversion
--------------------------------------------
Number of shares of Preferred Stock to be
Converted
--------------------------------------------
Applicable Conversion Price
--------------------------------------------
Signature
--------------------------------------------
Name:
--------------------------------------------
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, the holder may, within one day of its
receipt of the notice from the Company, revoke the conversion requested hereby
in whole or in part if it determines that such conversion would result in it
owning in excess of 4.9% of the outstanding shares of Common Stock on such date,
and the Company shall issue to the holder one or more certificates representing
shares of Preferred Stock which have not been converted as a result of this
provision. If the holder waives the applicability of this limitation by notice
to the Company delivered upon its receipt of the Company's notice regarding the
number of outstanding shares of Common Stock or if the Purchaser fails to
respond to the Company's notice within one day thereafter, the Company shall
effect in full the conversion requested in this notice.
<PAGE>
EXHIBIT B
GLASGAL COMMUNICATIONS, INC.
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Glasgal Communications, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert ___________ shares of its Series B Convertible
Preferred Stock held by the Holder into shares of Common Stock, par value
U.S.$.001 per share (the "Common Stock") of the Company according to the terms
hereof, as of the date written below. No fee will be charged to the holder for
any conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person other
than the person to whom this notice is addressed.
Conversion calculations:
--------------------------------------------
Date to Effect Conversion
--------------------------------------------
Number of Shares of Preferred Stock to be
Converted
--------------------------------------------
Applicable Conversion Price
--------------------------------------------
Number of Shares of Common Stock outstanding
at close of trading on Conversion Date
--------------------------------------------
Signature
--------------------------------------------
Name:
--------------------------------------------
Address:
CERTIFICATE OF DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
GLASGAL COMMUNICATIONS, INC.
The undersigned, Isaac Gaon and James Caci hereby certify
that:
I. They are the duly elected and acting Chief Executive
Officer and Secretary, respectively, of Glasgal Communications, Inc., a Delaware
corporation (the "Company").
II. The Certificate of Incorporation of the Company
authorizes 4,000,000 shares of preferred stock, par value $.001 per share, of
which 250,000 shares of Series A Convertible Preferred Stock, par value $.001
per share (the "Series A Preferred Stock"), and 25,000 shares of Series B
Convertible Preferred Stock, par value $.001 per share (the "Series B Preferred
Stock"), have been authorized and issued through the date hereof.
III. The following is a true and correct copy of resolutions
duly adopted by the Board of Directors at a meeting duly held October 23, 1996,
which constituted all requisite action on the part of the Company for adoption
of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") is authorized to provide for the issuance of the shares of preferred
stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof;
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
Section 1. Designation, Amount and Par Value. The series of
----------------------------------
Preferred Stock shall be designated as the Series C Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 75,000.
The par value of each share of Preferred Stock shall be $.001. Each share of
Preferred Stock shall have a stated value of $20 per share (the "Stated Value").
<PAGE>
Section 2. Dividends.
----------
(a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally available
therefor, and the Company shall pay, cumulative dividends at the rate per share
(as a percentage of the Stated Value per share) equal to 6% per annum, payable,
in cash or shares of Common Stock, in arrears on the Conversion Date (as
hereinafter defined) or such earlier time as the Company shall determine.
Dividends on the Preferred Stock shall accrue daily commencing on the Original
Issue Date (as defined in Section 7) and shall be deemed to accrue on such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for any
dividend payment will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such dividend payment date,
without regard to any sale or disposition of such Preferred Stock subsequent to
the applicable record date but prior to the applicable dividend payment date.
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued to any class of Preferred Stock, such
payment shall be distributed ratably among the holders of such class based upon
the number of shares held by each holder.
(b) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid.
(c) The Preferred Stock shall rank pari passu with respect to
dividends, liquidation and other rights with the Series A Preferred Stock and
with the Series B Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein
--------------
and as otherwise provided by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority of
the shares of the Preferred Stock then outstanding, (i) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or (ii)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined below) senior to, prior to or (except
as provided in paragraph (c) of this Section 3) pari passu with the Preferred
Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or
------------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of shares of
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<PAGE>
Preferred Stock shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value, plus an amount equal to accrued but unpaid
dividends per share, whether declared or not, but without interest, before any
distribution or payment shall be made to the holders of any Junior Securities,
and if the assets of the Company shall be insufficient to pay in full such
amounts, then the entire assets to be distributed shall be distributed among the
holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of shall be deemed a Liquidation; provided that, a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
liquidation, not less than 60 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 5. Conversion.
-----------
(a) Each share of Preferred Stock shall be convertible into
shares of Common Stock at the Conversion Ratio (as defined in Section 7) at the
option of the holder in whole or in part at any time after the expiration of the
earlier to occur of (i) 75 days after the Original Issue Date and (ii) the date
that the Securities and Exchange Commission (the "Commission") declares
effective under the Securities Act of 1933, as amended (the "Securities Act"),
the registration statement contemplated by the Registration Rights Agreement
dated as of September 30, 1996 by and between the Company and the original
holder of Preferred Stock, as amended by the Amended and Restated Registration
Rights Agreement dated as of October 29, 1996 between such parties (the
"Registration Rights Agreement") relating to shares of Common Stock into which
the Preferred Stock is convertible. The holder shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Holder Conversion Notice")
in the manner set forth in Section 5(i). Each Holder Conversion Notice shall
specify the number of shares of Preferred Stock to be converted and the date on
which such conversion is to be effected, which date may not be prior to the date
the Holder delivers such Notice by facsimile (the "Holder Conversion Date").
Subject to Section 5(c) and, as to the original Holder (or its sole designee),
subject to Section 4.13 of the Purchase Agreement, each Holder Conversion
Notice, once given, shall be irrevocable. If the holder is converting less than
all shares of Preferred Stock represented by the certificate or certificates
tendered by the holder with the Holder Conversion Notice, the Company shall
promptly deliver to the holder a certificate for such number of shares as have
not been converted.
(b) Provided that ten (10) Trading Days (as defined in Section
7 shall have elapsed from the date the Commission declared the registration
statement to be filed by the Company in accordance with the Registration Rights
Agreement relating to Shares of
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<PAGE>
Common Stock into which the Preferred Stock is Convertible effective under the
Securities Act and such registration statement is then effective, each share of
the Preferred Stock shall be convertible into shares of Common Stock at the
Conversion Ratio at the option of the Company in whole or in part at any time on
or after the expiration of one year after the Original Issue Date, upon not less
than 10 days notice; provided, however, that the Company is not permitted to
deliver a Company Conversion Notice (as defined below) within ten (10) days of
issuing any press release or other public statement relating to such conversion.
The Company shall effect such conversion by delivering to the holders of such
shares of Preferred Stock to be converted a written notice in the form attached
hereto as Exhibit B (the "Company Conversion Notice"), which Company Conversion
Notice, once given, shall be irrevocable. Each Company Conversion Notice shall
specify the number of shares of Preferred Stock to be converted and the date on
which such conversion is to be effected, which date will be at least one (1)
Trading Day after the date the Company delivers such Notice by facsimile to the
holder (the "Company Conversion Date"). The Company shall give such Company
Conversion Notice in accordance with Section 5(i) below at least one (1) Trading
Day before the Company Conversion Date. Any such conversion shall be effected on
a pro rata basis among the holders of Preferred Stock. Upon the conversion of
shares of Preferred Stock pursuant to a Company Conversion Notice, the holders
of the Preferred Stock shall surrender the certificates representing such shares
at the office of the Company or of any transfer agent for the Preferred Stock or
Common Stock. If the Company is converting less than all shares of the Preferred
Stock, the Company shall, upon conversion of such shares subject to such Company
Conversion Notice and receipt of the certificate or certificates representing
such shares of Preferred Stock deliver to the holder or holders a certificate
for such number of shares of Preferred Stock as have not been converted. Each of
a Holder Conversion Notice and a Company Conversion Notice is sometimes referred
to herein as a "Conversion Notice," and each of a "Holder Conversion Date" and a
"Company Conversion Date" is sometimes referred to herein as a "Conversion
Date."
(c) Not later than three (3) Trading Days after the Conversion
Date, the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those then required by law and as set forth in the Purchase Agreement,
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock and (ii) one or more certificates
representing the number of shares of Preferred Stock not converted; provided,
however that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon conversion of any shares of Preferred
Stock until certificates evidencing such shares of Preferred Stock are either
delivered for conversion to the Company or any transfer agent for the Preferred
Stock or Common Stock, or the holder notifies the Company that such certificates
have been lost, stolen or destroyed and provides a bond (or other adequate
security reasonably acceptable to the Company) satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. The
Company shall, upon request of the holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 5(c) electronically through the Depository Trust Corporation or another
established clearing corporation performing similar
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<PAGE>
functions. In the case of a conversion pursuant to a Holder Conversion Notice,
if such certificate or certificates are not delivered by the date required under
this Section 5(c), the holder shall be entitled by written notice to the Company
at any time on or before such holder's receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the Company
shall immediately return the certificates representing the shares of Preferred
Stock tendered for conversion.
(d) (i) The conversion price for each share of Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
(a) the average Per Share Market Value for the five (5) Trading Days immediately
preceding the Original Issue Date or (b) 69.5% of the average Per Share Market
Value for the five (5) Trading Days immediately preceding the Conversion Date;
provided, however, (x) if the registration statement to be filed by the Company
in accordance with the Registration Rights Agreement relating to shares of
Common Stock into which the Preferred Stock is convertible is not filed with the
Commission on or prior to the Series C Filing Date (as defined in the
Registration Rights Agreement), (y) if such registration statement is not
declared effective by the Commission on or prior to the Series C Effectiveness
Date (as defined in the Registration Rights Agreement) or (z) if such
registration statement is filed and declared effective but thereafter ceases to
be effective at any time during the Effectiveness Period (as defined in the
Registration Rights Agreement) therefor without being succeed within 30 days by
a subsequent registration statement filed with and declared effective by the
Commission (any such failure being hereinafter referred to as an "Event", and
for purposes of clause (x) and (y), the date on which such Event occurs, or for
purposes of clause (z), the date on which such 30-day limit is exceeded, being
hereinafter referred to as an "Event Date"), the Conversion Price shall be
decreased by 3% for each of the first two months after such Event Date (i.e.,
66.5% at the commencement of the first such month and 63.5% at the commencement
of the second such month). Commencing on the third month after an Event Date,
the 3% monthly penalty shall be paid to the Holder in cash on the first day of
each such month. Such decrease in the Conversion Price and/or payment in cash,
as the case may be, shall be paid as liquidated damages, and not as a penalty,
to each Holder; provided, that such liquidated damages will, in each case, cease
to accrue (subject to the occurrence of another Event) on the date in which such
registration statement is no longer subject to an order suspending the
effectiveness thereof or Proceedings (as defined in the Registration Rights
Agreement) relating thereto or a subsequent registration Statement (as defined
in the Registration Rights Agreement) is declared effective.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its Common Stock or of
capital stock of any class), (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, the Conversion Price
designated in Section 5(d)(i) shall be multiplied by a fraction of which the
numerator shall be the
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number of shares of Common Stock outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 5(d)(ii) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Conversion Price designated in Section
5(d)(i) shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Per Share Market Value. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price designated in Section
5(d)(i) pursuant to this Section 5(d)(iii), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price designated in
Section 5(d)(i) shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Conversion Price
made pursuant to the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those referred
to in Section 5(d)(iii) above) then in each such case the Conversion Price at
which each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence
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<PAGE>
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided, however
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
the shares of Preferred Stock; and provided, further that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to all holders of
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted
pursuant to Section 5(d)(ii),(iii), (iv) or (v), the Company shall promptly mail
to each holder of Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such shares only into the
shares of stock and other securities and property receivable upon or deemed to
be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities or property as the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the holder of Preferred Stock the right to receive the securities or
property set forth in this Section 5(d)(vii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
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a. the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
b. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
c. the Company shall authorize the
granting to all holders of the Common
Stock rights or warrants to subscribe
for or purchase any shares of capital
stock of any class or of any rights;
or
d. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company
(other than a subdivision or
combination of the outstanding shares
of Common Stock), any consolidation
or merger to which the Company is a
party, any sale or transfer of all or
substantially all of the assets of
the Company, or any compulsory share
exchange whereby the Common Stock is
converted into other securities, cash
or property; or
e. the Company shall authorize the
voluntary or involuntary dissolution,
liquidation or winding-up of the
affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock as herein provided,
free from preemptive rights or any
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<PAGE>
other actual contingent purchase rights of persons other than the holders of
Preferred Stock, such number of shares of Common Stock as shall be issuable
(taking into account the adjustments and restrictions of Section 5(b) and
Section 5(d) hereof) upon the conversion of all outstanding shares of Preferred
Stock, which number of shares shall not be less than twice the number of shares
of such Common Stock that would be issuable upon conversion in full of the
Preferred Stock were such conversion effected on the Original Issue Date. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid and
nonassessable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
preferred stock.
(i) Each Holder Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to the attention of the Chief Financial
Officer of the Company at the facsimile telephone number and address of the
principal place of business of the Company. Each Company Conversion Notice shall
be given by facsimile and by mail, postage prepaid, addressed to each holder of
Preferred Stock at the facsimile telephone number and address of such holder
appearing on the books of the Company or provided to the Company by such holder
for the purpose of such Company Conversion Notice, or if no such facsimile
telephone number or address appears or is so provided, at the principal place of
business of the holder. Any such notice shall be deemed given and effective upon
the earliest to occur of (i)(a) if such Conversion Notice is delivered via
facsimile at the facsimile telephone number specified in this Section 5(i) prior
to 7:30 p.m. (Eastern Standard Time) on any date, such date (or, in the case of
a Company Conversion Notice, the next Trading Day) or such later date as is
specified in the Conversion Notice, and (b) if such Conversion Notice is
delivered via facsimile at the facsimile telephone number specified in this
Section 5(i) after
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<PAGE>
11:59 p.m. (Eastern Standard Time) on any date, the next date (or, in the case
of a Company Conversion Notice, the next Trading Day after such next day) or
such later date as is specified in the Conversion Notice, (ii) five days after
deposit in the United States mails or (iii) upon actual receipt by the party to
whom such notice is required to be given.
Section 6. Redemption at the Option of the Company.
----------------------------------------
(a) The Company shall have the right, exercisable at any time
upon 20 days notice to the Purchaser given in the manner set forth in Section
5(i) (the "Optional Redemption Notice"), to redeem, from funds legally available
therefor at the time of such redemption, all or any portion of the shares of
Preferred Stock then owned by the Purchaser at a price per share of Preferred
Stock (the "Optional Redemption Price") equal to the product of (i) the average
Per Share Market Value for the five Trading Days immediately preceding (1) the
date of the Optional Redemption Notice or (2) the date of payment in full by the
Company of the Optional Redemption Price, whichever is greater, and (ii) the
Conversion Ratio calculated on (1) the date of the Optional Redemption Notice or
(2) the date of payment by the Company of the Optional Redemption Price,
whichever date yields a lower Conversion Price denominator for the determination
of the Conversion Ratio. Subject to the provisions of paragraph (b) below, the
entire Optional Redemption Price shall be paid in cash.
(b) If the Optional Redemption Notice is delivered after the
date on which the Commission has declared effective under the Securities Act the
registration statement to be filed by the Company in accordance with the
Registration Rights Agreement (and such registration statement is at such time,
and at the time of payment of the Optional Redemption Price, effective) relating
to the shares of Common Stock into which the Preferred Stock is Convertible,
then the Company shall have the right to pay in shares of Common Stock such
portion of the Optional Redemption Price as equals the Optional Redemption
Premium. The "Optional Redemption Premium" equals the difference of (1) the
Optional Redemption Price, as calculated pursuant to paragraph (a) above, and
(2) the Optional Redemption Price calculated as if the average Per Share Market
Value for the five Trading Days immediately preceding the Original Issue Date
was greater than the average Per Share Market Value for the five Trading Days
immediately preceding (x) the date of the Optional Redemption Notice or (y) the
date of payment in full by the Company of the Optional Redemption Price,
whichever is greater.
(c) If the Optional Redemption Price shall not be paid, and/or
if the Company shall have elected to pay the Optional Redemption Premium in
shares of Common Stock as provided in paragraph (b) above but shall not have
delivered such shares of Common Stock to the Purchaser, in either such case,
within three Trading Days of the 20th day after the Conversion Date, then the
Company shall pay as liquidated damages and not as a penalty the sum of $2,000
per day in cash until such Optional Redemption Price, together with all such
liquidated damages, is paid in full. In addition, if the Company shall have
failed to pay any of the cash portion of the Optional Redemption Price within
such three Trading Day period,
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<PAGE>
then the Purchaser may demand that the Company (i) convert all or any portion of
its shares of Preferred Stock for which the cash portion of the Optional
Redemption Price shall not have been paid (the "Unredeemed Shares") at a
Conversion Price per Share calculated as at the date the Company provided the
Optional Redemption Notice or the date of such conversion, whichever is lower,
or (ii) promptly return all of the Unredeemed Shares to the Purchaser.
(d) Nothing contained in this Section 6 shall affect the
Purchaser's right to convert shares of Preferred Stock for the 20 days from the
date it receives the Optional Redemption Notice.
Section 7. Definitions. For the purposes hereof, the following
------------
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, par value $.001, of the Company and stock of any other
class into which such shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends, and of which
the denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company other than the Series A Preferred Stock and the
Series B Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number transfers
of any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq Small
Cap Market or other national securities exchange on which the Common Stock has
been listed or if there is no such price on such date, then the closing bid
price on such national securities exchange or market on the date nearest
preceding such date, or (b) if the Common Stock is not listed on the Nasdaq
Small Cap Market or any national securities exchange or market, the closing bid
for a share of Common Stock in the over-the-counter market, as reported by the
Nasdaq Small Cap Market at the close of business on such date, or (c) if the
Common Stock is not quoted on the Nasdaq Small Cap Market, the closing bid price
for a share of Common Stock in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or
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<PAGE>
similar organization or agency succeeding to its functions of reporting prices),
or (d) if the Common Stock is no longer reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period as determined by the Holder, or (e) if the Common
Stock is no longer publicly traded the fair market value of a share of Common
Stock as determined by an Appraiser (as defined in Section 5(d)(iv) above)
selected in good faith by the Holders of a majority in interest of the shares of
the Preferred Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of October 29, 1996, between the Company and the
original Holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq Small Cap Market or principal national securities exchange
or market on which the Common Stock has been listed, or (b) if the Common Stock
is not listed on the Nasdaq Small Cap Market or any stock exchange or market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the Nasdaq Small Cap Market, or (c) if the Common Stock is not
quoted on the Nasdaq Small Cap Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
RESOLVED FURTHER, that the Chief Executive Officer and
Secretary of the Company be, and they hereby are, authorized and directed to
prepare, execute, verify, and file in Delaware, a Certificate of Designation in
accordance with these resolutions and as required by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Glasgal Communications, Inc. has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Isaac Gaon, its Chief Executive Officer, and attested by James Caci, its
Secretary, this 14th day of November, 1996.
GLASGAL COMMUNICATIONS, INC.
By: /s/ Isaac Gaon
-------------------------------
Name: Isaac Gaon
Title: Chief Executive Officer
Attest:
By: /s/ James Caci
---------------------
Name: James Caci
Title: Secretary
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series C Convertible Preferred Stock indicated below, into shares of Common
Stock, par value U.S.$.001 per share (the "Common Stock"), of Glasgal
Communications, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
---------------------------------------------
Date to Effect Conversion
---------------------------------------------
Number of shares of Preferred Stock to be
Converted
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Signature
---------------------------------------------
Name:
---------------------------------------------
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, the holder may, within one day of its
receipt of the notice from the Company, revoke the conversion requested hereby
in whole or in part if it determines that such conversion would result in it
owning in excess of 4.9% of the outstanding shares of Common Stock on such date,
and the Company shall issue to the holder one or more certificates representing
shares of Preferred Stock which have not been converted as a result of this
provision. If the holder waives the applicability of this limitation by notice
to the Company delivered upon its receipt of the Company's notice regarding the
number of outstanding shares of Common Stock or if the Purchaser fails to
respond to the Company's notice within one day thereafter, the Company shall
effect in full the conversion requested in this notice.
<PAGE>
EXHIBIT B
GLASGAL COMMUNICATIONS, INC.
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Glasgal Communications, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert ___________ shares of its Series C Convertible
Preferred Stock held by the Holder into shares of Common Stock, par value
U.S.$.001 per share (the "Common Stock") of the Company according to the terms
hereof, as of the date written below. No fee will be charged to the holder for
any conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person other
than the person to whom this notice is addressed.
Conversion calculations:
---------------------------------------------
Date to Effect Conversion
---------------------------------------------
Number of Shares of Preferred Stock to be
Converted
---------------------------------------------
Applicable Conversion Price
---------------------------------------------
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
---------------------------------------------
Signature
---------------------------------------------
Name:
---------------------------------------------
Address:
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
By and Among
GLASGAL COMMUNICATIONS, INC.
and
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
------------------------------
Dated as of September 30, 1996
------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I CERTAIN DEFINITIONS............................................1
Section 1.1. Certain Definitions...............................1
ARTICLE II PURCHASE OF SHARES.............................................3
Section 2.1. Purchase of Shares; Closing......................3
ARTICLE III REPRESENTATIONS AND WARRANTIES.................................4
Section 3.1. Representations and Warranties
of the Company......................4
Section 3.2. Representations and Warranties
of the Purchaser....................8
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES...............................10
Section 4.1. Transfer Restrictions...........................10
Section 4.2. Stop Transfer Instruction...........11
Section 4.3. Furnishing of Information.......................11
Section 4.4. Notice of Certain Events........................12
Section 4.5. Copies and Use of Disclosure
Materials..........................12
Section 4.6. Modification to Disclosure
Materials..........................12
Section 4.7. Blue Sky Laws...................................12
Section 4.8. Integration.....................................13
Section 4.9. Furnishing of Rule 144A Materials...............13
Section 4.10. Solicitation Materials.........................13
Section 4.11. Subsequent Financial Statements................13
Section 4.12. Right of First Refusal;
Certain Corporate Actions..........13
Section 4.13. Purchaser Ownership of Common
Stock..............................14
Section 4.14. Availability of Common Stock...................15
Section 4.15. Listing of Underlying Shares...................15
Section 4.16. Purchaser's Rights if Trading
in Common Stock is Suspended.......15
Section 4.17. Conversion Procedures..........................16
ARTICLE V CONDITIONS PRECEDENT TO CLOSING...............................16
Section 5.1. Conditions Precedent to
Obligations of the
Purchaser.....................................16
Section 5.2. Conditions Precedent to
Obligations of the Company....................18
ARTICLE VI TERMINATION...................................................18
Section 6.1. Termination by Mutual Consent...................18
Section 6.2. Termination by the Company
or the Purchaser...............................19
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PAGE
Section 6.3. Termination by the Company......................19
Section 6.4. Termination by the Purchaser....................19
ARTICLE VII MISCELLANEOUS.................................................20
Section 7.1. Fees and Expenses...............................20
Section 7.2. Entire Agreement; Amendments....................20
Section 7.3. Notices.........................................21
Section 7.4. Amendments; Waivers.............................22
Section 7.5. Headings........................................22
Section 7.6. Successors and Assigns..........................22
Section 7.7. No Third Party Beneficiaries....................22
Section 7.8. Governing Law...................................22
Section 7.9. Survival........................................22
Section 7.10. Counterpart Signatures..........................22
Section 7.11. Publicity.......................................23
Section 7.12. Severability....................................23
Section 7.13. Remedies........................................23
Exhibit A Certificate of Designation
Exhibit B Registration Rights Agreement
Exhibit C Form of Opinion of Olshan Grundman Frome &
Rosenzweig, LLP, counsel for the Company
Exhibit D Conversion Procedures
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
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<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
September 30, 1996 (this "AGREEMENT"), by and among Glasgal Communications,
Inc., a Delaware corporation (the "COMPANY"), and Southbrook International
Investments, Ltd., a corporation organized and existing under the laws of
British Virgin Islands (the "PURCHASER").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire shares of the Company's Series A
Convertible Preferred Stock, par value $.001 per share (the "PREFERRED STOCK").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. CERTAIN DEFINITIONS. As used in this Agreement,
and unless the context requires a different meaning, the following terms have
the meanings indicated:
"AFFILIATE" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
"CLOSING" shall have the meaning set forth in Section 2.1(b).
"CLOSING DATE" shall have the meaning set forth in Section
2.1(b).
"CERTIFICATE OF DESIGNATION" shall have the meaning set forth
in Section 2.1(a).
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"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value
$.001 per share.
"DISCLOSURE MATERIALS" means, collectively, the SEC Documents,
the disclosure package delivered to the Purchaser in connection with the
offering by the Company of the Shares and the Schedules to this Agreement
furnished by or on behalf of the Company pursuant to Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, charge or security interest of any kind in or on such asset
or the revenues or income thereon or therefrom.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in
Section 3.1(A).
"PER SHARE MARKET VALUE" shall have the meaning set forth in
the Certificate of Designation.
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" shall have the meaning set forth in the
recitals hereto.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.1(a).
"REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement, substantially in the form of EXHIBIT B, as the same may be amended,
supplemented or otherwise modified in accordance with its terms.
"REQUIRED APPROVALS" shall have the meaning set forth
in Section 3.1(f).
"SEC DOCUMENTS" shall have the meaning set forth in
Section 3.1(l).
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Preferred Stock purchased by the
Purchaser pursuant to this Agreement.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning set forth
in Section 4.12.
"SUBSEQUENT SALE" shall have the meaning set forth in Section
4.12.
"SUBSIDIARIES" shall have the meaning set forth in Section
3.1(a).
"TRADING DAY" shall have the meaning set forth in the
Certificate of Designation.
"UNDERLYING SHARES" means the shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Certificate of Designation.
ARTICLE II
PURCHASE OF SHARES
Section 2.1. PURCHASE OF SHARES; CLOSING.
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 250,000 Shares, which shall have the
respective rights, preferences and privileges set forth in EXHIBIT A (the
"CERTIFICATE OF DESIGNATION"), at a price per Share of US$20.
The "PURCHASE PRICE" shall equal $5,000,000.
(b) The closing of the purchase and sale of the Shares (the
"CLOSING") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP, 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof, or at such other time and/or place as the
Purchaser and the Company may agree, PROVIDED, HOWEVER, in no case shall the
Closing take place later than the fifth day after the last of the conditions
listed in ARTICLE V is satisfied or waived by the appropriate party. The date of
the Closing is hereinafter referred to as the "CLOSING DATE".
(c) At the Closing, (i) the Company shall deliver to the
Purchaser (A) one or more stock certificates representing the Shares purchased
hereunder, registered in the name of the Purchaser and (B) all documents,
instruments and writings
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required to have been delivered at or prior to Closing by the Company pursuant
to this Agreement, (ii) the Purchaser shall deliver to the Company (A) the
Purchase Price less the legal fees and disbursements contemplated in Section 7.1
that are incurred through the Closing Date, in United States dollars in
immediately available funds by wire transfer to an account designated in writing
by the Company prior to the Closing and (B) all documents, instruments and
writings required to have been delivered at or prior to Closing by the Purchaser
pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in the SEC Documents or in SCHEDULE 3.1(A) (collectively, the
"SUBSIDIARIES"). Each of the Subsidiaries is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not have, individually or in the aggregate, have a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. Each of this
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Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
SCHEDULE 3.1(C). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in SCHEDULE 3.1(C), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares hereunder, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. Neither the Company nor
any Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, bylaws or other charter documents.
(d) ISSUANCE OF SHARES. The Shares are duly authorized and,
when paid for in accordance with the terms hereof, shall be validly issued,
fully paid and nonassessable. The Company has and at all times while the Shares
are outstanding will maintain a reserve of shares of Common Stock to enable it
to perform its obligations under this Agreement and the Certificate of
Designation, which reserve shall be no less than twice the number of shares of
Common Stock that would be issuable upon a conversion of all of the Shares
assuming such conversion occurred on the Original Issue Date. When issued in
accordance with the terms hereof and the Certificate of Designation, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its
certificate of incorporation or bylaws (each as amended through the date hereof)
or (ii) subject to obtaining the consents referred to in SECTION 3.1(F),
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination,
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amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) to the knowledge of the
Company result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth
in SCHEDULE 3.1(F) or as have been obtained or made, neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Agreement and the
Registration Rights Agreement, except for (i) the filing of the Certificate of
Designation with respect to the Shares with the Secretary of State of Delaware,
which filing shall be effected on or prior to the Closing Date, (ii) the filing
of the registration statement covering the Underlying Shares with the Commission
and the making of the applicable blue- sky filings under state securities laws,
each as contemplated by the Registration Rights Agreement, and (iii) other than,
in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, would not
materially impair or delay the ability of the Company to effect the Closing and
deliver to the Purchaser the Shares (and, upon conversion of the Shares
hereunder, the Underlying Shares) in the manner contemplated hereby and the
Registration Rights Agreement free and clear of all Liens (together with the
consents, waivers, authorizations, orders, notices and filings referred to in
SCHEDULE 3.1(F), the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed
in the Disclosure Materials or in SCHEDULE 3.1(G), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, State,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of this Agreement, the Registration Rights Agreement
or the Shares (ii) could, individually or in the aggregate, have a Material
Adverse Effect or (iii) could, individually or in the
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aggregate, materially impair the ability of the Company to perform fully on a
timely basis its obligations under this Agreement or the Registration Rights
Agreement.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of this
Agreement or the Registration Rights Agreement, (y) have a Material Adverse
Effect or (z) adversely impair the Company's ability or obligation to perform
fully on a timely basis its obligations under this Agreement or the Registration
Rights Agreement.
(i) CERTAIN FEES. Except for a fee of $250,000 payable by the
Company to Barry Minsky, no fees or commissions will be payable by the Company
to any broker, finder, investment banker or bank with respect to the
consummation of the transactions contemplated hereby.
(j) DISCLOSURE MATERIALS. The Disclosure Materials do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(k) PRIVATE OFFERING. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Shares under the Securities Act) which might subject the offering, issuance or
sale of the Shares to the registration requirements of Section 5 of the
Securities Act.
(l) SEC DOCUMENTS. The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC DOCUMENTS") on a
timely basis, or has received a valid extension of such time of filing. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of
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the SEC Documents, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, except as may be otherwise
indicated in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments. Since the date of
the financial statements included in the Company's last filed Quarterly Report
on Form 10-Q, there has been no event, occurrence or development that has had a
Material Adverse Effect which is not specifically disclosed in any of the
Disclosure Materials.
(m) EXCLUSIVITY. The Company shall not issue and sell the
Series A Convertible Preferred Stock to any Person other than the Purchaser.
(n) SENIORITY. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation, dissolution
or otherwise.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase of the Shares by the
Purchaser hereunder has been duly authorized by all necessary action on the part
of the Purchaser. Each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Purchaser or on its behalf and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
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(b) INVESTMENT INTENT. The Purchaser is acquiring the Shares
and the Underlying Shares for its own account (and/or on behalf of managed
accounts who are purchasing solely for their own accounts for investment) for
investment purposes only and not with a view to or for distributing or reselling
such Shares or Underlying Shares or any part thereof or interest therein,
without prejudice, however, to the Purchaser's right, subject to the provisions
of this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Shares or Underlying Shares under
an effective registration statement under the Securities Act and in compliance
with applicable State securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser (and any
account for which it is purchasing) was offered the Shares, it (and any account
for which it is purchasing) was, and at the date hereof, it (and any account for
which it is purchasing) is, and at the Closing Date, it (and any account for
which it is purchasing) will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment in the Shares and,
at the present time, is able to afford a complete loss of such investment.
(f) PROHIBITED TRANSACTIONS. The Shares to be purchased by the
Purchaser are not being acquired, directly or indirectly, with the assets of any
"employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(g) ACCESS TO INFORMATION. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Shares and the merits and risks of investing
in the Shares; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Common
Stock; and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an
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informed investment decision with respect to the Shares and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials.
(h) RELIANCE. The Purchaser understands and acknowledges that
(i) the Shares are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption, depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in ARTICLE III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. TRANSFER RESTRICTIONS. If the Purchaser should
decide to dispose of any of the Shares to be purchased by it hereunder (and upon
conversion thereof, any Underlying Shares), the Purchaser understands and agrees
that it may do so only pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of any
Shares other than pursuant to an effective registration statement or to the
Company, the Company may require that the transferor of such Shares provide to
the Company an opinion of counsel experienced in the area of United States
securities laws selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such Shares under the Securities Act
or any State securities laws.
The Purchaser agrees to the imprinting, so long as
appropriate, of the following legend on certificates representing the Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, THEY MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
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PERSONS EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. IF THE PROPOSED
TRANSFER IS TO BE MADE OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 PROMULGATED UNDER
THE SECURITIES ACT.
The legend set forth above may be removed if and when the
Shares represented by such certificate or the Underlying Shares, as the case may
be, are disposed of pursuant to an effective registration statement under the
Securities Act or in the opinion of counsel to the Company experienced in the
area of United States securities laws such legend is no longer required under
applicable requirements of the Securities Act. The stock certificates
representing the Shares and the Underlying Shares shall also bear any other
legends required by applicable Federal or state securities laws, which legends
may be removed when, in the opinion of counsel to the Company experienced in the
applicable securities laws, such legends are no longer required under the
applicable requirements of such securities laws. The Company agrees that it will
provide the Purchaser, upon request, with a substitute stock certificate or
certificates, free from such legend at such time as such legend is no longer
applicable. The Purchaser agrees that, in connection with any transfer of Shares
or Underlying Shares by it pursuant to an effective registration statement under
the Securities Act, it will comply with all prospectus delivery requirements of
the Securities Act. The Company makes no representation, warranty or agreement
as to the availability of any exemption from registration under the Securities
Act with respect to any resale of Shares or Underlying Shares.
Section 4.2. STOP TRANSFER INSTRUCTION. The Purchaser agrees
that the Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Company in order to implement the
restrictions on transfer set forth in Section 4.1 above.
Section 4.3. FURNISHING OF INFORMATION. As long as the
Purchaser owns Shares or Underlying Shares, the Company will promptly furnish to
it all reports filed by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act (or if the Company is not at the time required to file reports
pursuant to such sections, annual and quarterly reports comparable to those
required by Section 13(a) or 15(d) of the Exchange Act).
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Section 4.4. NOTICE OF CERTAIN EVENTS. The Company shall (i)
advise the Purchaser promptly after obtaining knowledge thereof, and, if
requested by the Purchaser, confirm such advice in writing, of (A) the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Shares or the Common Stock
for offering or sale in any jurisdiction, or the initiation of any proceeding
for such purpose by any state securities commission or other regulatory
authority, or (B) any event that makes any statement of a material fact made in
the Disclosure Materials untrue or that requires the making of any additions to
or changes in the Disclosure Materials in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading,
(ii) use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption from qualification of the Shares or
the Common Stock under any state securities or Blue Sky laws, and (iii) if at
any time any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from qualification of
the Shares or the Common Stock under any such laws, use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.
Section 4.5. COPIES AND USE OF DISCLOSURE MATERIALS. The
Company shall furnish the Purchaser, without charge, as many copies of the
Disclosure Materials, and any amendments or supplements thereto, as the
Purchaser may reasonably request. The Company consents to the use of the
Disclosure Materials, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Shares or the Underlying Shares
other than pursuant to an effective registration statement.
Section 4.6. MODIFICATION TO DISCLOSURE MATERIALS. If any
event shall occur as a result of which, in the reasonable judgment of the
Company or the Purchaser, it becomes necessary or advisable to amend or
supplement the Disclosure Materials in order to make the statements therein, in
the light of the circumstances at the time the Disclosure Materials were
delivered to the Purchaser, not misleading, or if it is necessary to amend or
supplement the Disclosure Materials to comply with applicable law, the Company
shall promptly prepare an appropriate amendment or supplement to the Disclosure
Materials (in form and substance reasonably satisfactory to the Purchaser) so
that (i) as so amended or supplemented the Disclosure Materials will not include
an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Materials will comply with applicable law.
Section 4.7. BLUE SKY LAWS. The Company shall cooperate with
the Purchaser in connection with the qualification
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of the Shares and the Underlying Shares under the securities or Blue Sky laws of
such jurisdictions as the Purchaser may request and to continue such
qualification at all times through the third anniversary of the Closing Date;
PROVIDED, HOWEVER, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where they
are not now so qualified.
Section 4.8. INTEGRATION. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares or the Underlying Shares in a manner that would
require the registration under the Securities Act of the sale of the Shares or
Underlying Shares to the Purchaser.
Section 4.9. FURNISHING OF RULE 144A MATERIALS. The Company
shall, for so long as any of the Shares or Underlying Shares remain outstanding
and during any period in which it is not subject to Section 13 or 15(d) of the
Exchange Act, make available to any registered holder of Shares or Underlying
Shares in connection with any sale thereof and any prospective purchaser of such
Shares or Underlying Shares from such Person, the following information in
accordance with Rule 144A(d)(4) under the Securities Act: a brief statement of
the nature of the business of the Company and the products and services it
offers and the Company's most recent audited balance sheet and profit and loss
and retained earnings statements, and similar audited financial statements for
such part of the two preceding fiscal years as the Company has been in
operation.
Section 4.10. SOLICITATION MATERIALS. The Company shall not
(i) distribute any offering materials in connection with the offering and sale
of the Shares or Underlying Shares other than the Disclosure Materials and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Shares or Underlying Shares by means of any
form of general solicitation or advertising.
Section 4.11. SUBSEQUENT FINANCIAL STATEMENTS. For a period of
four (4) years after the Closing Date, the Company shall furnish to the
Purchaser, promptly after they are filed with the Commission, a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Materials.
Section 4.12. RIGHT OF FIRST REFUSAL; CERTAIN CORPORATE
ACTIONS. (a) The Company shall not directly or indirectly, without the prior
consent of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant or any option to purchase
or other disposition) of any of its or its Affiliates equity or
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<PAGE>
equity-equivalent securities (a "SUBSEQUENT SALE") for a period of 90 days after
Closing Date, except (i) the granting of options to employees, officers and
directors under, and the issuance of shares upon exercise of options granted
under, any stock option plan heretofore or hereinafter adopted by the Company;
(ii) shares issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred stock disclosed in
SCHEDULE 3.1; (iii) shares issued in connection with an acquisition or the
financing by the Company in contemplation of an acquisition of assets or
securities; and (iv) shares of Common Stock issued upon conversion of Shares in
accordance herewith, and (v) issuances of stock the proceeds of which are to be
used to redeem Shares hereunder, unless (A) the Company provides the Purchaser a
written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing and the amount
of proceeds intended to be raised thereunder and (B) the Purchaser shall not
have notified the Company by 5:00 p.m. (Eastern Time) on the third Business Day
after its receipt of the Subsequent Financing Notice of its willingness to enter
into good faith negotiations to provide (or to cause its sole designee to
provide) financing to the Company on substantially the terms set forth in the
Subsequent Financing Notice. If the Purchaser shall fail to notify the Company
of its intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Financing substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Financing Notice; PROVIDED, that the Company shall provide the Purchaser with a
second Subsequent Financing Notice, and the Purchaser shall again have the right
of first refusal set forth above in this paragraph (a), if the Subsequent
Financing subject to the initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 30 days after the date of the initial Subsequent Financing Notice
to the Person (or an Affiliate of such Person) identified in the Subsequent
Finding Notice.
(b) From the date hereof through the Closing Date, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Purchaser; (ii) split,
combine or reclassify its outstanding capital stock; (iii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock; (iv) redeem, repurchase or offer to repurchase or otherwise acquire
shares of its Common Stock; or (v) enter into any agreement with respect to any
of the foregoing.
Section 4.13. PURCHASER OWNERSHIP OF COMMON STOCK. The
Purchaser may not use its ability to convert Shares hereunder
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or under the terms of the Certificate of Designation to the extent that such
conversion would result in the Purchaser owning more than 4.9% of the
outstanding shares of the Common Stock; PROVIDED, HOWEVER, that this Section
4.13 shall not affect the Company's right under Section 5 of the Certificate of
Designation to force the Purchaser to convert Shares under the circumstances set
forth in such section. The Company shall, promptly upon its receipt of a Holder
Conversion Notice tendered by the Purchaser (or its designee) under the
Certificate of Designation, notify the Purchaser of the number of shares of
Common Stock outstanding on such date and the number of Underlying Shares which
would be issuable to the Purchaser (or its designee, as the case may be) if the
conversion requested in such Conversion Notice were effected in full, whereupon,
notwithstanding anything to the contrary set forth in the Certificate of
Designation, the Purchaser may revoke such conversion or exercise to the extent
that it determines that such conversion or exercise would result in the
Purchaser owning in excess of 4.9% of such outstanding shares of Common Stock.
Section 4.14. AVAILABILITY OF COMMON STOCK. The Company
undertakes to use its best efforts to promptly obtain stockholder approval to
increase the number of shares of Common Stock which it is authorized to issue to
at least 45,000,000 shares at such time as the Company would be, if a notice of
conversion were to be delivered on such date, precluded from converting the full
number of Shares that remain unconverted at such date due to the unavailability
of authorized but unissued or re-acquired Common Stock.
Section 4.15. LISTING OF UNDERLYING SHARES. The Company shall
take all steps necessary to cause the Underlying Shares to be approved for
listing in The NASDAQ Small Cap Market (or other national securities exchange or
market on which the Common Stock is listed) no later than the first day after
which shares may be converted hereunder by the Purchaser, and shall provide to
the Purchaser evidence of such listing.
Section 4.16. PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS
SUSPENDED. In the event that at any time within the two-year period after the
Closing Date trading in the shares of the Common Stock is suspended on the
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information), and such
shares do not thereafter begin trading on the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market System or the NASDAQ
SmallCap Market within ten days after the date of such suspension, at the
Purchaser's option exercisable by written notice to the Company, the Company
shall repurchase all Shares and all Underlying Shares then held by such
Purchaser, at an aggregate purchase price equal to (A) the product of the
average Per Share Market Value for the
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five Trading Days immediately preceding the day of such notice multiplied by the
number of shares of Common Stock into which the Shares to be purchased are then
convertible (or in the case of Underlying Shares, the number of Underlying
Shares to be purchased), plus (B) interest on such amount accruing from the 7th
day after such notice at the rate of 6% per annum.
Section 4.17. CONVERSION PROCEDURES. EXHIBIT D attached hereto
sets forth the procedures with respect to the conversion of the Shares,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
PURCHASER. The obligation of the Purchaser to purchase the Shares is subject to
the satisfaction or waiver by the Purchaser, at or prior to the Closing, of each
of the following conditions:
(a) LEGAL OPINION. The Purchaser shall have received
the legal opinion, addressed to it and dated the Closing Date, of
Olshan Grundman Frome & Rosenzweig, LLP, counsel for the Company,
substantially in the form of EXHIBIT C;
(b) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained herein and in the
Registration Rights Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time
(except that representations and warranties that are made as of a specific date
need be true in all material respects only as of such date);
(c) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing;
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits
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the consummation of any of the transactions contemplated by this Agreement.
(e) NO MATERIAL ADVERSE EFFECT. Since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q, no event which in the judgment of the Purchaser has or could have a
Material Adverse Effect and no material adverse change in the financial
condition or business of the Company shall have occurred which is not disclosed
in the Disclosure Materials (the Purchaser may consider changes in stock price
in determining whether any such event or change has occurred);
(f) NO PROHIBITIONS. The purchase of and payment for the
Shares (and upon conversion thereof, the Underlying Shares) hereunder (i) shall
not be prohibited or enjoined (temporarily or permanently) by any applicable law
or governmental regulation and (ii) shall not subject the Purchaser to any
penalty, or in its judgment, other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Purchaser of the purchase of the Shares or the Underlying Shares
(PROVIDED, HOWEVER, that such regulation, law or onerous condition was not in
effect in such form at the date of this Agreement);
(g) COMPANY CERTIFICATES. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Certificate of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, and (C) resolutions duly adopted by the Board of Directors of the
Company authorizing the execution and delivery of this Agreement and the
Registration Rights Agreement and the issuance and sale of the Shares and the
Underlying Shares and (ii) the incumbency of officers executing this Agreement
and the Registration Rights Agreement;
(h) REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed the Registration Rights Agreement;
(i) NO SUSPENSIONS OF TRADING IN COMMON STOCK. Trading in the
Common Stock shall not have been suspended by the Commission or the NASDAQ Small
Cap Market or other national securities exchange or market on which the Common
Stock is listed or quoted (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding the
Company);
(j) REQUIRED APPROVALS. All Required Approvals shall have been
obtained;
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(k) DELIVERY OF STOCK CERTIFICATES. The Company shall have
delivered to the Purchaser the stock certificate(s) representing the Shares,
registered in the name of the Purchaser, each in form satisfactory to the
Purchaser; and
(l) SHARES OF COMMON STOCK. On the Closing Date, the Company
shall have duly reserved for issuance to the Purchaser 2,500,000 Underlying
Shares.
Section 5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY. The obligation of the Company to issue and sell the Shares hereunder is
subject to the satisfaction or waiver by the Company, at or prior to the
Closing, of each of the following conditions:
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by it at or prior to the
Closing; and
(c) NO PROHIBITIONS. The sale of the Shares (and upon
conversion thereof, the Underlying Shares) hereunder (i) shall not be prohibited
or enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Company to any penalty, or in its
judgment, any other onerous condition under or pursuant to any applicable law or
governmental regulation that would materially reduce the benefits to the Company
of the sale of Shares or the Underlying Shares to the Purchaser (PROVIDED,
HOWEVER, that such regulation, law or onerous condition was not in effect in
such form at the date of this Agreement); and
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
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ARTICLE VI
TERMINATION
Section 6.1. TERMINATION BY MUTUAL CONSENT. This Agreement may
be terminated at any time prior to Closing by the mutual consent of the Company
and the Purchaser.
Section 6.2. TERMINATION BY THE COMPANY OR THE PURCHASER. This
Agreement may be terminated prior to Closing by either the Company or the
Purchaser, by giving written notice of such termination to the other party, if:
(a) there shall be in effect any statute, rule, law
or regulation that prohibits the consummation of the Closing or if the
consummation of the Closing would violate any non-appealable final
judgment, order, decree, ruling or injunction of any court of or
governmental authority having competent jurisdiction; or
(b) there shall have been an amendment to Regulation
D or an interpretive release promulgated or issued thereunder, which,
in the judgment of the terminating party, would materially adversely
affect the transactions contemplated hereby and by the Registration
Rights Agreement.
Section 6.3. TERMINATION BY THE COMPANY. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
the Registration Rights Agreement and such breach is not cured within five
business days following receipt by the Purchaser of notice of such breach.
Section 6.4. TERMINATION BY THE PURCHASER. This Agreement may
be terminated prior to Closing by the Purchaser, by giving written notice of
such termination to the Company, if:
(a) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement or the
Registration Rights Agreement and such breach is not cured within five
business days following receipt by the Company of notice of such
breach;
(b) there has occurred a material adverse change in
the business or financial condition of the Company or an event since
the date of the financial statements included in the Company's last
filed Quarterly Report on Form 10-Q which, in each case, in the
Purchaser's judgment has or could have a Material Adverse Effect and
which is not disclosed in the Disclosure Materials (the Purchaser may
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<PAGE>
consider changes in stock prices in determining whether such
change or Material Adverse Effect has occurred); or
(c) trading in the Common Stock has been suspended by
the Commission or the NASDAQ Small Cap Market or other national
securities exchange or market on which the Common Stock is listed or
quoted (except for any suspension of trading of limited duration solely
to permit dissemination of material information regarding the Company).
ARTICLE VII
MISCELLANEOUS
Section 7.1. FEES AND EXPENSES. Each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
set forth in the Registration Rights Agreement and except that the Company shall
reimburse the Purchaser up to $10,000 for its legal fees and disbursements. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of the Shares (and upon conversion thereof, the Underlying Shares)
pursuant hereto. The Purchaser shall be responsible for its own tax liability
that may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company
shall pay (i) all costs, expenses, fees and all taxes incident to and in
connection with: (A) the preparation, printing and distribution of the
Disclosure Materials and all amendments and supplements thereto (including,
without limitation, financial statements and exhibits), and all preliminary and
final Blue Sky memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith (B) the issuance
and delivery of the Shares and, upon conversion thereof, the Underlying Shares,
(C) the qualification of the Shares and, upon conversion thereof, the Underlying
Shares for offer and sale under the securities or Blue Sky laws of the several
states (including, without limitation, the fees and disbursements of the
Purchasers' counsel relating to such registration or qualification), (D)
furnishing such copies of the Disclosure Materials and all amendments and
supplements thereto, as may reasonably be requested for use in connection, with
resales of the Shares and, upon conversion thereof, the Underlying Shares, and
(E) the preparation of certificates for the Shares and, upon conversion thereof,
the Underlying Shares (including, without limitation, printing and engraving
thereof), (ii) all fees and expenses of the counsel and accountants of the
Company and (iii) all expenses and listing fees in connection
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<PAGE>
with the application for quotation of the underlying Shares in the NASDAQ Small
Cap Market.
Section 7.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
together with the Exhibits, and Schedules hereto, and the Registration Rights
Agreement contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
Section 7.3. NOTICES. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) 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 second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: Glasgal Communications, Inc.
151 Veterans Drive
Northvale, NJ 07647
Facsimile No.: (201) 768-2947
Attn: Chief Executive Officer
With copies to: Olshan Grundman Frome &
Rosenzweig, LLP
505 Park Avenue
New York, NY 10022
Facsimile No.: (212) 755-1467
Attn: Robert Friedman
If to the Purchaser: Southbrook International
Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, New York 10111
Facsimile No.: (212) 332-3256
Attn: Robert L. Miller
With copies to: Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
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<PAGE>
Attn: Kenneth L. Henderson and
Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 7.4. AMENDMENTS; WAIVERS. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by both the Company and the Purchaser, or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 7.5. HEADINGS. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
Section 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except that the Purchaser may assign its rights hereunder
and under the Registration Rights Agreement to an Affiliate thereof, provided,
that such assignee demonstrates to the reasonable satisfaction of the Company
its satisfaction of the representations and warranties set forth in Section 3.2
herein. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 7.7. NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.8. GOVERNING LAW. This Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York without regard to the principles of conflicts of law thereof.
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<PAGE>
Section 7.9. SURVIVAL. The representations and warranties of
the Company and the Purchaser contained in ARTICLE III and the agreements and
covenants of the parties contained in ARTICLE IV and this ARTICLE VII shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Shares hereunder.
Section 7.10. COUNTERPART SIGNATURES. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
Section 7.11. PUBLICITY. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
Section 7.12. SEVERABILITY. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section 7.13. REMEDIES. In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be entitled
to specific performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Shares and the Underlying Shares. Each of
the Company and the Purchaser agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
Company:
GLASGAL COMMUNICATIONS, INC.
By: /s/ Ralph Glasgal
-------------------------------
Name: Ralph Glasgal
Title: President
Purchaser:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By: /s/ Raz Steinmetz
-------------------------------
Name: Raz Steinmetz
Title: Attorney-in-Fact
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================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
By and Among
GLASGAL COMMUNICATIONS, INC.
and
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
------------------------------
Dated as of October 29, 1996
------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I CERTAIN DEFINITIONS....................................... 1
Section 1.1. Certain Definitions.......................... 1
ARTICLE II PURCHASE OF SHARES........................................ 4
Section 2.1. Purchase of Shares; Closing................. 4
ARTICLE III REPRESENTATIONS AND WARRANTIES............................ 6
Section 3.1. Representations and Warranties of
the Company.............................. 6
Section 3.2. Representations and Warranties of
the Purchaser............................ 11
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES........................... 12
Section 4.1. Transfer Restrictions.................... 12
Section 4.2. Stop Transfer Instruction................ 14
Section 4.3. Furnishing of Information................ 14
Section 4.4. Notice of Certain Events................. 14
Section 4.5. Copies and Use of Disclosure
Materials................................ 15
Section 4.6. Modification to Disclosure
Materials................................ 15
Section 4.7. Blue Sky Laws............................ 15
Section 4.8. Integration.............................. 15
Section 4.9. Furnishing of Rule 144A
Materials....................... 15
Section 4.10. Solicitation Materials..................... 16
Section 4.11. Right of First Refusal; Certain
Corporate Actions........................ 16
Section 4.12. Purchaser Ownership of Common
Stock.................................... 17
Section 4.13. Availability of Common Stock............... 17
Section 4.14. Listing of Underlying Shares............... 18
Section 4.15. Purchaser's Rights if Trading in
Common Stock is Suspended................ 18
Section 4.16. Conversion Procedures...................... 18
ARTICLE V CONDITIONS PRECEDENT TO CLOSINGS.......................... 19
Section 5.1. (a) Conditions Precedent to
Obligations of the Purchaser
to Purchase the Series B
Shares.......................... 19
Section 5.2. (a) Conditions Precedent to
Obligations of the Purchaser
to Purchase the Series C
Shares.......................... 21
ARTICLE VI TERMINATION............................................... 23
Section 6.1. Termination by Mutual Consent............ 23
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<PAGE>
PAGE
Section 6.2. Termination by the Company or the
Purchaser................................ 23
Section 6.4. Termination by the Purchaser............. 24
ARTICLE VII MISCELLANEOUS............................................. 26
Section 7.1. Fees and Expenses........................... 26
Section 7.2. Entire Agreement; Amendments................ 26
Section 7.3. Notices..................................... 26
Section 7.4. Amendments; Waivers......................... 27
Section 7.5. Headings.................................... 28
Section 7.6. Successors and Assigns...................... 28
Section 7.7. No Third Party Beneficiaries................ 28
Section 7.8. Governing Law............................... 28
Section 7.9. Survival.................................... 28
Section 7.10. Counterpart Signatures..................... 28
Section 7.11. Publicity.................................. 29
Section 7.12. Severability............................. 29
Section 7.13. Remedies................................... 29
Exhibit A Series B Terms
Exhibit B Registration Rights Agreement
Exhibit C Form of Opinion of Olshan Grundman Frome &
Rosenzweig, LLP, counsel for the Company (Series B
Closing)
Exhibit D Form of Opinion of Olshan Grundman Frome &
Rosenzweig, LLP, counsel for the Company (Series C
Closing)
Exhibit E Conversion Procedures
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
-ii-
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
October 29, 1996 (this "AGREEMENT"), by and among Glasgal Communications, Inc.,
a Delaware corporation (the "COMPANY"), and Southbrook International
Investments, Ltd., a corporation organized and existing under the laws of
British Virgin Islands (the "PURCHASER").
WHEREAS, the Company and the Purchaser are parties to the
Convertible Preferred Stock Purchase Agreement, dated as of September 30, 1996
(the "SERIES A PURCHASE AGREEMENT"), pursuant to which the Company issued and
sold to the Purchaser and the Purchaser acquired 250,000 shares of the Company's
Series A Convertible Preferred Stock, par value $.001 per share (the "SERIES A
PREFERRED");
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire shares of the Company's Series B
Convertible Preferred Stock, par value $.001 per share (the "SERIES B
PREFERRED"), and Series C Convertible Preferred Stock, par value $.001 per share
(the "SERIES C PREFERRED" and together with the Series B Preferred, the
"PREFERRED STOCK").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. CERTAIN DEFINITIONS. As used in this Agreement,
and unless the context requires a different meaning, the following terms have
the meanings indicated:
"AFFILIATE" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
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"CERTIFICATES OF DESIGNATION" shall have the meaning set forth
in Section 2.1(b).
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value
$.001 per share.
"CONVERSION PRICE" shall have the meaning set forth in the
Series B Terms.
"DISCLOSURE MATERIALS" means, collectively, the SEC Documents,
the disclosure package delivered to the Purchaser in connection with the
offering by the Company of the Shares and the Schedules to this Agreement
furnished by or on behalf of the Company pursuant to Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, charge or security interest of any kind in or on such asset
or the revenues or income thereon or therefrom.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in
Section 3.1(a).
"ORIGINAL ISSUE DATE" shall have the meaning set forth in the
Series B Terms.
"PER SHARE MARKET VALUE" shall have the meaning set forth in
the Series B Terms.
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" shall have the meaning set forth in the
recitals hereto.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.1(a).
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"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of September 30, 1996, as amended and restated by the
Amended and Restated Registration Rights Agreement, substantially in the form of
EXHIBIT B, as the same may be amended, supplemented or otherwise modified in
accordance with its terms.
"REQUIRED APPROVALS" shall have the meaning set forth in
Section 3.1(f).
"RSPAB" shall have the meaning set forth in Section
2.1(c)(i).
"SEC DOCUMENTS" shall have the meaning set forth in Section
3.1(l).
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SERIES A CERTIFICATE OF DESIGNATION" means the Certificate of
Designation relating to the Series A Preferred, filed with the Secretary of
State of Delaware on October 1, 1996, as amended pursuant to the terms hereof.
"SERIES A PREFERRED" shall have the meaning set forth in the
recitals hereto.
"SERIES A PURCHASE AGREEMENT" shall have the meaning set forth
in the recitals hereto.
"SERIES B CERTIFICATE OF DESIGNATION" shall have the meaning
set forth in Section 2.1(b).
"SERIES B CLOSING" shall have the meaning set forth in
Section 2.1(c)(i).
"SERIES B CLOSING DATE" shall have the meaning set forth in
Section 2.1(b).
"SERIES B PURCHASE PRICE" means $500,000.
"SERIES B SHARES" shall have the meaning set forth in Section
2.1(a).
"SERIES B TERMS" shall have the meaning set forth in Section
2.1(b).
"SERIES C CLOSING DATE" shall have the meaning set forth in
Section 2.1(c)(i).
"SERIES C CLOSING EXPIRATION DATE" means March 1, 1997.
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"SERIES C PURCHASE PRICE" mean $1,500,000.
"SERIES C SHARES" shall have the meaning set forth in Section
2.1(a).
"SHARES" shall have the meaning set forth in Section 2.1(a).
"SUBSEQUENT FINANCING NOTICE" shall have the meaning
set forth in Section 4.11.
"SUBSEQUENT SALE" shall have the meaning set forth in Section
4.11.
"SUBSIDIARIES" shall have the meaning set forth in Section
3.1(a).
"TRADING DAY" shall have the meaning set forth in the Series B
Terms.
"UNDERLYING SHARES" means the shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Certificates of Designation.
"UNDERLYING SHARES REGISTRATION STATEMENT" means the
registration statements required to be filed by the Company in accordance with
the Registration Rights Agreement, covering such number of Underlying Shares as
required by the Registration Rights Agreement.
ARTICLE II
PURCHASE OF SHARES
Section 2.1. PURCHASE OF SHARES; CLOSING.
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
(i) 25,000 shares of Series B Preferred (the "SERIES B SHARES") and (ii) 75,000
shares of the Series C Preferred (the "SERIES C SHARES"). The Series B Shares
and the Series C Shares are collectively referred to as the "SHARES").
(b) The Series B Preferred shall have the respective rights,
preferences and privileges set forth in EXHIBIT A attached hereto (the "SERIES B
TERMS"), which shall be incorporated into a certificate of designation to be
approved by the Purchaser and filed by the Company with the Secretary of State
of Delaware on or prior to the Series B Closing Date (as defined below) (the
"SERIES B CERTIFICATE OF DESIGNATION"). The Series C Preferred shall have the
respective rights, preferences
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and privileges identical to the Series B Terms as set forth in EXHIBIT A,
mutatis mutandis, except that the Conversion Price for conversion of the Series
C Shares shall reset as of the Original Issue Date for the Series C Shares. The
Series C Shares shall be authorized pursuant to a certificate of designation to
be prepared by the Company, subject to the approval of the Purchaser, and filed
by the Company with the Secretary of State of Delaware prior to the Series C
Closing Date (as defined below) (such certificate of designation, together with
the Series B Certificate of Designation, is referred to as the "CERTIFICATES OF
DESIGNATION").
(c)(i) The closing of the purchase and sale of the Series B
Shares (the "SERIES B CLOSING") shall take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP ("RSPAB"), 1290 Avenue of the Americas,
New York, New York 10104, immediately following the execution hereof, or at such
other time as the Purchaser and the Company may agree, PROVIDED, HOWEVER, in no
case shall the Series B Closing take place prior to the date on which the last
of the conditions listed in Section 5.1 is satisfied or waived by the
appropriate party. The date of the Series B Closing is hereinafter referred to
as the "SERIES B CLOSING DATE".
(ii) At the Series B Closing, (A) the Company shall deliver to
the Purchaser (1) one or more stock certificates representing the Series B
Shares, registered in the name of the Purchaser, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Series B Closing by the Company pursuant to this Agreement and the Registration
Rights Agreement, (B) the Purchaser shall deliver to the Company (1) the Series
B Purchase Price, less the legal fees and disbursements contemplated in Section
7.1, in United States dollars in immediately available funds by wire transfer to
an account designated in writing by the Company prior to the Series B Closing
and (2) all documents, instruments and writings required to have been delivered
at or prior to the Series B Closing by the Purchaser pursuant to this Agreement
and the Registration Rights Agreement.
(d)(i) The closing of the purchase and sale of the Series C
Shares (the "SERIES C CLOSING") shall take place at the offices of RSPAB, 1290
Avenue of the Americas, New York, New York 10104, on such date as the Company
may designate in a written financing notice to the Purchaser relating to the
sale of the Series C Shares, which the Company may deliver (A) no earlier than
the day after the Underlying Shares Registration Statement relating to the
Series A Preferred and the Series B Shares has been declared effective by the
Commission the ("UNDERLYING SHARES EFFECTIVENESS DATE") and (B) no later than
the 30th day after the Underlying Shares Effectiveness Date; PROVIDED, HOWEVER,
in no case shall the Series C Closing take place prior to the later to
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occur of the tenth day after receipt by the Purchaser of the financing notice
referenced in this paragraph (d)(i), delivered in the time and manner herein set
forth, and the date the last of the conditions listed in Section 5.2 is
satisfied or waived by the appropriate party. The date of the Series C Closing
is hereinafter referred to as the "SERIES C CLOSING DATE".
(ii) At the Series C Closing, (A) the Company shall deliver to
the Purchaser (1) one or more stock certificates representing the Series C
Shares, registered in the name of the Purchaser, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Series C Closing by the Company pursuant to this Agreement and the Registration
Rights Agreement and (B) the Purchaser shall deliver to the Company (1) the
Series C Purchase Price in United States dollars in immediately available funds
by wire transfer to an account designated in writing by the Company prior to the
Series C Closing and (2) all documents, instruments and writings required to
have been delivered at or prior to the Series C Closing by the Purchaser
pursuant to this Agreement and the Registration Rights Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in the SEC Documents or in SCHEDULE 3.1(A) (collectively, the
"SUBSIDIARIES"). Each of the Subsidiaries is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, have a material
adverse effect on the results of operations, assets, prospects, or financial
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<PAGE>
condition of the Company and the Subsidiaries, taken as a whole
(a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and consummate the transactions
contemplated hereby and by the Certificates of Designation and the Registration
Rights Agreement and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement, the Certificates of
Designation and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. Each of this
Agreement, the Certificates of Designation and the Registration Rights Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
SCHEDULE 3.1(C). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in SCHEDULE 3.1(C), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares hereunder and of the Series A Preferred
pursuant to the Series A Purchase Agreement, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. Neither the Company nor
any Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, bylaws or other charter documents.
(d) ISSUANCE OF SHARES. The Shares are duly authorized and,
when paid for in accordance with the terms hereof, shall be validly issued,
fully paid and nonassessable. The Company has and at all times while the Shares
are outstanding will maintain a reserve of shares of Common Stock to enable it
to perform its obligations under this Agreement and the Certificates of
Designation, which reserve shall be (i) with respect to the Series B Closing, no
less than twice the number of Underlying Shares that would be issuable upon a
conversion of all of the Series B Shares, assuming such conversion occurs on the
Original
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<PAGE>
Issue Date for the Series B Shares, and (ii) with respect to the Series C
Closing, no less than twice the number of Underlying Shares that would be
issuable upon a conversion of all of the Series C Shares, assuming such
conversion occurs on the Original Issue Date for the Series C Shares. When
issued in accordance with the terms hereof and the Certificates of Designation,
the Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Certificates of Designation and the Registration Rights
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i) conflict with or violate
any provision of its certificate of incorporation or bylaws (each as amended
through the date hereof) or (ii) subject to obtaining the consents referred to
in Section 3.1(f), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company is a party, or (iii)
to the knowledge of the Company result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
Federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected, except in the case of each of clauses
(ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, do not have a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth
in SCHEDULE 3.1(F) or as have been obtained or made, neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Agreement, the
Certificates of Designation and the Registration Rights Agreement, except for
(i) the filings of the Certificates of Designation with the Secretary of State
of Delaware, which filings shall be effected on or prior to the Series B Closing
Date and Series C Closing Date, as appropriate, (ii) the filing of the
Underlying Shares Registration Statement with the Commission and the making of
the applicable blue-sky filings under state securities laws, each as
contemplated by the Registration Rights Agreement, and (iii) other than, in all
other cases, where the failure to obtain such consent, waiver,
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<PAGE>
authorization or order, or to give or make such notice or filing, would not
materially impair or delay the ability of the Company to effect either the
Series B Closing or the Series C Closing and deliver to the Purchaser the Shares
(and, upon conversion of the Shares hereunder, the Underlying Shares) in the
manner contemplated hereby and the Registration Rights Agreement free and clear
of all Liens (together with the consents, waivers, authorizations, orders,
notices and filings referred to in SCHEDULE 3.1(F), the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed
in the Disclosure Materials or in SCHEDULE 3.1(G), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of this Agreement, the Certificates of Designation,
the Registration Rights Agreement or the Shares (ii) could, individually or in
the aggregate, have a Material Adverse Effect or (iii) could, individually or in
the aggregate, materially impair the ability of the Company to perform fully on
a timely basis its obligations under this Agreement, the Certificates of
Designation or the Registration Rights Agreement.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of this
Agreement or the Registration Rights Agreement, (y) have a Material Adverse
Effect or (z) adversely impair the Company's ability or obligation to perform
fully on a timely basis its obligations under this Agreement, the Certificates
of Designation or the Registration Rights Agreement.
(i) CERTAIN FEES. Except for a fee payable by the Company to
Barry Minsky and/or Wharton Capital Corporation, no fees or commissions will be
payable by the Company to any broker, finder, investment banker or bank with
respect to the consummation of the transactions contemplated hereby.
(j) DISCLOSURE MATERIALS. The Disclosure Materials do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements
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made therein, in light of the circumstances under which they were made, not
misleading.
(k) PRIVATE OFFERING. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Shares under the Securities Act) which might subject the offering, issuance or
sale of the Shares to the registration requirements of Section 5 of the
Securities Act.
(l) SEC DOCUMENTS. The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC DOCUMENTS") on a
timely basis, or has received a valid extension of such time of filing. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved, except as may be otherwise indicated in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments. Since the date of the financial statements included
in the Company's last filed Quarterly Report on Form 10-Q prior to the date
hereof, there has been no event, occurrence or development that has had a
Material Adverse Effect which is not specifically disclosed in any of the
Disclosure Materials.
(m) EXCLUSIVITY. The Company shall not issue and sell the
Series B Convertible Preferred Stock or Series C Convertible Preferred Stock to
any Person other than the Purchaser.
(n) SENIORITY. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation, dissolution
or otherwise.
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Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase of the Shares by the
Purchaser hereunder has been duly authorized by all necessary action on the part
of the Purchaser. Each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Purchaser or on its behalf and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Shares
and the Underlying Shares for its own account (and/or on behalf of managed
accounts who are purchasing solely for their own accounts for investment) for
investment purposes only and not with a view to or for distributing or reselling
such Shares or Underlying Shares or any part thereof or interest therein,
without prejudice, however, to the Purchaser's right, subject to the provisions
of this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Shares or Underlying Shares under
an effective registration statement under the Securities Act and in compliance
with applicable State securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser (and any
account for which it is purchasing) was offered the Shares, it (and any account
for which it is purchasing) was, and at the date hereof, it (and any account for
which it is purchasing) is, and at the Closing Date, it (and any account for
which it is purchasing) will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment
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in the Shares and, at the present time, is able to afford a complete loss of
such investment.
(f) PROHIBITED TRANSACTIONS. The Shares to be purchased by the
Purchaser are not being acquired, directly or indirectly, with the assets of any
"employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(g) ACCESS TO INFORMATION. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Shares and the merits and risks of investing
in the Shares; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Common
Stock; and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the Shares and
to verify the accuracy and completeness of the information contained in the
Disclosure Materials.
(h) RELIANCE. The Purchaser understands and acknowledges that
(i) the Shares are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption, depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in ARTICLE III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. TRANSFER RESTRICTIONS. If the Purchaser should
decide to dispose of any of the Shares to be purchased by it hereunder (and upon
conversion thereof, any Underlying Shares), the Purchaser understands and agrees
that it may do so only pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection
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with any transfer of any Shares other than pursuant to an effective registration
statement or to the Company, the Company may require that the transferor of such
Shares provide to the Company an opinion of counsel experienced in the area of
United States securities laws selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such Shares under the
Securities Act or any State securities laws.
The Purchaser agrees to the imprinting, so long as
appropriate, of the following legend on certificates representing the Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, THEY MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. IF THE PROPOSED
TRANSFER IS TO BE MADE OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 PROMULGATED UNDER
THE SECURITIES ACT.
The legend set forth above may be removed if and when the
Shares represented by such certificate or the Underlying Shares, as the case may
be, are disposed of pursuant to an effective registration statement under the
Securities Act or in the opinion of counsel to the Company experienced in the
area of United States securities laws such legend is no longer required under
applicable requirements of the Securities Act. The stock certificates
representing the Shares and the Underlying Shares shall also bear any other
legends required by applicable Federal or state securities laws, which legends
may be removed when, in the opinion of counsel to the Company experienced in the
applicable securities laws, such legends are no longer required under the
applicable requirements of such securities laws. The Company agrees that it will
provide the Purchaser, upon request, with a substitute stock certificate or
certificates, free from such legend at such time as such legend is no longer
applicable.
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The Purchaser agrees that, in connection with any transfer of Shares or
Underlying Shares by it pursuant to an effective registration statement under
the Securities Act, it will comply with all prospectus delivery requirements of
the Securities Act. The Company makes no representation, warranty or agreement
as to the availability of any exemption from registration under the Securities
Act with respect to any resale of Shares or Underlying Shares.
Section 4.2. STOP TRANSFER INSTRUCTION. The Purchaser agrees
that the Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Company in order to implement the
restrictions on transfer set forth in Section 4.1 above.
Section 4.3. FURNISHING OF INFORMATION. As long as the
Purchaser owns Shares or Underlying Shares, the Company covenants to timely file
(or obtain extensions in respect thereof) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchaser with true and complete copies
of all such filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser annual
and quarterly reports comparable to those required by Section 13(a) or 15(d) of
the Exchange Act in the time period that such filings would have been required
to have been made under the Exchange Act.
Section 4.4. NOTICE OF CERTAIN EVENTS. The Company shall (i)
advise the Purchaser promptly after obtaining knowledge thereof, and, if
requested by the Purchaser, confirm such advice in writing, of (A) the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Shares or the Common Stock
for offering or sale in any jurisdiction, or the initiation of any proceeding
for such purpose by any state securities commission or other regulatory
authority, or (B) any event that makes any statement of a material fact made in
the Disclosure Materials untrue or that requires the making of any additions to
or changes in the Disclosure Materials in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading,
(ii) use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption from qualification of the Shares or
the Common Stock under any state securities or Blue Sky laws, and (iii) if at
any time any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from qualification of
the Shares or the Common Stock under any such laws, use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.
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Section 4.5. COPIES AND USE OF DISCLOSURE MATERIALS. The
Company shall furnish the Purchaser, without charge, as many copies of the
Disclosure Materials, and any amendments or supplements thereto, as the
Purchaser may reasonably request. The Company consents to the use of the
Disclosure Materials, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Shares or the Underlying Shares
other than pursuant to an effective registration statement.
Section 4.6. MODIFICATION TO DISCLOSURE MATERIALS. If any
event shall occur as a result of which, in the reasonable judgment of the
Company or the Purchaser, it becomes necessary or advisable to amend or
supplement the Disclosure Materials in order to make the statements therein, in
the light of the circumstances at the time the Disclosure Materials were
delivered to the Purchaser, not misleading, or if it is necessary to amend or
supplement the Disclosure Materials to comply with applicable law, the Company
shall promptly prepare an appropriate amendment or supplement to the Disclosure
Materials (in form and substance reasonably satisfactory to the Purchaser) so
that (i) as so amended or supplemented the Disclosure Materials will not include
an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Materials will comply with applicable law.
Section 4.7. BLUE SKY LAWS. The Company shall cooperate with
the Purchaser in connection with the qualification of the Shares and the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchaser may request and to continue such qualification at all times
through the earliest to occur of (i) the third anniversary of the Series C
Closing Date, (ii) the third anniversary of the Series C Closing Expiration Date
and (iii) such earlier date when all of the Shares and the Underlying Shares
have been sold or may be sold pursuant to Rule 144 as determined by counsel to
the Company pursuant to a written opinion letter; PROVIDED, HOWEVER, that
neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified.
Section 4.8. INTEGRATION. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares or the Underlying Shares in a manner that would
require the registration under the Securities Act of the sale of the Shares or
Underlying Shares to the Purchaser.
Section 4.9. FURNISHING OF RULE 144A MATERIALS. The Company
shall, for so long as any of the Shares or Underlying
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Shares remain outstanding and during any period in which it is not subject to
Section 13 or 15(d) of the Exchange Act, make available to any registered holder
of Shares or Underlying Shares in connection with any sale thereof and any
prospective purchaser of such Shares or Underlying Shares from such Person, the
following information in accordance with Rule 144A(d)(4) under the Securities
Act: a brief statement of the nature of the business of the Company and the
products and services it offers and the Company's most recent audited balance
sheet and profit and loss and retained earnings statements, and similar audited
financial statements for such part of the two preceding fiscal years as the
Company has been in operation.
Section 4.10. SOLICITATION MATERIALS. The Company shall not
(i) distribute any offering materials in connection with the offering and sale
of the Shares or Underlying Shares other than the Disclosure Materials and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Shares or Underlying Shares by means of any
form of general solicitation or advertising.
Section 4.11. RIGHT OF FIRST REFUSAL; CERTAIN CORPORATE
ACTIONS. (a) The Company shall not directly or indirectly, without the prior
consent of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant or any option to purchase
or other disposition) of any of its or its Affiliates equity or
equity-equivalent securities (a "SUBSEQUENT SALE") for a period of 90 days after
the earlier to occur of (i) the Series C Closing Date and (ii) the Series C
Closing Expiration Date, except (A) the granting of options to employees,
officers and directors under, and the issuance of shares upon exercise of
options granted under, any stock option plan heretofore or hereinafter adopted
by the Company; (B) shares issued upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding convertible preferred
stock (including the Series A Preferred acquired pursuant to the Series A
Purchase Agreement and Shares acquired hereunder) disclosed in SCHEDULE 3.1(C);
(C) shares issued in connection with an acquisition or the financing by the
Company in contemplation of an acquisition of assets or securities; (D) shares
of Common Stock issued upon conversion of Shares in accordance herewith, and (E)
issuances of stock the proceeds of which are to be used to redeem Shares
hereunder, unless (1) the Company provides the Purchaser a written notice (the
"SUBSEQUENT FINANCING NOTICE") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing and the amount of proceeds
intended to be raised thereunder and (2) the Purchaser shall not have notified
the Company by 5:00 p.m. (Eastern Time) on the third Business Day after its
receipt of the Subsequent Financing Notice of its willingness to enter into good
faith negotiations to provide (or to cause its sole designee to provide)
financing
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to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If the Purchaser shall fail to notify the Company of its intention to
enter into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
PROVIDED, that the Company shall provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within 30 days
after the date of the initial Subsequent Financing Notice to the Person (or an
Affiliate of such Person) identified in the Subsequent Finding Notice.
(b) From the date hereof through the last Closing Date, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the Purchaser, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Purchaser; (ii)
split, combine or reclassify its outstanding capital stock; (iii) declare,
authorize, set aside or pay any dividend or other distribution with respect to
the Common Stock; (iv) redeem, repurchase or offer to repurchase or otherwise
acquire shares of its Common Stock; or (v) enter into any agreement with respect
to any of the foregoing.
Section 4.12. PURCHASER OWNERSHIP OF COMMON STOCK. The
Purchaser may not use its ability to convert Shares hereunder or under the terms
of the Certificates of Designation to the extent that such conversion would
result in the Purchaser owning more than 4.9% of the outstanding shares of the
Common Stock; PROVIDED, HOWEVER, that this Section 4.12 shall not affect the
Company's right under Section 5 of the Certificates of Designation to force the
Purchaser to convert Shares under the circumstances set forth in such section.
The Company shall, promptly upon its receipt of a Holder Conversion Notice
tendered by the Purchaser (or its designee) under any Certificate of
Designation, notify the Purchaser of the number of shares of Common Stock
outstanding on such date and the number of Underlying Shares which would be
issuable to the Purchaser (or its designee, as the case may be) if the
conversion requested in such Conversion Notice were effected in full, whereupon,
notwithstanding anything to the contrary set forth in the Certificates of
Designation, the Purchaser may revoke such conversion or exercise in whole or in
part if it determines that such conversion or exercise would result in the
Purchaser owning in excess of 4.9% of such outstanding shares of Common Stock.
Section 4.13. AVAILABILITY OF COMMON STOCK. The Company
undertakes to use its best efforts to promptly obtain
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stockholder approval to increase the number of shares of Common Stock which it
is authorized to issue to at least 45,000,000 shares at such time as the Company
would be, if a notice of conversion were to be delivered on such date, precluded
from converting the full number of Shares that remain unconverted at such date
due to the unavailability of authorized but unissued or re-acquired Common
Stock.
Section 4.14. LISTING OF UNDERLYING SHARES. The Company shall
take all steps necessary to cause the Underlying Shares to be approved for
listing in The NASDAQ Small Cap Market (or other national securities exchange or
market on which the Common Stock is listed) no later than the first day after
which Shares may be converted by the Purchaser under the Certificates of
Designation, and shall provide to the Purchaser evidence of such listing.
Section 4.15. PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS
SUSPENDED. In the event that at any time within the two-year period after the
earlier to occur of (i) the Series C Closing Date and (ii) the Series C Closing
Expiration Date trading in the shares of the Common Stock is suspended on the
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information), and such
shares do not thereafter begin trading on the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market System or the NASDAQ Small
Cap Market within ten days after the date of such suspension, at the Purchaser's
option exercisable by written notice to the Company, the Company shall
repurchase all Shares and all Underlying Shares then held by such Purchaser, at
an aggregate purchase price equal to (A) the product of the average Per Share
Market Value for the five Trading Days immediately preceding the day of such
notice multiplied by the number of shares of Common Stock into which the Shares
to be purchased are then convertible (or in the case of Underlying Shares, the
number of Underlying Shares to be purchased), plus (B) interest on such amount
accruing from the 7th day after such notice at the rate of 6% per annum.
Section 4.16. CONVERSION PROCEDURES. EXHIBIT E attached hereto
sets forth the procedures with respect to the conversion of the Shares,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSINGS
Section 5.1. (a) CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
PURCHASER TO PURCHASE THE SERIES B SHARES. The obligation of the Purchaser to
purchase the Series B Shares is subject to the satisfaction or waiver by the
Purchaser, at or prior to the Series B Closing, of each of the following
conditions:
(i) SERIES A CERTIFICATE OF DESIGNATION. The Series A
Certificate of Designation shall have been duly amended and restated in the
manner agreed to by the Company and the Purchaser, and proof thereof shall have
been furnished to the Purchaser;
(ii) LEGAL OPINION. The Purchaser shall have received
the legal opinion, addressed to it and dated the Series B Closing Date, of
Olshan Grundman Frome & Rosenzweig, LLP, counsel for the Company, substantially
in the form of EXHIBIT C;
(iii) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company contained herein
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Series B Closing Date
as though made at that time (except that representations and warranties that are
made as of a specific date need be true in all material respects only as of such
date);
(iv) PERFORMANCE BY THE COMPANY. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company at or prior to the Series B Closing;
(v) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement;
(vi) NO MATERIAL ADVERSE EFFECT. Since the date of
the financial statements included in the Company's last filed Quarterly Report
on Form 10-Q prior to the date of this Agreement, no event which in the judgment
of the Purchaser has or could have a Material Adverse Effect and no material
adverse change in the financial condition or business of the Company shall have
occurred which is not disclosed in the Disclosure Materials (the Purchaser may
consider changes in stock price in determining whether any such event or change
has occurred);
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(vii) NO PROHIBITIONS. The purchase of and pay- ment
for the Shares (and upon conversion thereof, the Underlying Shares) hereunder
(a) shall not be prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (b) shall not subject the
Purchaser to any penalty, or in its judgment, other onerous condition under or
pursuant to any applicable law or governmental regulation that would materially
reduce the benefits to the Purchaser of the purchase of the Shares or the
Underlying Shares (PROVIDED, HOWEVER, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement);
(viii) COMPANY CERTIFICATES. The Purchaser shall have
received a certificate, dated the Series B Closing Date, signed by the Secretary
or an Assistant Secretary of the Company and certifying (i) that attached
thereto are true and complete resolutions duly adopted by the Board of Directors
of the Company authorizing the execution and delivery of this Agreement and the
Registration Rights Agreement and the issuance and sale of the Shares and the
Underlying Shares and (ii) as to the incumbency of officers executing this
Agreement and the Registration Rights Agreement;
(ix) REGISTRATION RIGHTS AGREEMENT. The Company shall
have executed the Registration Rights Agreement;
(x) NO SUSPENSIONS OF TRADING IN COMMON STOCK.
Trading in the Common Stock shall not have been suspended by the Commission or
the NASDAQ Small Cap Market or other national securities exchange or market on
which the Common Stock is listed or quoted (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company);
(xi) REQUIRED APPROVALS. All Required Approvals shall
have been obtained;
(xii) DELIVERY OF STOCK CERTIFICATES. The Company
shall have delivered to the Purchaser the stock certificate(s) representing the
Series B Shares, registered in the name of the Purchaser, each in form
satisfactory to the Purchaser; and
(xiii) SHARES OF COMMON STOCK. On the Series B
Closing Date, the Company shall have duly reserved for issuance to the Purchaser
256,938 Underlying Shares.
(b) CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY TO
ISSUE AND SELL THE SERIES B SHARES. The obligation of the Company to issue and
sell the Series B Shares hereunder is subject to the satisfaction or waiver by
the Company, at or prior to the Series B Closing, of each of the following
conditions:
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(i) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Series B Closing Date as though made at that time (except that representations
and warranties that are made as of a specific date need be true in all material
respects only as of such date);
(ii) PERFORMANCE BY THE PURCHASER. The Purchaser
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by it
at or prior to the Series B Closing;
(iii) NO PROHIBITIONS. The sale of the Shares (and
upon conversion thereof, the Underlying Shares) hereunder (i) shall not be
prohibited or enjoined (temporarily or permanently) by any applicable law or
governmental regulation and (ii) shall not subject the Company to any penalty,
or in its judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Company of the sale of Shares or the Underlying Shares to the
Purchaser (PROVIDED, HOWEVER, that such regulation, law or onerous condition was
not in effect in such form at the date of this Agreement); and
(iv) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 5.2. (a) CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
PURCHASER TO PURCHASE THE SERIES C SHARES. The obligation of the Purchaser to
purchase the Series C Shares is subject to the satisfaction or waiver by the
Purchaser, at or prior to the Series C Closing, of each of the following
conditions:
(i) SERIES B CLOSING. The Series B Closing shall have
occurred;
(ii) UNDERLYING SHARES REGISTRATION STATEMENT. The
Underlying Shares Registration Statement covering the Series A Preferred and the
Series B Shares shall have been declared effective under the Securities Act by
the Commission and shall at all times between the date so declared effective and
the Series C Closing Date have remained effective and not subject to any pending
or threatened stop order;
(iii) LEGAL OPINION. The Purchaser shall have
received the legal opinion, addressed to it and dated the Series
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C Closing Date, of Olshan Grundman Frome & Rosenzweig, LLP, counsel for the
Company, substantially in the form of EXHIBIT D;
(iv) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company contained herein
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Series C Closing Date
as though made at that time (except that representations and warranties that are
made as of a specific date need be true in all material respects only as of such
date);
(v) PERFORMANCE BY THE COMPANY. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company at or prior to the Series C Closing;
(vi) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(vii) NO MATERIAL ADVERSE EFFECT. Since the date of
the financial statements included in the Company's Quarterly Report on Form 10-Q
last filed before the date of this Agreement, no event which in the judgment of
the Purchaser has or could have a Material Adverse Effect and no material
adverse change in the financial condition or business of the Company shall have
occurred which is not disclosed in the Disclosure Materials (the Purchaser may
consider changes in stock price in determining whether any such event or change
has occurred);
(viii) NO PROHIBITIONS. The purchase of and pay- ment
for the Shares (and upon conversion thereof, the Underlying Shares) hereunder
(a) shall not be prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (b) shall not subject the
Purchaser to any penalty, or in its judgment, other onerous condition under or
pursuant to any applicable law or governmental regulation that would materially
reduce the benefits to the Purchaser of the purchase of the Shares or the
Underlying Shares (PROVIDED, HOWEVER, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement);
(ix) NO SUSPENSIONS OF TRADING IN COMMON STOCK.
Trading in the Common Stock shall not have been suspended by the Commission or
the NASDAQ Small Cap Market or other national securities exchange or market on
which the Common Stock is listed or quoted (except for any suspension of trading
of limited
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duration solely to permit dissemination of material information
regarding the Company);
(x) REQUIRED APPROVALS. All Required Approvals shall
have been obtained;
(xi) DELIVERY OF STOCK CERTIFICATES. The Company
shall have delivered to the Purchaser the stock certificate(s) representing the
Series C Shares, registered in the name of the Purchaser, each in form
satisfactory to the Purchaser;
(xii) SHARES OF COMMON STOCK. On the Series C Closing
Date, the Company shall have duly reserved for issuance to the Purchaser the
number of Underlying Shares contemplated by Section 3.1(d)(ii); and
(xiii) PERFORMANCE OF CONVERSION/EXERCISE
OBLIGATIONS. The Company shall have delivered Underlying Shares upon conversion
by the Purchaser of shares of Series A Preferred or Series B Shares, as the case
may be, and otherwise performed its obligations in accordance with the terms,
conditions and timing requirements of each of the Series A Certificate of
Designation and Series B Certificate of Designation, as applicable.
ARTICLE VI
TERMINATION
Section 6.1. TERMINATION BY MUTUAL CONSENT. (a) This Agreement
may be terminated with respect to the transactions contemplated herein relating
to both the Shares and the Underlying Shares at any time prior to the Series B
Closing by the mutual consent of the Company and the Purchaser.
(b) This Agreement may be terminated with respect to the
transactions contemplated herein relating solely to the Series C Shares at any
time prior to the Series C Closing by the mutual written consent of the Company
and the Purchaser.
Section 6.2. TERMINATION BY THE COMPANY OR THE PURCHASER. This
Agreement may be terminated with respect to the transactions contemplated herein
relating to both the Shares and the Underlying Shares at any time prior to the
Series B Closing by either the Company or the Purchaser, by giving written
notice of such termination to the other party, if:
(a) there shall be in effect any statute, rule, law or
regulation that prohibits the consummation of the transactions contemplated by
this Agreement or the Registration Rights Agreement or if the consummation of
the transactions contemplated by this Agreement or the Registration Rights
Agreement would
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violate any non-appealable final judgment, order, decree, ruling or injunction
(relating to the Company or the Purchaser) of any court of or governmental
authority having competent jurisdiction; or
(b) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the judgment of
the terminating party, would materially adversely affect the transactions
contemplated hereby and by the Registration Rights Agreement.
Section 6.3. TERMINATION BY THE COMPANY. (a) This Agreement
may be terminated with respect to the transactions contemplated herein relating
to both the Shares and the Underlying Shares prior to the Series B Closing by
the Company, by giving notice of such termination to the Purchaser if the
Purchaser has materially breached any representation, warranty, covenant or
agreement contained in this Agreement and such breach is not cured within five
business days following receipt by the Purchaser of notice of such breach.
(b) This Agreement may be terminated with respect to the
transactions contemplated herein relating solely to the Series C Shares prior to
the Series C Closing by the Company, by giving notice of such termination to the
Purchaser.
Section 6.4. TERMINATION BY THE PURCHASER. (a) This Agreement
may be terminated prior to the Series B Closing with respect to the transactions
contemplated herein relating to both the Shares and the Underlying Shares by the
Purchaser, by giving notice of such termination to the Company, if:
(i) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement and such breach is
not cured within five business days following receipt by the Company of notice
of such breach;
(ii) there has occurred an event since the date of
the financial statements included in the Company's Quarterly Report on Form 10-Q
last filed prior to the date of this Agreement which has in the judgment of the
Purchaser had a Material Adverse Effect and which is not disclosed in the SEC
Documents or if there has occurred in the Purchaser's judgment since such date a
material adverse change in the financial condition or prospects of the Company
(the Purchaser may consider changes in stock prices in determining whether such
change or Material Adverse Effect has occurred);
(iii) trading in the Company's Common Stock has been
suspended by the Commission or the Nasdaq (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company); or
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(iv) the Company's Common Stock shall have failed to
be listed for trading on the Nasdaq National Market or Nasdaq Small Cap Market
and the Purchaser shall have exercised its termination right herein provided
within 10 business days of obtaining knowledge of such delisting.
(b) This Agreement may be terminated by the Purchaser prior to
the Series C Closing with respect to the transactions contemplated herein
relating solely to the Series C Shares by giving notice of such termination to
the Company, if:
(i) after the Series B Closing Date the Company shall
have breached any representation, warranty, covenant or agreement contained in
this Agreement, any Certificate of Designation or the Registration Rights
Agreement and such breach is not cured within five business days following
receipt by the Company of notice of such breach;
(ii) there has occurred a material adverse change in
the business or financial condition of the Company or an event since the date of
the financial statements included in the Company's last filed Quarterly Report
on Form 10-Q which, in each case, in the Purchaser's judgment has or could have
a Material Adverse Effect and which is not disclosed in the Disclosure Materials
(the Purchaser may consider changes in stock prices in determining whether such
change or Material Adverse Effect has occurred);
(iii) trading in the Common Stock has been suspended
by the Commission or the NASDAQ Small Cap Market or other national securities
exchange or market on which the Common Stock is listed or quoted (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company);
(iv) the Company's Common Stock shall have failed to
be listed for trading on either the Nasdaq National Market or Nasdaq Small Cap
Market at any time after the Series B Closing Date and the Purchaser shall have
exercised its termination right herein provided within 10 Trading Days of
obtaining knowledge of any delisting;
(v) the Underlying Securities Registration Statement
covering the Series A Preferred and the Series B Shares shall not have been
declared effective under the Securities Act by the Commission prior to the 75th
day after the Series B Closing Date or shall not be effective on the Series C
Closing Date; or
(vi) the Series C Closing shall not have occurred by
the Series C Closing Expiration Date.
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ARTICLE VII
MISCELLANEOUS
Section 7.1. FEES AND EXPENSES. Each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
set forth in the Registration Rights Agreement and except that the Company shall
reimburse the Purchaser up to $10,000 for its legal fees and disbursements. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of the Shares (and upon conversion thereof, the Underlying Shares)
pursuant hereto. The Purchaser shall be responsible for its own tax liability
that may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company
shall pay (i) all costs, expenses, fees and all taxes incident to and in
connection with: (A) the preparation, printing and distribution of the
Disclosure Materials and all amendments and supplements thereto (including,
without limitation, financial statements and exhibits), and all preliminary and
final Blue Sky memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith (B) the issuance
and delivery of the Shares and, upon conversion thereof, the Underlying Shares,
(C) the qualification of the Shares and, upon conversion thereof, the Underlying
Shares for offer and sale under the securities or Blue Sky laws of the several
states (including, without limitation, the fees and disbursements of the
Purchasers' counsel relating to such registration or qualification), (D)
furnishing such copies of the Disclosure Materials and all amendments and
supplements thereto, as may reasonably be requested for use in connection, with
resales of the Shares and, upon conversion thereof, the Underlying Shares, and
(E) the preparation of certificates for the Shares and, upon conversion thereof,
the Underlying Shares (including, without limitation, printing and engraving
thereof), (ii) all fees and expenses of the counsel and accountants of the
Company and (iii) all expenses and listing fees in connection with the
application for quotation of the underlying Shares in the NASDAQ Small Cap
Market.
Section 7.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
together with the Exhibits, and Schedules hereto, and the Registration Rights
Agreement contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
Section 7.3. NOTICES. Any notice or other communication
required or permitted to be given hereunder shall
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be in writing and shall be deemed to have been received (a) upon hand delivery
(receipt acknowledged) or delivery by telex (with correct answer back received),
telecopy or facsimile (with transmission confirmation report) 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 second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: Glasgal Communications, Inc.
151 Veterans Drive
Northvale, NJ 07647
Facsimile No.: (201) 768-2947
Attn: Chief Executive Officer
With copies to: Olshan Grundman Frome &
Rosenzweig, LLP
505 Park Avenue
New York, NY 10022
Facsimile No.: (212) 755-1467
Attn: Robert Friedman
If to the Purchaser: Southbrook International
Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, New York 10111
Facsimile No.: (212) 332-3256
Attn: Robert L. Miller
With copies to: Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson and
Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 7.4. AMENDMENTS; WAIVERS. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by both the Company and the Purchaser, or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or
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requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right accruing to it thereafter.
Section 7.5. HEADINGS. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
Section 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except that the Purchaser may assign its rights hereunder
and under the Registration Rights Agreement to an Affiliate thereof, provided,
that such assignee demonstrates to the reasonable satisfaction of the Company
its satisfaction of the representations and warranties set forth in Section 3.2
herein. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 7.7. NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.8. GOVERNING LAW. This Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York without regard to the principles of conflicts of law thereof.
Section 7.9. SURVIVAL. The representations and warranties of
the Company and the Purchaser contained in ARTICLE III and the agreements and
covenants of the parties contained in ARTICLE IV and this ARTICLE VII shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Shares hereunder.
Section 7.10. COUNTERPART SIGNATURES. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed)
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the same with the same force and effect as if such facsimile signature page were
an original thereof.
Section 7.11. PUBLICITY. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
Section 7.12. SEVERABILITY. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section 7.13. REMEDIES. In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be entitled
to specific performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Shares and the Underlying Shares. Each of
the Company and the Purchaser agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
Company:
GLASGAL COMMUNICATIONS, INC.
By: /s/ Isaac Gaon
-------------------------------------
Name: Isaac Gaon
Title: CEO
Purchaser:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By: /s/ Kenneth L. Henderson
-------------------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
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AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"AGREEMENT"), made as of this 29th day of October, 1996, by and among Glasgal
Communications, Inc., a Delaware corporation (the "COMPANY"), and Southbrook
International Investments, Ltd., a British Virgin Islands corporation (the
"PURCHASER").
WHEREAS, the Company issued and sold to the Purchaser and the
Purchaser acquired 250,000 shares of the Company's Series A Convertible
Preferred Stock, par value $.001 per share (the "SERIES A PREFERRED"), pursuant
to the Convertible Preferred Stock Purchase Agreement, dated as of September 30,
1996, by and among the Company and the Purchaser (the "SERIES A PURCHASE
AGREEMENT").
WHEREAS, in connection with the Series A Purchase Agreement
and as a condition to the parties obligations thereunder, the Company and the
Purchaser entered into a Registration Rights Agreement, dated as of September
30, 1996 (the "ORIGINAL REGISTRATION RIGHTS AGREEMENT").
WHEREAS, the Company and the Purchaser are entering into a
Convertible Stock Purchase Agreement (the "SUBSEQUENT PURCHASE AGREEMENT"),
dated as of the date hereof, pursuant to which the Company will to issue and
sell to the Purchaser and the Purchaser will acquire shares of the Company's
Series B Convertible Preferred Stock (the "SERIES B PREFERRED") and the
Company's Series C Convertible Preferred Stock (the "SERIES C PREFERRED").
WHEREAS, the Company and the Purchaser desire to amend and
restate the Original Registration Rights Agreement in its entirety hereby.
WHEREAS, the execution of this Agreement is a condition to the
closing of the transactions contemplated by the Subsequent Purchase Agreement.
THEREFORE, The parties hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"ADVICE" shall have meaning set forth in SECTION 4(O).
<PAGE>
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BLACKOUT" shall have the meaning set forth in SECTION 3(B).
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"CLOSING" or "CLOSINGS" shall mean the Series A Closing,
Series B Closing or Series C Closing, as applicable.
"CLOSING DATE or CLOSING DATES" shall mean the Series A
Closing Date, Series B Closing Date or Series C Closing Date, as applicable.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value
$.001 per share.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
SECTION 2(A)(III).
"EVENT" shall have the meaning set forth in SECTION 5.
"EVENT DATE" shall have the meaning set forth in SECTION 5.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in
SECTION 7(C).
"INDEMNIFYING PARTY" shall have the meaning set forth in
SECTION 7(C).
"INITIAL EFFECTIVENESS DATE" means the 90th day following the
Series A Closing Date.
"INITIAL FILING DATE" means the 5th Business Day following the
date of this Agreement.
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"INITIAL REGISTRABLE SECURITIES" means the shares of Common
Stock issuable upon conversion in full of the Series A Preferred and Series B
Preferred issued and sold to the Purchaser pursuant to the Purchase Agreements;
PROVIDED, HOWEVER, that in order to account for adjustments in the conversion
ratios for such shares, Initial Registrable Securities shall include a number of
shares of Common Stock equal to no less than two times the number of shares of
Common Stock issuable upon conversion in full of such Series A Preferred and
Series B Preferred based on a computation as at the Series B Closing Date or
such other number of shares of Common Stock as agreed to by the parties to the
Purchase Agreement. However, notwithstanding anything herein contained to the
contrary, if in fact the number of shares of Common Stock issuable upon
conversion in full of the Series A Preferred and Series B Preferred exceeds
twice the number of shares of Common Stock issuable upon conversion in full of
such Preferred Stock based upon a computation as at the Series B Closing Date,
then the term "Initial Registrable Securities" shall be deemed to include such
additional shares and the Company shall promptly file appropriate amendments to
the Initial Registration Statement to evidence such increase or the Company
shall promptly file a new registration statement covering the Initial
Registrable Securities not registered under the Initial Registration Statement
in the time contemplated herein for filing of appropriate amendments in
accordance with the terms hereof.
"INITIAL REGISTRATION STATEMENT" means the registration
statement, contemplated by SECTION 2(A)(I), including the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"LOSSES" shall have the meaning set forth in SECTION 7(A).
"NEW YORK COURTS" shall have the meaning set forth in SECTION
9(I).
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" means, collectively, the Series A Preferred,
Series B Preferred and Series C Preferred.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means each of the prospectus included in the
Initial Registration Statement and the prospectus included in the Series C
Registration Statement, as the case may be (including, without limitation, a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
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prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by such Registration Statements, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"PURCHASE AGREEMENTS" means, collectively, the Series A
Purchase Agreement and the Subsequent Purchase Agreement.
"REGISTRABLE SECURITIES" means, collectively, the Initial
Registrable Securities and the Series C Registrable Securities.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 144A" means Rule 144A promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A CLOSING" shall have the meaning set forth in the
Series A Purchase Agreement.
"SERIES A CLOSING DATE" shall have the meaning set forth in
the Series A Purchase Agreement.
"SERIES B CLOSING" shall have the meaning set forth in the
Subsequent Purchase Agreement.
"SERIES B CLOSING DATE" shall have the meaning set forth in
the Subsequent Purchase Agreement.
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<PAGE>
"SERIES C CLOSING" shall have the meaning set forth in the
Subsequent Purchase Agreement.
"SERIES C CLOSING DATE" shall have the meaning set forth in
the Subsequent Purchase Agreement.
"SERIES C EFFECTIVENESS DATE" means the 75th day following the
Series C Closing date.
"SERIES C FILING DATE" means the 14th day following the Series
C Closing Date.
"SERIES C REGISTRABLE SECURITIES" means the shares of Common
Stock issuable upon conversion in full of the Series C Preferred to be issued
and sold to the Purchaser pursuant to the Subsequent Purchase Agreement;
PROVIDED, HOWEVER, that in order to account for adjustments in the conversion
ratio for such shares, Series C Registrable Securities shall include a number of
shares of Common Stock equal to no less than two times the number of shares of
Common Stock issuable upon conversion in full of such Series C Preferred based
on a computation as at the Series C Closing Date or such other number of shares
of Common Stock as agreed to by the parties to the Subsequent Purchase
Agreement. However, notwithstanding anything herein contained to the contrary,
if in fact the number of shares of Common Stock issuable upon conversion in full
of the Series C Preferred exceeds twice the number of shares of Common Stock
issuable upon conversion in full of such Series C Preferred based upon a
computation as at the Series C Closing Date, then the term "Series C Registrable
Securities" shall be deemed to include such additional shares and the Company
shall promptly file appropriate amendments to the Series C Registration
Statement to evidence such increase or the Company shall promptly file a new
registration statement covering the Series C Registrable Securities not
registered under the Series C Registration Statement in the time contemplated
herein for filing of appropriate amendments in accordance with the terms hereof.
"SERIES C REGISTRATION STATEMENT" means the registration
statement contemplated by Section 2(a)(ii), including the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"SPECIAL COUNSEL" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to SECTION 5.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
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<PAGE>
2. SHELF REGISTRATION
(a) (i) On or prior to the Initial Filing Date, the
Company shall prepare and file with the Commission the Initial Registration
Statement covering all Initial Registrable Securities for an offering to be made
on a continuous basis pursuant to Rule 415.
(ii) On or prior to the Series C Filing Date,
the Company shall prepare and file with the Commission the Series C Registration
Statement covering all Series C Registrable Securities for an offering to be
made on a continuous basis pursuant to Rule 415.
(iii) Each Registration Statement shall be a
"shelf" registration statement on Form S-3 or another appropriate form
permitting registration of Registrable Securities for resale by the Holders in
the manner or manners designated by them (including, without limitation, public
or private sales and one or more underwritten offerings). The Company shall use
its best efforts to cause each Registration Statement to be declared effective
under the Securities Act as promptly as practicable after the filing thereof,
but in any event prior to, in the case of the Initial Registration Statement,
the Initial Effectiveness Date and, in the case of the Series C Registration
Statement, the Series C Effectiveness Date, and to keep such Registration
Statement continuously effective under the Securities Act from the effective
date thereof until the date which is three years after, with respect to the
Initial Registration Statement, the date of this Agreement and, with respect to
the Series C Registration Statement, the Series C Closing Date or, in either
case, such earlier date when all Registrable Securities covered by such
Registration Statement have been sold or may be sold pursuant to Rule 144 as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Holders, to such effect (the "EFFECTIVENESS PERIOD"); PROVIDED,
HOWEVER, that the Company shall not be deemed to have used its best efforts to
keep a Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is required under applicable law or
the Company has filed a post-effective amendment to such Registration Statement
and the Commission has not declared it effective or except as otherwise
permitted by SECTION 3(A).
(b) If the Holders of a majority of the Initial Registrable
Securities or the Series C Registrable Securities, as the case may be, so elect,
an offering of such Registrable Securities pursuant to the Initial Registration
Statement or Series C Registration Statement, as the case may be, may be
effected in the form of an underwritten offering. In such event, and if the
managing underwriters advise the Company and such Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
offering exceeds the amount of Registrable Securities which can be sold in such
offering, there shall be included in such underwritten offering the amount of
such Registrable Securities which in the opinion of such managing underwriters
can be sold, and such amount shall be allocated PRO RATA among the Holders
proposing to sell Registrable Securities in such underwritten offering.
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<PAGE>
(c) If any of the Registrable Securities are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering. No Holder
may participate in any underwritten offering hereunder unless such Person (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. HOLD-BACK AGREEMENTS
(a) RESTRICTIONS ON PUBLIC SALE BY THE HOLDERS. Subject to
paragraph (b) of this SECTION 3, the Purchaser hereby understands and agrees
that the registration rights of the Purchaser pursuant to this Agreement and its
ability to offer and sell Registrable Securities pursuant to the Registration
Statements are limited by the provisions of the immediately following sentence.
If the Company determines in its good faith judgment that the filing of any
Registration Statement in accordance with SECTION 2 or the use of any Prospectus
thereunder would require the disclosure of material information which the
Company has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to consummate a
significant transaction, upon written notice of such determination by the
Company, the rights of the Purchaser to offer, sell or distribute Registrable
Securities pursuant to such Registration Statement or to require the Company to
take action with respect to the registration or sale of Registrable Securities
pursuant to such Registration Statement (including any action contemplated by
SECTION 4) will for up to 60 consecutive days in respect of a single such notice
(or multiple notices relating to a single event or series of related events) in
any 12-month period be suspended until the date upon which the Company notifies
the Holders in writing that suspension of such rights for the grounds set forth
in this SECTION 3(A) is no longer necessary.
(b) LIMITATION ON BLACKOUTS. Notwithstanding anything
contained herein to the contrary, the aggregate number of days (whether or not
consecutive) during which the Company may delay the effectiveness of a
Registration Statement or prevent offerings, sales or distributions by the
Purchaser pursuant to paragraph (a) above or the last paragraph of SECTION 4
(collectively, a "BLACKOUT") shall in no event exceed 90 days during any
12-month period and no Blackout may continue in consecutive 12 month periods.
4. REGISTRATION PROCEDURES
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission within the time
period set forth in SECTION 2 the Registration Statements on Form S-3 or another
appropriate form in accordance with the method or methods of distribution
thereof as specified by the Holders,
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and cause the Registration Statements to become effective and remain effective
as provided herein; PROVIDED, HOWEVER, that not less than five (5) Business Days
prior to the filing of a Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i), if requested, furnish to the Holders, their Special Counsel and any
managing underwriters, copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders, their Special Counsel
and such managing underwriters, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file any Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities to be registered
thereunder pursuant to the terms hereof, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statements as may be
necessary to keep such Registration Statements continuously effective for the
applicable time period; (ii) cause any related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
practicable to any comments received from the Commission with respect to any
Registration Statement or any amendment thereto; and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by a Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of the applicable Registrable
Securities to be sold, and, if requested, their Special Counsel and any managing
underwriters immediately (and, in the case of (i)(A) below, not less than five
(5) days prior to such filing) and (if requested by any such Person) confirm
such notice in writing no later than one (1) Business Day following the day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed and, (B) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to such
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any or all of the applicable Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) if at any
time any of the representations and warranties of the Company contained in any
agreement (including any underwriting agreement) contemplated hereby ceases to
be true and correct in all material respects; (v) of the receipt by the Company
of any notification with respect to the suspension
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of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in a Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to a Registration Statement,
Prospectus or other documents so that, in the case of such Registration
Statement or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit 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.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
any Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority of the Registrable Securities to be sold in connection with an
underwritten offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the applicable Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; PROVIDED, HOWEVER, that the
Company shall not be required to take any action pursuant to this SECTION 4(E)
that would, in the opinion of counsel for the Company, violate applicable law.
(f) Furnish to each Holder of the applicable Registrable
Securities, their Special Counsel and any managing underwriters, without charge,
at least one conformed executed copy of the Registration Statement relating to
such Registrable Securities and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder of the applicable
Registrable Securities, their Special Counsel, and any underwriters, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders of such Registrable
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Securities, any underwriters and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing underwriters or
Holders may request at least two Business Days prior to any sale of such
Registrable Securities.
(j) Upon the occurrence of any event contemplated by SECTION
4(C)(VI), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the applicable Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither such Registration Statement nor such
Prospectus will 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.
(k) Use its best efforts to cause all Registrable Securities
relating to each Registration Statement, to be listed on each securities
exchange or market, if any, on which similar securities issued by the Company
are then listed.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of the applicable Registrable Securities, and whether
or not an underwriting agreement is entered into, (i) make such representations
and warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) obtain and deliver copies thereof to each Holder and
the managing underwriters, if any, of opinions of counsel to the Company and
updates thereof addressed to each selling Holder and each such underwriter, in
form, scope and substance reasonably satisfactory to any such managing
underwriters and Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as
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may be reasonably requested by such Special Counsel and underwriters; (iii)
immediately prior to the effectiveness of a Registration Statement, and, in the
case of an underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto, obtain and deliver copies to the Holders and
the managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in such
Registration Statement), addressed to each selling Holder and each of the
underwriters, if any, in form and substance as are customary in connection with
underwritten offerings; (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the underwriters, if any, than those set forth in
SECTION 7 (or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such underwritten offering); and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 4(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with any
Registration Statement; PROVIDED, HOWEVER, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not bound by a
confidentiality agreement.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten offering
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and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the applicable Registration Statement, which statement shall cover said 12-month
period, or such shorter periods as is consistent with the requirements of Rule
158.
(o) Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the applicable Registration Statement.
The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of Registrable Securities as
is required by law to be disclosed in the applicable Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If any Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of the Company,
or (ii) if such reference to such Holder by name or otherwise is not required by
the Securities Act or any similar Federal statute then in force, the deletion of
the reference to such Holder in any amendment or supplement to such Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
The Purchaser covenants and agrees that (i) it will not offer
or sell any Registrable Securities under a Registration Statement until it has
received copies of the Prospectus relating thereto as then amended or
supplemented as contemplated in SECTION 4(G) and notice from the Company that
such Registration Statement and any post-effective amendments thereto have
become effective as contemplated by SECTION 4(C) and (ii) the Purchaser and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to any Registration Statement
hereunder.
Each Holder agrees by its acquisition of Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in SECTION 4(C)(II), 4(C)(III), 4(C)(IV),
4(C)(V) or 4(C)(VI), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
SECTION 4(J), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
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5. LIQUIDATED DAMAGES. The Company acknowledges and agrees
that the Holders will suffer damages, and that it would not be feasible to
ascertain the extent of such damages with precision, if the Company fails to
fulfill its obligations hereunder and (a) a Registration Statement is not filed
with the Commission on or prior to, in the case of the Initial Registration
Statement, the Initial Filing Date and in the case of the Series C Registration
Statement, the Series C Filing Date, (b) a Registration Statement is not
declared effective by the Commission on or prior to, in the case of the Initial
Registration Statement, the Initial Effectiveness Date and, in the case of the
Series C Registration Statement, the Series C Effectiveness Date or (c) a
Registration Statement is filed and declared effective but thereafter ceases to
be effective at any time during the Effectiveness Period therefor without being
succeeded within 30 days by a subsequent Registration Statement filed with and
declared effective by the Commission (any such failure being hereinafter
referred to as an "EVENT", and for purposes of clauses (a) and (b) the date on
which such Event occurs, or for purposes of clause (c) the date on which such
30-day limit is exceeded, being hereinafter referred to as an "EVENT DATE").
Upon the occurrence and continuation of an Event, the Company
agrees to decrease the Conversion Price applicable to a conversion of (a) if the
Event relates to the Initial Registrable Securities or Initial Registration
Statement, Series A Preferred Stock and Series B Preferred Stock, and (b) if the
Event relates to the Series C Registrable Securities or Series C Registration
Statement, Series C Preferred Stock, in accordance with Section 5(d)(i) of the
Certificates of Designation by 3% per month for each of the first two months
after each Event Date (i.e., with respect to the Series A Preferred Stock, 77%
at the commencement of the first such month and 74% at the commencement of the
second such month). Commencing on the third month after an Event Date, the 3%
monthly decrease shall be paid to the Holder in cash. Such decrease in the
Conversion Price and/or payment in cash, as the case may be, shall be paid as
liquidated damages, and not as a penalty, to each Holder; PROVIDED, that such
liquidated damages will, in each case, cease to accrue (subject to the
occurrence of another Event) on the date in which the applicable Registration
Statement is no longer subject to an order suspending the effectiveness thereof
or Proceedings relating thereto or a subsequent Registration Statement is
declared effective.
The Company shall notify each applicable Holder within five
days of each Event and Event Date. The Company shall pay the liquidated damage
due on the applicable Registrable Securities to each Holder thereof of record as
at the Event Date on the first Business Day of each month in which such
liquidated damages shall accrue by check delivered to the address for notice of
such Holder set forth herein.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to any Registration
Statement. The fees and expenses referred to in the foregoing sentence shall be
in addition to the fees and disbursements contemplated in
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Section 7.1 of each of the Purchase Agreements and include, without limitation,
(i) all registration and filing fees (including, without limitation, fees and
expenses (A) with respect to filings required to be made with the National
Association of Securities Dealers, Inc. and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, subject to Section
6(b), fees and disbursements of counsel for the underwriters or Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
Holders of a majority of Registrable Securities may designate)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders
(subject to the provisions of SECTION 6(B)), (v) fees and disbursements of all
independent certified public accountants referred to in SECTION 4(1)(III)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company so desires such insurance, and (vii)
fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities issued by the Company are then listed.
(b) In connection with each of the Initial Registration
Statement and the Series C Registration Statement, the Company shall reimburse
the Holders up to $5,000 for the fees and disbursements of one firm of attorneys
chosen by the Holders of a majority of the Registrable Securities to be
registered thereunder.
7. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless each Holder, the officers, directors, agents,
brokers, investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or
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<PAGE>
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by or on behalf of
such Holder expressly for use therein, which information was reasonably relied
on by the Company for use therein or to the extent that such information relates
to such Holder or such Holder's proposed method of distribution of the
applicable Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in such Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto.
The Company shall notify the applicable Holders promptly of the institution,
threat or assertion of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. In connection with a
Registration Statement, each applicable Holder shall furnish to the Company in
writing such information as the Company reasonably requests for use in
connection with such Registration Statement or any Prospectus and agrees,
jointly and not severally, to indemnify and hold harmless the Company, their
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising solely out of or based
solely upon any untrue statement of a material fact contained in such
Registration Statement, any Prospectus thereunder, or any form of prospectus, or
arising solely out of or based solely upon any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration Statement or such
Prospectus and that such information was reasonably relied upon by the Company
for use in such Registration Statement, such Prospectus or such form of
prospectus or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities thereunder
and was reviewed and expressly approved in writing by such Holder expressly for
use in such Registration Statement, such Prospectus or such form of Prospectus.
In no event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
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<PAGE>
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
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 10 Business 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).
(d) CONTRIBUTION. If a claim for indemnification under SECTION
7(A) or 7(B) is unavailable to an Indemnified Party or is insufficient to hold
such Indemnified Party harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in ques-
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<PAGE>
tion, including any untrue or alleged untrue statement of a material fact or
omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such Indemnifying Party or Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in SECTION 7(C), any attorneys' or other
fees or expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this SECTION 7(D) were determined by PRO
RATA allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this SECTION 7(D), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. 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.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
8. RULE 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, they will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144. Upon the
request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
9. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages
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would not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. None of the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as set specifically forth in Schedule 3.1 to the Purchase Agreement, none
of the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person. Without limiting the generality of the foregoing, without the
written consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Except for as specified in
Schedule A annexed hereto, none of the Company nor any of its securityholders
(other than the Holders in such capacity pursuant hereto) may include securities
of the Company in the Registration Statement other than the Common Stock to be
issued under the Purchase Agreement, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together
with the Exhibits, Annexes and Schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters. This Agreement amends and restates in its entirety the Original
Registration Rights Agreement.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; PROVIDED, HOWEVER, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; PROVIDED, HOWEVER, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
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(f) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) 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 second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Glasgal Communications, Inc.
151 Veterans Drive
Northvale, NJ 07647
Facsimile No.: (201) 768-2947
Attn: Chief Executive Officer
With copies to: Olshan Grundman Frome &
Rosenzweig, LLP
505 Park Avenue
New York, NY 10022
Facsimile No.: (212) 755-1467
Attn: Robert Friedman
If to the Purchaser: Southbrook International Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, NY 10011
Facsimile No.: (212) 332-3256
Attn: Robert L. Miller
With copies to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson and Eric L.
Cohen
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<PAGE>
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books of the
Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder.
(h) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflicts of law.
The Company hereby irrevocably submits to the jurisdiction of any New York state
court sitting in the Borough of Manhattan in the City of New York or any federal
court sitting in the Borough of Manhattan in the City of New York (collectively,
the "NEW YORK COURTS") in respect of any Proceeding arising out of or relating
to this Agreement, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the New York Courts.
The Company irrevocably waives to the fullest extent it may effectively do so
under applicable law any objection that it may now or hereafter have to the
laying of the venue of any such Proceeding brought in any New York Court and any
claim that any such Proceeding brought in any New York Court has been brought in
an inconvenient forum. Nothing herein shall affect the right of any Holder to
serve process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against the company in any other jurisdiction.
(j) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(k) SEVERABILITY. 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 reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by
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<PAGE>
such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(l) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(m) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
GLASGAL COMMUNICATIONS, INC.
By: /s/ Issac Gaon
-------------------------------------
Name: Issac Gaon
Title: CEO
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By: /s/ Kenneth L. Henderson
-------------------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
