<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTERLEAF, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROXY
INTERLEAF, INC.
62 FOURTH AVENUE
WALTHAM, MASSACHUSETTS 02154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NO.: (617) 290-0710
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 17, 1997
You are hereby notified that a Special Meeting of Shareholders (the "Special
Meeting") of Interleaf, Inc. (the "Company") will be held at the offices of
Interleaf, Inc., 62 Fourth Avenue, Waltham, Massachusetts, on Wednesday,
December 17, 1997 at 8:30 a.m., local time, to consider and act upon the
following matters:
1. To approve and reserve for issuance the shares of Common Stock
issuable (i) upon the conversion of shares of the Company's 6% Convertible
Preferred Stock issued in a September 1997 private placement, (ii) as
dividends on the 6% Convertible Preferred Stock and (iii) in respect of
related placement agent warrants, pursuant to the terms of the 6%
Convertible Preferred Stock Investment Agreement dated as of September 30,
1997, a copy of which is attached as EXHIBIT 1.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on November 17, 1997 will be
entitled to vote at the Special Meeting or any adjournment thereof. The stock
transfer books of the Company will remain open.
By Order of the Board of Directors,
Craig Newfield, CLERK
Waltham, Massachusetts
November 24, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
INTERLEAF, INC.
62 FOURTH AVENUE
WALTHAM, MASSACHUSETTS 02154
SOLICITATION AND VOTING OF PROXIES
DECEMBER 17, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Interleaf, Inc. (the "Company") for use at
the Special Meeting of Shareholders to be held at the offices of the Company on
Wednesday, December 17, 1997 at 8:30 a.m. and at any adjournment of that meeting
(the "Special Meeting"). All proxies will be voted in accordance with the
shareholders' instructions, and if no choice is specified, the proxies will be
voted in favor of the matters set forth in the accompanying Notice of Special
Meeting. Any proxy may be revoked by a shareholder at any time before its
exercise by delivery of written revocation or a subsequently dated proxy to the
Clerk of the Company, or by voting in person at the Special Meeting. It is
expected that this proxy statement and accompanying proxy card will first be
mailed to shareholders on or about November 24, 1997.
RECORD DATE AND VOTING SECURITIES
The Board of Directors has fixed November 17, 1997 as the record date for
determining shareholders who are entitled to vote at the Special Meeting. At the
close of business on November 17, 1997 there were outstanding and entitled to
vote [17,709,719] shares of common stock of the Company, $.01 par value per
share ("Common Stock"), 861,911 shares of the Company's Senior Series B
Convertible Preferred Stock, $.10 par value per share ("Series B Preferred
Stock") and 1,013,928 shares of the Company's Series C Convertible Preferred
Stock, $0.10 par value per share ("Series C Preferred Stock"). Series B
Preferred Stock and Series C Preferred Stock are jointly referred to herein as
the "Preferred Stock." At the Special Meeting each share of the Common Stock is
entitled to one vote; each share of the Series B Preferred Stock is entitled to
1.34375 votes, and each share of the Series C Preferred Stock is entitled to 2
votes, and therefore the total number of votes eligible to be cast at the
Special Meeting is [20,884,880].
The Company's By-laws provide that a quorum consists of the representation
in person or by proxy at a meeting of shareholders entitled to vote a majority
of the votes that are entitled to be cast at the meeting. Abstentions and broker
non-votes will be counted for the purpose of determining the presence or absence
of a quorum. "Broker non-votes" are shares held by brokers or nominees which are
present in person or represented by proxy, but which are not voted on a
particular matter because instructions have not been received from the
beneficial owner. The effect of abstentions and broker non-votes on proposals to
be brought before the Special Meeting is discussed below.
The affirmative vote of shares holding a majority of the votes of Common
Stock and Preferred Stock represented, and entitled to vote and voting at the
Special Meeting is required to approve Proposal 1 concerning the issuance of
Common Stock pursuant to the private placement completed by the Company as of
September 30, 1997 (the "1997 Private Placement") and to approve any other
business which may properly be brought before the Special Meeting or any
adjournment thereof. Pursuant to an agreement with The Nasdaq Stock Market, Inc.
("Nasdaq"), and under the terms of the 6% Convertible Preferred
1
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Stock Investment Agreement, the 6% Convertible Preferred Stock issued in the
1997 Private Placement is not entitled to vote on Proposal 1.
Shares of Common Stock and Preferred Stock represented in person or by proxy
at the Special Meeting (including shares which abstain from or do not vote with
respect to one or more of the matters presented at the Special Meeting) will be
tabulated by the Clerk. Abstentions will be treated as shares that are present
for purposes of determining the number of shares that are present and entitled
to vote with respect to any particular matter, but which are not voted with
respect to such matter. If a broker holding stock in "street name" does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will be considered as not voting with respect to such matter.
The Board of Directors and management of the Company deem Proposal 1
described herein to be in the best interest of the Company and its shareholders
and recommend that the shareholders approve such proposal. All directors and
executive officers of the Company named in the table below intend to vote their
shares of Common Stock in favor of such proposal.
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth certain information as of November 12, 1997
with respect to all of the Company's voting shares owned or deemed beneficially
owned as determined under the rules of the Securities and Exchange Commission,
directly or indirectly, by each shareholder known to the Company to own
beneficially more than 5% of the outstanding shares of a class of voting
securities of the Company, by each director, by each of the executive officers
as required under Item 402(a)(3) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), and by all current directors and
executive officers of the Company and its subsidiaries as a group. In accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), a person is deemed to be the beneficial owner, for purposes of
this table, of any shares of the Company if he or she has or shares voting power
or investment power with respect to such security or has the right to acquire
beneficial ownership at any time within 60 days of November 17, 1997. As used
herein "voting power" is the power to vote or direct the voting of shares and
"investment power" is the power to dispose of or direct the disposition of
shares. Except as indicated in the notes following the table below, each person
named has sole voting and investment power with respect to the shares listed as
being beneficially owned by such person.
2
<PAGE>
COMMON STOCK
<TABLE>
<CAPTION>
% OF TOTAL
VOTING
NO. OF SHARES CAPITAL
DIRECTORS, OFFICERS AND 5% BENEFICIALLY % OF CLASS STOCK
SHAREHOLDERS OWNED OUTSTANDING OUTSTANDING(1)
- -------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
U. S. Trust Company of New York
114 West 47th Street
New York, NY 10036-1532........................... 1,667,100(2) 9.4% 8%
Frederick B. Bamber............................... 44,491(3) * *
David A. Boucher.................................. 241,844(4) 1.4% 1.2%
George D. Potter, Jr.............................. 125,662(5) * *
Rory J. Cowan..................................... 65,000 * *
Marcia J. Hooper.................................. -- (7) * *
Jaime W. Ellertson................................ 14,100 * *
Mark H. Cieplik(8)................................ -- * *
Stephen J. Hill(9)................................ -- * *
Michael L. Shanker(10)............................ -- * *
Ed Koepfler(11)................................... 300,000 1.7% *
G. Gordon M. Large(12)............................ -- * *
Stanley C. Douglas(13)............................ -- * *
</TABLE>
<TABLE>
<CAPTION>
ALL CURRENT DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP
- ----------------------------------------
<S> <C> <C> <C>
All current directors and executive
officers as a group (10 persons)...... 541,097 (14)] 3.01% 2.56%
</TABLE>
SERIES B PREFERRED STOCK
<TABLE>
<CAPTION>
NO. OF % OF TOTAL
SHARES VOTING CAPITAL
DIRECTORS, OFFICERS AND 5% BENEFICIALLY % OF CLASS STOCK
SHAREHOLDERS OWNED OUTSTANDING OUTSTANDING(1)
- ---------------------------------------------------------------------- ------------ --------------- -----------------
<S> <C> <C> <C>
Advent International Corporation
101 Federal Street
Boston, MA 02110...................................................... 861,911(15) 100% 5.5%
</TABLE>
SERIES C PREFERRED STOCK
<TABLE>
<CAPTION>
NO. OF % OF TOTAL
SHARES VOTING CAPITAL
DIRECTORS, OFFICERS AND 5% BENEFICIALLY % OF CLASS STOCK
SHAREHOLDERS OWNED OUTSTANDING OUTSTANDING(1)
- ---------------------------------------------------------------------- ------------ --------------- -----------------
<S> <C> <C> <C>
Auer & Co.(16)
P.O. Box 1107
Church Street Station
New York, NY 10008-1107............................................... 1,013,928 100% 9.7%
</TABLE>
3
<PAGE>
6% CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF SHARES VOTING CAPITAL
DIRECTORS, OFFICERS AND 5% BENEFICIALLY % OF CLASS STOCK
SHAREHOLDERS OWNED OUTSTANDING OUTSTANDING(17)
- -------------------------------------------------------------------- --------------- ------------- -------------------
<S> <C> <C> <C>
SIL Nominees Ltd.................................................... 1,500 22.68% --
Leonardo, L.P....................................................... 950 14.37% --
Olympus Securities, Ltd............................................. 550 8.32% --
The Tail Wind Fund Ltd.............................................. 500 7.56% --
Deere Park Capital Mgmt., Inc....................................... 500 7.56% --
Lakeshore International Ltd......................................... 500 7.56% --
Bruce Newberg....................................................... 500(18) 7.56% --
Nelson Partners..................................................... 450 6.81% --
Ramius Fund, Ltd.................................................... 400 6.05% --
Capello Capital Corp................................................ 763(19) 11.54% --
</TABLE>
- ------------------------
* Less than 1%.
-- Indicates zero.
(1) Determined by using a conversion ratio of 1.34375 for the Series B
Preferred Stock, and a conversion ratio of 2 for the Series C Preferred
Stock.
(2) U.S. Trust has shared voting power over this amount. The Company has relied
on information contained in Form 13G filed by U.S. Trust on February 20,
1997 in providing this information.
(3) Includes 38,000 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after November 17, 1997.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after November 17, 1997.
(5) Includes 20,000 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after November 17, 1997.
(6) Represents 55,000 shares of Common Stock issuable upon exercise of certain
options, which options are currently exercisable or become exercisable
within a 60-day period after November 17, 1997.
(7) Does not include 861,911 shares of Series B Preferred Stock listed as
beneficially owned by Advent International Corporation, a corporation in
which Ms. Hooper serves as Vice President.
(8) Mr. Cieplik resigned from all positions with the Company, effective June
10, 1997.
(9) Mr. Hill resigned from all positions with the Company, effective May 17,
1997.
(10) Mr. Shanker resigned from all positions with the Company, effective May 17,
1997.
(11) Mr. Koepfler resigned as an executive officer with the Company, effective
November 15, 1996, and as a director, effective April 2, 1997.
(12) Mr. Large resigned from all positions with the Company, effective November
12, 1996.
(13) Mr. Douglas resigned from all positions with the Company, effective
November 15, 1996.
4
<PAGE>
(14) Includes an aggregate of 173,000 shares of Common Stock issuable upon
exercise of options held by four directors and one officer, which options
are currently exercisable or become exercisable within the 60-day period
after November 17, 1997. Does not include any of the Series B Preferred
Stock held by Advent International Corporation, of which Ms. Marcia Hooper
(a Director of the Company) serves as Vice President.
(15) Represents 861,911 shares of Series B Preferred Stock held by various
limited partnerships of which Advent International Corporation is either
the general partner or a general partner in limited partnerships which are
the general partners in such various limited partnerships.
(16) Auer & Co. has no voting power over these shares.
(17) Under the terms of the 6% Convertible Preferred Stock Investment Agreement,
the 6% Convertible Preferred Stock has no voting power except (i) as to
whether a consolidation or merger of the Company or a sale of all or
substantially all of its assets will constitute a liquidation or winding-up
of the Company for purposes of determining if such stock is entitled to its
liquidation preference, or (ii) as provided by law. The 6% Convertible
Preferred Stock has no right to vote on Proposal 1.
(18) Mr. Newberg serves as trustee of the Bruce Newberg Trust (the "Trust"),
which holds 500 shares of 6% Convertible Preferred Stock. Mr. Newberg has
sole voting and investment power with respect to the 500 shares of 6%
Convertible Preferred Stock held by the Trust.
(19) Represents warrants to purchase 763 shares of 6% Convertible Preferred
Stock issued to the placement agent. These warrants are exercisable
immediately, and have been assigned to principals of the placement agent
and/or their family members.
PROPOSAL 1--APPROVAL OF 1997 PRIVATE PLACEMENT
INTRODUCTION
In August, 1997 the Company received notification from Nasdaq that due to
the Company's insufficient net tangible assets, the Company would be delisted
from the Nasdaq National Market (the "National Market") unless it raised the
necessary additional capital. Nasdaq rules require that the Company have net
tangible assets in excess of $4 million. In August, 1997 the Company had a
deficit of approximately $252,000. To raise sufficient funds to increase the
Company's net tangible assets, and, in turn, maintain the Company's listing on
the National Market, the Board of Directors completed the 1997 Private Placement
of 6% Convertible Preferred Stock.
GENERAL
As of September 30, 1997, the Company completed the 1997 Private Placement
pursuant to which it received aggregate net proceeds of approximately $6.8
million (after cash fees to the placement agent and estimated transaction
expenses) from the issuance of shares of the Company's 6% Convertible Preferred
Stock and related placement agent warrants. The securities issuances related to
the 1997 Private Placement (including shares of Common Stock issuable upon the
conversion of shares of 6% Convertible Preferred Stock, as dividends thereon and
upon exercise of the placement agent warrants) are referred to as the "1997
Private Placement Issuances." All of the securities sold in the 1997 Private
Placement Issuances were sold in private placements solely to accredited
investors under the Securities Act.
5
<PAGE>
Under the 6% Convertible Preferred Stock Investment Agreement, if Proposal 1
is not approved by the shareholders, the Company must redeem, at a redemption
price equal to 110% of the liquidation preference of the 6% Convertible
Preferred Stock, the smallest number of shares which is sufficient in the
Company's reasonable judgment such that following such redemption conversion of
the remaining shares of 6% Convertible Preferred Stock would not constitute a
breach of the Company's obligations under applicable Nasdaq rules. Those rules
require the Company to seek shareholder approval for any issuance of Common
Stock equal to 20% or more of the voting power outstanding before the issuance
for less than the greater of the book or market value of the stock. If any such
redemption causes the Company to fail to meet National Market listing
requirements, including the requirement that the Company have tangible net
assets in excess of $4 million, the Company would be subject to delisting. If
delisted from the National Market, the Company would attempt to become listed on
another stock exchange where it is able to meet the listing requirements of such
other exchange or to arrange for the Common Stock to be traded on the Nasdaq
electronic bulletin board.
The exact number of shares of Common Stock issuable as a result of the 1997
Private Placement Issuances cannot currently be determined because each
component (i.e., the 6% Convertible Preferred Stock and the related placement
agent warrants) is subject to adjustment mechanisms which cause the number of
shares of Common Stock issuable to be dependent on future events, principally
consisting of the future trading prices of the Common Stock, the conversion
decisions of holders of the 6% Convertible Preferred Stock and related placement
agent warrants, and whether the Company opts to pay dividends in cash or in
additional 6% Convertible Preferred Stock. The number of shares of Common Stock
issuable as a result of the 1997 Private Placement Issuances will, generally,
vary inversely with the market price of the Common Stock. Depending on the
market price of the Common Stock and the timing of conversion of 6% Convertible
Preferred Stock and related placement agent warrants, the conversion of 6%
Convertible Preferred Stock and related placement agent warrants could require
the issuance of more than 20% of the Company's Common Stock.
The Company intends to use the proceeds raised in the 1997 Private Placement
primarily to maintain net worth requirements for continued listing on the
National Market. However, a portion of the proceeds may be used, in the
discretion of the Board of Directors, to prevent dilution to the Common
Shareholders as a result of the conversion of 6% Convertible Preferred Stock or
the payment of dividends on the 6% Convertible Preferred Stock in the form of
additional shares of 6% Convertible Preferred Stock or for ongoing working
capital.
SUMMARY OF TRANSACTION TERMS
Set forth below is a summary of the material terms of the 1997 Private
Placement Issuances, which summary is qualified by reference to the full text of
the underlying documents which have been filed as exhibits to this proxy
statement.
6% CONVERTIBLE PREFERRED STOCK PLACEMENT. Pursuant to the terms of the
several 6% Convertible Preferred Stock Investment Agreements, each dated as of
September 30, 1997 (collectively, the "6% Convertible Preferred Stock Investment
Agreements"), the Company issued and sold in a private placement to certain
accredited investors for $1,000 per share an aggregate of 7,625 restricted
shares of a newly-established series of preferred stock, designated as 6%
Convertible Preferred Stock, resulting in gross proceeds to the Company of
approximately $7.6 million in the aggregate.
Each share of 6% Convertible Preferred Stock is entitled to receive
dividends, payable annually on September 30 of each year, when and as declared
by the Company's Board of Directors, at the rate of 6% per annum in preference
to any payment made on any shares of Common Stock or any other class or series
6
<PAGE>
of capital stock of the Company other than the Series C Preferred Stock, which
has rights to dividends PARI PASSU with the 6% Convertible Preferred Stock. Such
dividends accrue from day to day whether or not earned or declared. Any dividend
payable after the date of issuance of the 6% Convertible Preferred Stock may be
paid (i) in additional shares of 6% Convertible Preferred Stock valued at $1,000
per share, or (ii) upon proper notice, in cash. Each share of 6% Convertible
Preferred Stock is also entitled to a liquidation preference of $1,000 per
share, plus any accrued but unpaid dividends and any amounts owing as a result
of a failure by the Company to file an effective registration statement within
the prescribed period (see discussion below), in preference to any other class
or series of capital stock of the Company. Except as otherwise provided by
applicable law, holders of shares of 6% Convertible Preferred Stock have no
voting rights.
Commencing the earlier of (i) 91 days after the date of issuance or (ii) the
date that a registration statement registering the shares of Common Stock
issuable upon conversion of the 6% Convertible Preferred Stock (including such
shares issuable upon exercise of the related placement agent warrants) is
declared effective by the Securities and Exchange Commission, at least 10% and
up to 25% (depending upon the price at which the Common Stock is trading) of the
number of shares of 6% Convertible Preferred Stock held of record by each holder
on such day will become convertible into shares of Common Stock, and thereafter
on the same day in successive months additional shares of 6% Convertible
Preferred Stock will become convertible (with the additional amount varying from
10% to 25% of the number of shares of 6% Convertible Preferred Stock held of
record by such holder on such day depending upon the price at which the Common
Stock is trading), except that in any month in which the highest of daily low
trading prices of the Common Stock is $2.50 or less, not more than 10% of each
holder's shares of 6% Convertible Preferred Stock held of record on such day
will be convertible.
The number of shares of Common Stock issuable upon conversion of shares of
6% Convertible Preferred Stock will equal the liquidation preference of the
shares being converted divided by the then-effective conversion price applicable
to the Common Stock (the "Conversion Price"). The Conversion Price as of any
date during the seven-month period following the date of issuance is $5.50. The
Conversion Price as of any date after the seven-month period following the date
of issuance and before the first day of the sixteenth month after the date of
issuance will be the lowest trading price of the Common Stock during the 22
consecutive trading days immediately preceding the date of conversion reduced by
the Applicable Percentage described below, except that the Conversion Price will
not be less than $1.50 prior to the first day of the thirteenth month after the
date of issuance. The "Applicable Percentage" is dependent upon the time elapsed
after the date of issuance to the date of measurement, being 9.8% starting on
the first day of the eighth month and increasing in the subsequent four months
to 11.1%, 12.4%, 13.7% and 15%, respectively. At any date after the first day of
the sixteenth month after the date of issuance, the Conversion Price will be the
lesser of (i) 85% of the average low daily trading price of the Common Stock for
all the trading days during the 12th through 15th month (but in no event will
this amount be less than $2.8126), or (ii) 85% of the average low daily trading
price of the Common Stock during the 22 consecutive trading days immediately
preceding the date of conversion (the "Conversion Cap"). The Conversion Price is
at all times also subject to customary anti-dilution adjustment for events such
as stock splits, stock dividends, reorganizations and certain mergers affecting
the Common Stock. All of the then outstanding shares of 6% Convertible Preferred
Stock will automatically be converted into shares of Common Stock at the then
applicable Conversion Price on the fifth anniversary of the date of original
issuance. No holder of 6% Convertible Preferred Stock will be entitled to
convert any share of 6% Convertible Preferred Stock into shares of Common Stock
if, following such conversion, the holder and its affiliates (within the meaning
of the Exchange Act) will be the beneficial owners (as defined in Rule 13d-3
under the Exchange Act) of 10% or more of the outstanding shares of Common
Stock.
7
<PAGE>
In addition, following conversion of the 6% Convertible Preferred Stock into
shares of Common Stock, the holders of such shares of Common Stock have agreed
to be limited on resales of such shares to the greatest of: (i) 10% of the
average daily trading volume of the Common Stock for the five trading days
preceding any such sale; (ii) 12,000 shares; or (iii) 10% of the trading volume
of the Common Stock on the date of any such sale. Further, the Company has the
right, upon proper notice, if the Conversion Price falls below $3.00 (or such
other price as is set by the Company upon proper notice), and subject to certain
other conditions, to honor any conversion request by a cash payment in lieu of
the issuance of Common Stock in an amount equal to the proceeds which would
otherwise have been received by the holder if conversion were in fact made into
Common Stock and such Common Stock were sold at the high trade price on the
trading day immediately preceding the date that the conversion notice is
received (the "Green Floor").
The Company is not obligated to issue, in the aggregate, more than 3,150,000
shares of Common Stock if issuance of a larger number of shares would constitute
a breach of the Rules or Designation Criteria of the Nasdaq Stock Market (the
"Nasdaq Rules"), including the shareholder approval rules described above. If
shareholder approval is not received prior to December 31, 1997, the Company
will be obligated to redeem on or before January 15, 1998, at a premium price, a
sufficient number of shares of 6% Convertible Preferred Stock which, in its
reasonable judgment, will permit conversion of the remaining shares of 6%
Convertible Preferred Stock without breaching the Nasdaq Rules. Any delay in
payment will cause such redemption amount to accrue interest at the rate of 0.1%
per day until paid. Subject to this requirement to effect a special redemption
of the 6% Convertible Preferred Stock, if the issuance of Common Stock upon
conversion of any shares of 6% Convertible Preferred Stock would constitute a
breach of the Nasdaq Rules, then the Company has agreed to exercise the Green
Floor with respect to such issuance. Pursuant to its agreement with Nasdaq, the
Company will reserve $1 million from the 1997 Private Placement proceeds for a
period of 18 months to be used solely for the purpose of funding the exercise of
the Green Floor, but there is no other restriction on the Company's use of such
proceeds. There is no assurance that the proceeds of the 1997 Private Placement
Issuances will be available to fund any required cash redemption of 6%
Convertible Preferred Stock or exercise of the Green Floor or that the $1
million reserved by the Company will be sufficient to fund the exercise of the
Green Floor.
The Company has agreed to register the shares of Common Stock issuable upon
conversion of the 6% Convertible Preferred Stock, including shares payable as
dividends thereon, and shares issuable upon exercise of the related placement
agent warrants, for resale under the Securities Act no later than 90 days after
the date of original issuance. Any delay in having the related registration
statement declared effective by the Commission beyond the applicable period, or
any unavailability to the holders of the 6% Convertible Preferred Stock of a
current prospectus after such period, will require the Company to pay to the
holders, in cash, 3% of the total purchase price of the 6% Convertible Preferred
Stock, or $228,750 in the aggregate, for each 30-day period of the delay (pro
rated for any shorter period).
PLACEMENT AGENT COMPENSATION. The placement agent for the 1997 Private
Placement Issuances was Cappello Capital Corp. In consideration for placing such
securities, the placement agent received aggregate cash compensation of 8.7% of
the gross proceeds received by the Company, or $663,375. Further, the Company
also agreed to issue to the placement agent 6% Convertible Preferred Stock
warrants to acquire an aggregate of 763 shares of 6% Convertible Preferred Stock
for an exercise price of $1,000 per share (subject to the same anti-dilution
protections as are applicable to the 6% Convertible Preferred Stock). Such
warrants are exercisable for a period of five years for shares of 6% Convertible
Preferred Stock. The Company is obligated to register the shares of Common Stock
issuable upon exercise and conversion of the placement agent warrants for resale
under the Securities Act. The placement agent will retain its compensation
whether or not the required shareholder approval is obtained for Proposal 1.
8
<PAGE>
EFFECT ON OUTSTANDING COMMON STOCK AND PREFERRED STOCK
The issuance of Common Stock upon the conversion of the 6% Convertible
Preferred Stock will have no effect on the rights or privileges of existing
holders of Common Stock or Preferred Stock except that the economic interests
and voting rights of each shareholder will be diluted as a result of such
issuance. Further, prior to conversion, holders of the 6% Convertible Preferred
Stock will be entitled to receive dividends and distributions upon a liquidation
of the Company in preference to claims of holders of the Common Stock and Series
B Preferred Stock and in pari passu with claims of holders of the Series C
Preferred Stock.
As noted above, the exact number of shares of Common Stock issuable upon
conversion of the 6% Convertible Preferred Stock cannot currently be determined
but such issuances will vary inversely with the market price of the Common
Stock, and such shares will be issued at a discount which increases to 15% if 6%
Convertible Preferred Stock is held through the last day of the 12th month after
issuance. The current holders of Common Stock and Preferred Stock will be
diluted by issuances of Common Stock upon conversion of the 6% Convertible
Preferred Stock to an extent that depends on the future market price of the
Common Stock, the timing of conversions of 6% Convertible Preferred Stock and of
the related placement agent warrants, and whether the Company opts to pay
dividends in cash or in additional shares of 6% Convertible Preferred Stock. The
potential effects of any such dilution on the existing shareholders of the
Company include (i) the possible right of the holders of 6% Convertible
Preferred Stock to control the Company and elect the Board of Directors and (ii)
the significant diminution of the current shareholders' economic and voting
interests in the Company.
OTHER MATTERS
Management does not know of any other matters which may come before the
Special Meeting. However, if any other matters are properly presented to the
meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
This solicitation has been made by the Company. All costs of solicitation of
proxies will be borne by the Company. In addition to solicitations by mail, the
Company's directors, officers and other employees, without additional
remuneration, may solicit proxies by telephone, telegraph and personal
interviews. Brokers, custodians and fiduciaries will be requested to forward
proxy soliciting material to the owners of stock held in their names, and the
Company will reimburse them for their out-of-pocket expenses in this connection.
The Company has retained Corporate Invester Communications, Inc. of 111 Commerce
Road, Carlstadt NJ 07072-2856 to assist in the solicitation of proxies for an
estimated cost of $2,000 plus reasonable out-of-pocket expenses.
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SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any shareholder desiring to present a proposal for consideration at the
Company's 1998 annual meeting of shareholders and included in the Company's
proxy statement, must submit the proposal to the Company so that it is received
at the executive offices of the Company not later than March 21, 1998. Any
shareholder desiring to submit a proposal should consult applicable regulations
of the Securities and Exchange Commission.
By Order of the Board of Directors,
Craig Newfield, CLERK
November 24, 1997
THE BOARD OF DIRECTORS HOPES THAT SHAREHOLDERS WILL ATTEND THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. YOUR PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND WILL BE
APPRECIATED. SHAREHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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INTERLEAF, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Jaime W. Ellertson and Craig Newfield,
or either or them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated below, all
the shares of capital stock of Interleaf, Inc. held of record by the
undersigned on November 17, 1997, at the Special Meeting of Shareholders to
be held on December 17, 1997, or any adjournment thereof.
The proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted FOR all proposals. Attendance of the undersigned at the
meeting or at any adjournment thereof will not be deemed to revoke this proxy
unless the undersigned shall revoke this proxy in writing.
===============================================================================
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of
Interleaf, Inc. Joint owners should each sign personally. Trustees and
other fiduciaries should indicate the capacity in which they sign, and where
more than one name appears, a majority must sign. If a corporation, this
signature should be that of an authorized officer who should state his or her
title.
===============================================================================
/x/ PLEASE MARK VOTES AS IN THIS EXAMPLE
1) To approve the 1997 Private Placement and the 1997 Private Placement
Issuances.
/ / For / / Against / / Abstain
2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please be sure to sign and date this Proxy. Date
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholder sign here Co-owner sign here
<PAGE>
PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of _______________, 1997 between Interleaf, Inc. (the
"Company") and the investor whose name is set forth at the foot of this
Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section I.1 Purchase and Sale of Preferred Stock. Upon the following
terms and conditions, the Company shall issue and sell to the Investor shares
of the Company's 6% Convertible Preferred Stock (the "Shares") having the
rights, designations and preferences set forth in Schedule I hereto, and the
Investor shall purchase from the Company the number of Shares designated on
the signature page hereof.
Section I.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $1,000 per share.
Section I.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Company, at 10:00 a.m.,
local time on the later of the following: (i) the date on which the last to
be fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance
herewith, or (ii) such other time and place and/or on such other date as the
Investor and the Company may agree but in no event later than September 30,
1997. The date on which the Closing occurs is referred to herein as the
"Closing Date."
(b) On the Closing Date, the Company shall deliver to the Investor
certificates representing the number of Shares being purchased by the
Investor, registered in the name of the Investor, or deposit such Shares into
accounts designated by the Investor, and the Investor shall deliver to the
Company the Purchase Price for such Shares by cashier's check or wire
transfer in immediately available funds to such account as shall be
designated in writing by the Company. The Investor shall also deliver, as a
condition to the Closing, a Purchaser's Questionnaire in the form supplied by
the Company. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to
this Agreement at or prior to the Closing.
Section I.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act"), effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" does not include the
Shares but means (A) the shares of common stock issued or issuable upon
conversion of the Shares, or (B) any securities of the Company or securities
of any successor corporation issued pursuant to the provisions of Schedule I
hereto or issuable upon the conversion or exercise of any warrant, right or
other security that is issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of the Shares, which in
either case (i) have not been resold pursuant to an effective registration
statement or pursuant to Rule 144 under the Act or (ii) may not be resold
pursuant to Rule 144(k) under the Act. For purposes of this Agreement,
securities will be considered ineligible for resale pursuant to
<PAGE>
Rule 144(k) under the Act unless the Company's transfer agent has accepted an
instruction from the Company specifying that such securities are eligible for
sale pursuant to Rule 144(k).
(iii) The term "holder of Registrable Securities" includes
any person who holds Shares which are convertible into Registrable Securities.
(b) (i) The Company shall, as expeditiously as possible following
the Closing, file a registration statement on Form S-3, or if Form S-3 is not
then available, another appropriate form, covering the resale of all the
Registrable Securities under Rule 415. The number of shares of Common Stock
initially included in such registration statement shall be not less than 150%
of the number which would be issuable upon conversion of the Shares if all
thereof were to be converted at a conversion price equal to the average
closing price of the Common Stock during the five trading days prior to the
effective date of the registration statement. The Company shall use its best
efforts to cause such registration statement to become effective by the 90th
calendar day after the Closing Date (the "Initial Registration"). In the
event such registration statement is not so declared effective or if at any
time thereafter it does not include at least 120% of the number of
Registrable Securities which would then be issuable upon conversion of the 6%
Preferred (or any successor security) at the conversion price then in effect,
any holder of Registrable Securities shall have the right to require by
notice in writing that the Company register all or any part of the
Registrable Securities held by such holder (a "Demand Registration") and the
Company shall thereupon effect such registration in accordance herewith
(which may include adding such shares to an existing shelf registration).
The parties agree that if the holder of Registrable Securities demands
registration of less than all of the Registrable Securities, the Company, at
its option, may nevertheless file a registration statement covering all of
the Registrable Securities. If such registration statement is declared
effective with respect to all Registrable Securities, then so long as the
Company is in compliance with its obligations under Subsection (d)(i) through
(v) hereof, the demand registration rights granted pursuant to this
Subsection (b) (i) shall not be applicable. If such registration statement
is not declared effective with respect to all Registrable Securities, or if
the Company is not in compliance with said obligations, the demand
registration rights described herein shall remain in effect. The Company
shall provide holders of Registrable Securities reasonable opportunity to
review any such registration statement or amendment or supplement thereto
prior to the filing thereof. Nothing herein shall require the Company to
postpone filing the registration statement. If the Registrable Securities
are registered initially on a form other than Form S-3, and thereafter the
Company becomes eligible to use Form S-3, the Company will then take all
action permitted by Rule 401(e) under the Act to utilize the requirements of
Form S-3 thereafter.
(ii) The Company shall not be obligated to effect Demand
Registration under Subsection (b)(i) if all of the Registrable Securities
held by the holder of Registrable Securities which are demanded to be covered
by the Demand Registration are, at the time of such demand, included in an
effective registration statement and the Company is in compliance with its
obligations under Subsection (d) (i) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event, and for
such period of time as, such a suspension is required by the rules and
regulations of the Securities and Exchange Commission ("SEC"), and may
suspend use of the prospectus included in the Registration Statement if such
prospectus ceases to meet the requirements of Section 10 of the Act. The
Company will immediately advise the holders of the registered securities of
any such suspension, and will use its best efforts to cause such suspension
to terminate at the earliest possible date. The Investor agrees that
following receipt of any such notice, and until such suspension is
terminated, the Investor will not make use of the suspended prospectus and
will make no sales requiring delivery of such prospectus.
(iv) If the registration statement covering the required number
of Registrable Securities is not effective by the 90th calendar day after the
Closing Date, then the Company shall pay the Investor in cash an amount equal
to 3% of the total Purchase Price of the Shares purchased by the Investor for
each 30 day period thereafter until such registration statement is effective
(pro-rata as to a period of less than 30 days). An amount equal to 3% of the
total Purchase Price of Shares and any Registrable Securities then held by
Investor shall also be paid to the Investor in cash with respect to any
period in excess of 30 days that the effectiveness of the Registration
Statement or use of the prospectus is suspended as set forth in Section 1.4
(b)(iii) or the prospectus is otherwise unavailable for use by sellers of
Registrable Securities. Any payment hereunder shall be made not later than
ten days after the end of the
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<PAGE>
30-day period with respect to which such payment is due. The "Purchase Price"
of Registrable Securities shall be, in the case of Registrable Securities
derived from conversion or substitution of Shares, the Purchase Price of such
Shares. This subsection is in addition to the provisions of Section 7.2(a)
hereof.
(c) If the Company proposes to register (including for this purpose
a registration effected by the Company for shareholders other than the
Investor) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form
S-4, Form S-8 or other limited purpose form) and all Registrable Securities
have not theretofore been included in a registration statement under
Subsection (b) which remains effective, the Company shall, at such time,
promptly give all holders of Registrable Securities written notice of such
registration. Upon the written request of any holder of Registrable
Securities given within twenty (20) days after receipt of such notice by the
holder of Registrable Securities, the Company shall use its best efforts to
cause to be registered under the Act all Registrable Securities that such
holder of Registrable Securities requests to be registered. However, the
Company shall have no obligation under this Subsection (c) to the extent
that, with respect to a public offering registration, the managing
underwriter of such public offering reasonably notifies such holder(s) in
writing of its determination that the Registrable Securities or a portion
thereof should be excluded therefrom. The rights of the Investor and the
obligations of the Company under this subsection are subject to any prior
registration rights of other shareholders of the Company which are disclosed
in Exhibit A hereto.
(d) Whenever required under this Section to effect the registration
of any Registrable Securities, including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration to become effective as provided in Section 1.4(b)(i), and
keep such registration statement effective for so long as any holder of
Registrable Securities desires to dispose of the securities covered by such
registration statement, or, if earlier, until such Registrable Securities may
be sold under Rule 144(k) (provided that the Company's transfer agent has
accepted an instruction from the Company to such effect).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of
the filing and effectiveness of such registration statement and any
amendments or supplements.
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus conforming with the requirements of
the Act, copies of the registration statement, any amendment or supplement
thereto and any documents incorporated by reference therein and such other
documents as such holder of Registrable Securities may reasonably require in
order to facilitate the disposition of Registrable Securities owned by such
holder of Registrable Securities.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by a
holder of Registrable Securities and keep such registration or qualification
effective as long as required to permit sale of Registrable Securities
thereunder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(v) Notify each holder of Registrable Securities immediately
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(vi) Furnish to each holder of Registrable Securities included
therein (1) an opinion of
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<PAGE>
counsel to the Company covering compliance of the registration statement, as
to form, with the requirements of the Act and the rules thereunder, and
covering the matters covered in the opinion filed as an exhibit to the
registration statement, and (2) a "cold comfort" letter or letters of the
Company's independent public accountants in the form and of the substance
customarily supplied to underwriters in connection with a public offering.
(vii) Use its best efforts to list the Registrable
Securities covered by such registration statement with any national market or
securities exchange on which the Common Stock is then listed.
(viii) Make available for inspection by the holder of
Registrable Securities, upon request, all SEC Documents (as defined below)
filed subsequent to the Closing and require the Company's representatives to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement. Nothing herein
shall require the Company to postpone filing the registration statement or to
delay the effectiveness thereof.
(e) Each holder of Registrable Securities will furnish to the
Company in connection with any registration under this Section such
information regarding itself, the Registrable Securities and other securities
of the Company held by it, and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities held by such holder of Registrable Securities. The
Investor shall provide such data at or prior to the Closing. The intended
method of disposition (Plan of Distribution) of such securities as so
provided by Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed
without written consent of the Investor.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c) (each, a
"Selling Shareholder") and each of its officers, directors, employees,
agents, partners or controlling persons (within the meaning of the Act)
(each, an "indemnified party") from and against, and shall reimburse such
indemnified party with respect to, any and all claims, suits, demands, causes
of action, losses, damages, liabilities, costs or expenses ("Liabilities") to
which such indemnified party may become subject under the Act or otherwise,
arising from or relating to (A) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or omission
so made in reliance upon information furnished by such indemnified party in
writing specifically for use in the registration statement; provided further,
that the Company shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus if (i) a Selling Shareholder under an obligation to send or
deliver a copy of the prospectus with or prior to the delivery of written
confirmation of the sale of Registrable Securities to the person asserting
such Liability who purchased such Registrable Securities which are the
subject thereof from such Selling Shareholder failed to do so and (ii) the
prospectus would have corrected such untrue statement or omission; and
provided further, that the Company shall not be liable in any such case to
the extent that any Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission in the
prospectus, if such untrue statement or alleged untrue statement, omission or
alleged omission is corrected in an amendment or supplement to the prospectus
and if, having previously been furnished by or on behalf of the Company with
copies of the prospectuses so amended or supplemented and having been
obligated to deliver such prospectuses, the Selling Shareholder thereafter
failed to deliver such prospectus as so amended or supplemented, prior to or
concurrently with the sale of Registrable Securities to the person asserting
such Liability who purchased such Registrable Securities which are the
subject thereof from such Selling Shareholder.
(ii) In the event of any registration under the Act of
Registrable Securities pursuant to Subsections (b) or (c), each holder of
such Registrable Securities hereby severally agrees to indemnify, defend and
hold harmless the Company, and its officers, directors, employees, agents,
partners, or controlling persons (within the meaning of the Act) (each, an
"indemnified party") from and against, and shall reimburse such indemnified
party with respect to, any and all Liabilities to which such indemnified
party may become subject under the Act or otherwise,
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<PAGE>
arising from or relating to (A) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, that
such holders will be liable in any such case to the extent, and only to the
extent, that any such Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, prospectus or amendment or supplement thereto in
reliance upon written information furnished in an instrument duly executed by
such holder specifically for use in the registration statement.
(iii) Promptly after receipt by any indemnified party of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against another party (the
"indemnifying party") hereunder, notify such party in writing thereof, but
the omission so to notify shall not relieve the indemnifying party from any
Liability which it may have to the indemnified party other than under this
section and shall only relieve it from any Liability which it may have to the
indemnified party under this section if and to the extent it is actually
prejudiced by such omission. In case any such action shall be brought against
any indemnified party and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to the indemnified party
under this section for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that if the defendants in any such action include both the
indemnifying party and such indemnified party and the indemnified party shall
have reasonably concluded, based upon an opinion of counsel, that there may
be reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with (subject to the following
sentence) the reasonable expenses and fees of such separate counsel and other
reasonable expenses related to such participation to be reimbursed by the
indemnifying party as incurred. If the Company is the indemnifying party it
shall pay the reasonable expenses and fees of only one separate counsel whose
selection is approved by the largest group of similarly situated indemnified
parties as measured by the aggregate face value of such Registrable
Securities owned by such group. Any indemnified party who chooses not to be
represented by the foregoing separate counsel shall be entitled, at its own
expense, to be represented by counsel of its own selection.
(g) (i) With respect to the inclusion of Registrable Securities in
a registration statement pursuant to Subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Company; provided, however, that any Selling
Shareholders participating in such registration shall bear their own share of
the underwriting discounts and commissions, and transfer taxes if any,
incurred by them in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne
by the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, and all legal
fees and disbursements and other expenses of complying with state securities
or Blue Sky laws of any jurisdiction or jurisdictions in which securities to
be offered are to be registered and qualified. Subject to appropriate
agreements as to confidentiality, and upon reasonable advance notice from the
holder or its counsel, the Company shall make available to counsel for the
holders of Registrable Securities upon reasonable request its documents and
personnel for due diligence purposes, and shall pay the reasonable fees and
disbursements of one law firm (but not more than one) acting as counsel for a
majority of such holders. Except as otherwise provided herein, fees and
disbursements of counsel and accountants for the Selling Shareholders shall
be borne by the respective Selling Shareholders. Nothing herein shall
require the Company to postpone filing the registration statement or delay
its effectiveness.
(h) The rights to cause the Company to register all or any portion
of Registrable Securities pursuant to this Section may be assigned by
Investor to a transferee or assignee of all, or a portion equal to 20% or
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<PAGE>
more, in the aggregate, of its Shares or the Registrable Securities derived
from such Shares. Any transferee asserting registration rights hereunder
shall agree to be bound by the applicable provisions of this Agreement.
(i) From and after the date of this Agreement, the Company shall
not grant additional "piggy-back" registration rights to the holders of any
securities of the Company to include any of their securities in any
registration statement filed by the Company pursuant to Subsection (b) unless
such inclusion will not reduce the amount of the Registrable Securities
included therein.
ARTICLE II
Representations and Warranties
Section II.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of
Massachusetts and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company does not have
any material subsidiaries except as listed in Exhibit A hereto or in the SEC
Documents (as hereinafter defined). The Company and each such subsidiary, if
any, is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary other than those
in which the failure so to qualify would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and
its subsidiaries taken as a whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Shares in accordance with the terms hereof, (ii) the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or
its Board of Directors or stockholders is required except as contemplated by
this Agreement or Schedule I hereto (including stockholder approval), (iii)
this Agreement has been duly executed and delivered by the Company, and (iv)
this Agreement constitutes a 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. The Company's chief
executive officer and chief financial officer and directors have studied and
fully understand the nature of the securities being sold hereunder, and
recognize that they have a potential dilutive effect.
(c) Capitalization. The authorized capital stock of the Company
consists of ______ shares of Common Stock and _______ shares of preferred
stock; there are _________ shares of Common Stock and _________ shares of
Class C preferred stock issued and outstanding; and, upon issuance of the
Shares in accordance with the terms hereof and pursuant to similar agreements
of like tenor, there will be _______ shares of Common Stock, approximately
_______ shares of Class C preferred stock, and ____ shares of 6% Convertible
Preferred Stock issued and outstanding. All of the outstanding shares of the
Company's Common Stock have been validly issued and are fully paid and
nonassessable. Except as set forth in Exhibit A hereto and as described in
the SEC Documents, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options,
convertible securities, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares, or securities or rights convertible into shares, of
capital stock of the Company. The Company has furnished or made available to
the Investor true and correct copies of the Company's charter documents as in
effect on the date hereof (the "Charter"), and the Company's By-Laws, as in
effect on the date hereof (the "By-Laws").
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<PAGE>
(d) Issuance of Shares. The issuance of the Shares has been duly
authorized and, when paid for or issued in accordance with the terms hereof,
the Shares shall be validly issued, fully paid and non-assessable and
entitled to the rights and preferences set forth in Schedule I hereto. The
Common Stock issuable upon conversion of the Shares will be duly authorized
and reserved for issuance and, upon conversion in accordance with the
Certificate of Designation to be filed by the Company to establish the rights
and preferences of the Shares, will be validly issued, fully paid and
non-assessable and not subject to any preemptive rights or adverse claims,
and the holders shall be entitled to all rights and preferences accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries is
bound or affected (except as contemplated by Section 10 of Schedule I hereto
and except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect); provided that, for purposes
of such representation as to Federal, state, local or foreign law, rule or
regulation, no representation is made herein with respect to any of the same
applicable solely to the Investor and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for violations which either
singly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule
or regulation in the United States to obtain any consent, authorization or
order of, or make any filing (other than the filing of a Certificate setting
forth the terms of the Shares with the Massachusetts Secretary of State) or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or
issue and sell the Shares in accordance with the terms hereof (other than any
SEC, NASD or state securities filings which may be required to be made by the
Company and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein. Purchase of the
Shares by the Investor and conversion of the Shares pursuant to the
provisions hereof and of Schedule I hereto, if and so long as Section 3.5
hereof is complied with, will not cause any person to become an "acquiring
person" or otherwise create any remedy against the Investor under the
Shareholder Rights Plan of the Company.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"SEC Documents"). The Company has delivered or made available to the
Investor true and complete copies of the quarterly and annual (including,
without limitation, proxy information and solicitation materials) SEC
Documents filed with the SEC since December 31, 1995. The Company has not
provided to the Investor any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
except as set forth on Exhibit A and other federal, state and local laws,
rules and regulations applicable to such SEC Documents, and none of the SEC
Documents 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 SEC or other applicable rules and regulations 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 (i) as may be otherwise indicated in such
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financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since the date through which the
most recent quarterly report of the Company on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, no
event which would have a Material Adverse Effect has occurred or exists with
respect to the Company or its subsidiaries otherwise than in the ordinary
course of business, except as otherwise disclosed or reflected in other SEC
Documents prepared through or as of a date subsequent thereto, and the
Company has not received any communication from the SEC or the NASD regarding
any possible de-listing of the Company's Common Stock except as disclosed in
the Company's report on Form 10-Q for June 30, 1997 and subsequent related
communications from the NASD.
(h) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(i) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Cappello Capital Corp. (the "Placement Agent")), has engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D under the Act) in connection with the offer or sale of the
Shares.
(j) No Integrated Offering. Earlier offers or discussions
regarding possible sales of securities by the Company have not been such as
to require registration of the Shares under the Act.
(k) Approval Commitments. The Company has received binding
assurance from its chief executive officer, chief financial officer and its
directors and the only stockholder known to the Company that owns more than
5% of the outstanding stock of the Company, to the effect that such persons
will vote all their shares in favor of such approval of the transactions
contemplated hereby as may be necessary to comply with any rule or regulation
of the NASD or any other regulatory agency.
(l) Lender Approvals. The Company has received all consents or
approvals from holders of its debt securities that are necessary to allow the
Company to redeem a portion of the Shares if so required pursuant to Schedule
I hereto.
Section II.2 Representations and Warranties of the Investor. The
Investor hereby makes the following representations and warranties to the
Company:
(a) Authorization, Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares being sold hereunder, (ii) the execution and delivery of
this Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and (iii) this Agreement constitutes a valid and binding
obligation of the Investor enforceable against the Investor 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.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Investor of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Investor's charter documents or By-Laws or (ii) conflict with any agreement,
indenture or instrument to which Investor is a party, or (iii) result in a
violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to Investor. The business of
the Investor is not being conducted in violation of any
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law or regulation of any governmental entity, except for possible violations
which either singly or in the aggregate do not and will not have a material
adverse effect on the Investor. The Investor is not required to obtain any
consent or authorization of any governmental agency in order for it to
perform its obligations under this Agreement. The data to be provided by the
Investor in connection with registering the Registrable Securities under the
Act will be true and correct in all material respects.
(c) Investment Representation. The Investor is purchasing the
Shares for its own account for investment and not with a view to distribution
otherwise than in compliance with the Act. Investor has no present intention
to sell the Shares and Investor has no present arrangement (whether or not
legally binding) to sell the Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold the Shares for any minimum or other specific term and
reserves the right to dispose of the Shares at any time in accordance with
Federal and state securities laws applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor as
defined in Rule 501 promulgated under the Act. The Investor has such
knowledge and experience in financial and business matters in general, and
investments in particular, so that the Investor is able to evaluate the
merits and risks of an investment in the Shares and to protect its own
interests in connection with such investment. In addition (but without
limiting the effect of the Company's representations and warranties contained
herein), the Investor has received such information as it considers necessary
or appropriate for deciding whether to purchase the Shares pursuant hereto.
The Investor acknowledges that no representation or warranty is made by the
Placement Agent or any persons representing the Placement Agent with respect
to the Company or sale of the Shares.
(e) Rule 144. The Investor understands that there is no public
trading market for the Shares, that none is expected to develop, and that the
Shares must be held indefinitely unless such Shares or securities into which
the Shares are converted are registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
ARTICLE III
Covenants
Section III.1 Securities Compliance.
(a) The Company shall notify the SEC and NASD, in accordance with
their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and Common Stock issuable upon conversion thereof to
the Investor or subsequent holder.
(b) The Investor understands that the Shares are being offered and
sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investor set forth
herein in order to determine the applicability of such exemptions and the
suitability of the Investor to acquire the Shares.
Section III.2 Registration and Listing. Until one (1) year after all
Shares have been converted into Common Stock, the Company will cause its
Common Stock (or other securities into which the Shares are convertible) to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under
said act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or
file any document (whether or not permitted by the Act or the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under said Acts,
except as permitted herein. Until one (1) year after all Shares have been
converted into Common Stock the Company will use its best efforts to continue
the listing or trading of its Common Stock (or other securities into which
the Shares are convertible) on the Nasdaq National Market or the Nasdaq Small
Cap Market or a
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national securities exchange and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and Nasdaq.
Section III.3 Stockholder Approval. The Company will use its best
efforts to promptly notice and hold a stockholders meeting as soon as
reasonably practicable to obtain any stockholder approvals required by the
Company (including those required by all applicable agreements between the
Company and the NASD or Nasdaq) to allow for issuance of Common Stock upon
conversion of the Shares.
Section III.4 Sale Restrictions. Following conversion of the Shares
into Common Stock of the Company, Investor will not on any trading day offer
or sell publicly on NASDAQ or on the principal exchange on which the Common
Stock is traded, or any other securities market or securities exchange, on a
net basis, more than the following number of such shares of Common Stock:
the greatest of (i) 10% of the average daily trading volume of the Common
Stock for the five trading days immediately preceding such sale as reported
by NASDAQ or by such principal exchange, (ii) 12,000 shares, or (iii) 10% of
the trading volume for the Common Stock on such day, as reported by NASDAQ
or by such principal exchange. This provision shall survive the final
conversion date of the Shares.
Section III.5 Conversion Rights. Investor shall not be entitled to
convert any Share into Common Stock of the Company if following conversion of
such Share the Investor and its affiliates (within the meaning of the
Exchange Act) shall be the beneficial owners (as defined in Rule 13d-3 under
the Exchange Act) of 10% or more of the Common Stock of the Company, or if a
lesser percentage is set forth after the name of the Investor on the
signature page hereof, such lesser percentage. The provisions of this
Section cannot be amended.
Section III.6 Hedging Restrictions. Investor agrees not to engage in
any short sales, swaps, purchasing of puts, or other hedging activities that
involve the direct or indirect use of the Common Stock or any derivative
securities based on Common Stock to hedge its investment in the Shares. This
Section shall not apply to transactions in which Investor has no beneficial
interest made on behalf of third-party clients who are not holders of Shares.
Section III.7 Notice of Conversion Cap. No later than 10 days after the
end of the 15th full calendar month after the Closing Date the Company will
deliver notice to the Investor specifying the amount of the then applicable
Conversion Cap (as defined in Schedule I hereto) and the calculation thereof.
ARTICLE IV
Conditions
Section IV.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and/or
sell the Shares to the Investor is subject to the satisfaction, at or before
the Closing, of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in
all material respects when made and as of the Closing Date.
(b) Performance by the Investor. The Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
Section IV.2 Conditions Precedent to the Obligation of the Investor to
Purchase the Shares. The obligation hereunder of the Investor to acquire and
pay for the Shares is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions are for the
Investor's sole benefit and may be waived by the Investor
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at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a particular date).
(b) Performance by the Company. The Company shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Company at or prior to the Closing.
(c) Nasdaq. The Company's Common Stock shall be listed and trade
on the Nasdaq National Market on the Closing Date.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall
have received an opinion of counsel to the Company (who may be in-house
counsel) in the form attached hereto, and such other certificates and
documents as the Investor or its counsel shall reasonably require incident to
the Closing.
ARTICLE V
Legend on Stock
Each certificate representing the Shares and, if appropriate, securities
issued upon conversion thereof, shall be stamped or otherwise imprinted with
a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the securities issued upon conversion thereof without the legend
set forth above at such time as (i) in the opinion of counsel to the holder,
the holder thereof is permitted to dispose of such Shares (or securities
issued upon conversion thereof) pursuant to Rule 144 under the Act, (ii) the
securities are sold to a purchaser or purchasers who (in the opinion of
counsel to such purchasers, in form and substance reasonably satisfactory to
the Company and its counsel) are able to dispose of such shares publicly
without registration under the Act, or (iii) such securities are included in
an effective registration statement under the Act.
ARTICLE VI
Termination
Section VI.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
the Company and the Investor.
Section VI.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of the Investor or
the Company at any time if the Closing shall not have been consummated by the
fifth business day following the date of this Agreement and in no event later
than September 30, 1997.
Section VI.3 Automatic Termination. This Agreement shall automatically
terminate without any further
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action of either party hereto if the Closing shall not have occurred by the
tenth business day following the date of this Agreement.
ARTICLE VII
Miscellaneous
Section VII.1 Fees and Expenses. Except as otherwise set forth in
Section 1.4 hereof, 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. The Company will
compensate the Placement Agent and will indemnify it against certain
liabilities. The Placement Agent's compensation includes a cash payment in
an amount equal to 8.7% of the Purchase Price of Shares sold by the Company,
and the issuance of warrants to the Placement Agent to purchase that number
of Shares equal to 10% of the number of Shares sold. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance
of the Shares pursuant hereto.
Section VII.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other
courts of the United States sitting in New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Investor consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this paragraph shall affect or limit
any right to serve process in any other manner permitted by law.
Section VII.3 Entire Agreement: Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein, neither the Company nor
the Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section VII.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back
received), telecopy or facsimile 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:
to the Company: Jaime W. Ellertson, President
Interleaf, Inc.
62 Fourth Avenue
Waltham, MA 02154
Fax: (617) 290-4977
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with a copy to: Anil Khosla, Esq.
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110-21253342
Fax: (617) 951-2125
to the Investor: At the address set forth at the foot of this
Agreement, with copies to Investor's counsel
as set forth at the foot of this Agreement or
as specified in writing by Investor
with a copy to: Gerard K. Cappello
Cappello Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
Fax: (310) 393-4838
Any party hereto may from time to time change its address for notices by
giving at least 10 days' written notice of such changed address to the other
party hereto.
Section VII.5 Waivers. No waiver by either party 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 VII.6 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 VII.7 Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party.
Section VII.8 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 VII.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of New York
without regard to such state's principles of conflict of laws.
Section VII.10 Survival. The representations and warranties of the
Company and the Investor contained in Article II and the agreements and
covenants set forth in Articles I, III, V and VII shall survive the Closing
for five years.
Section VII.11 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by
facsimile transmission, the party using such means of delivery shall cause
the manually executed signature page(s) to be physically delivered to the
other party within five days of the execution hereof.
Section VII.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
INTERLEAF, INC.
By:
------------------------------
Name:
Its: President
Number of Shares THE INVESTOR
________________ By:
-------------------------------
Name:
Dollar Amount at Its:
$1,000 per share Investor's address:
$_______________ Percentage limitation, if desired ______
Name and address of Investor's counsel:
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SCHEDULE I
RESOLUTION ESTABLISHING PREFERENCES
of
6% CONVERTIBLE PREFERRED STOCK
RESOLVED that there shall be a series of shares of the Preferred
Stock of the Corporation designated "6% Convertible Preferred Stock"; that
the number of authorized shares of such series shall be 11,000 and that the
rights and preferences of such series (the "6% Preferred") and the
limitations or restrictions thereon, shall be as follows:
1. Dividends.
(a) The holders of the 6% Preferred shall be entitled to receive
out of any assets legally available therefor cumulative dividends at the rate
of $60.00 per share per annum, payable annually on September 30 of each year,
when and as declared by the Board of Directors, in preference and priority to
any payment of any dividend on the Common Stock or any other class or series
of stock of the Corporation ranking junior to the 6% Preferred and ranking
pari passu with the Class C Preferred Stock of the Corporation. Such
dividends shall accrue on any given share from the day of original issuance
of such share and shall accrue from day to day whether or not earned or
declared. If at any time dividends on the outstanding 6% Preferred at the
rate set forth above shall not have been paid or declared and set apart for
payment with respect to all preceding periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment, but without
interest, before any distribution, whether by way of dividend or otherwise,
shall be declared or paid upon or set apart for the shares of any other class
or series of stock of the Corporation except a class or series which is
entitled to priority over the 6% Preferred.
(b) Dividends shall be paid in shares of 6% Preferred valued at
$1,000 per share. Dividends not theretofore paid shall be paid upon
conversion of any share of the 6% Preferred and shall be simultaneously
converted into Common Stock together with the share on which such dividends
have accrued.
(c) At its option, the Corporation may elect to pay accumulated
dividends in cash. The Corporation must give notice of such election in the
manner provided in Section 5 hereof at least ten (10) calendar days prior to
both the date of payment and the date Notice of Conversion is given by a
holder. The Corporation may choose the cash election any number of times and
each such election may be effective for any length of time established by the
Corporation and stated in its notice of the election.
2. Liquidation Preference.
(a) The liquidation rights of the 6% Preferred shall rank pari
passu with the Class C Preferred Stock of the Corporation. In the event of
any liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the holders of the 6% Preferred shall be entitled
to receive, prior and in preference to any distribution of any assets of the
Corporation to the holders of the Common Stock or any other class or series
of shares except any class or series which is entitled to priority over the
6% Preferred and except for ratable distribution to the Class C Preferred
Stock, the amount of $1,000 per share plus any accrued but unpaid dividends
plus any amounts accrued but unpaid under Section 1.4(b)(iv) of the Preferred
Stock Investment Agreement under which shares of the 6% Preferred were
originally issued (the "Liquidation Preference").
(b) Subject to the last sentence of this Section, a consolidation
or merger of the Corporation with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Corporation, shall, at the option of the holders of the 6% Preferred, be
deemed a liquidation, dissolution or winding up within the meaning of this
Section 2 if the shares of stock of the Corporation (along with all
derivative securities) outstanding
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immediately prior to such transaction represent immediately after such
transaction less than a majority of the voting power of the surviving
corporation (or of the acquirer of the Corporation's assets in the case of a
sale of assets). Such option may be exercised by the vote or written consent
of holders of a majority of the 6% Preferred at any time within thirty
calendar days after written notice of the essential terms of such transaction
shall have been given to the holders of the 6% Preferred as provided in
Section 5 hereof. Such notice shall be given by the Corporation immediately
following determination of such essential terms. If such option is
exercised, the holders of the 6% Preferred shall be entitled to receive, in
cash, immediately upon the occurrence of such transaction, an amount per
share equal to the Liquidation Preference divided by the difference between
100% and the Applicable Percentage determined pursuant to Section 4 hereof.
This Section shall not apply to a business combination in which the Common
Stock of the Corporation is converted solely into or exchanged solely for
voting common stock of the corporation surviving such business combination,
if (i) such common stock of the surviving corporation is listed and traded on
the NASDAQ National Market, the American Stock Exchange or the New York Stock
Exchange, and (ii) the Board of Directors of the Corporation determines in
good faith that the conversion rights and other rights and preferences of the
6% Preferred are preserved and not rendered of less value by the terms of
such business combination.
3. Mandatory Conversion.
On the fifth anniversary of the date of issuance, all then
outstanding shares of 6% Preferred shall be automatically converted into
Common Stock at the Conversion Price on such anniversary date and otherwise
pursuant to the applicable provisions set forth in Section 4 hereof.
4. Conversion. The holders of the 6% Preferred shall have optional
conversion rights as follows:
(a) Accrual of Conversion Rights. The Conversion Period shall
commence 90 days after the date of issuance, and shall continue thereafter
for the life of the issue. Each holder of record of 6% Preferred shares on
the date of commencement of the Conversion Period (an "Original Holder")
shall be entitled to convert in any calendar month the following percentage
of the 6% Preferred shares held by such holder on the date of commencement of
the Conversion Period (the "Conversion Restriction"). The percentage for
each calendar month will be determined based on the highest of the daily low
trading prices of the Common Stock during such month, as follows:
Highest of daily low trading Percentage becoming
prices during month convertible for such month
$2.50 or less 10.0%
$2.51 to $3.50 10.0%
$3.51 to $4.00 12.5%
$4.01 to $5.50 15.0%
$5.51 to $6.00 17.5%
$6.01 to $7.50 20.0%
$7.51 to $8.50 22.5%
$8.51 or more 25.0%
The number of shares which may be converted in any calendar month shall
include on a cumulative basis the number of shares which might have been but
were not converted during earlier calendar months, except that in any month
in which the highest of the daily low trading prices is $2.50 or less, the
amount converted shall not exceed 10%. In the case of transfers of shares by
an Original Holder the Corporation shall make such notations on its stock
ownership records and on the certificates for shares issued upon transfer so
as to reflect the portion (if any) of the transferred shares which have
become convertible pursuant to this provision, or the Corporation may at its
election issue certificates representing the 6% Preferred shares in such
form, or with such annotations, as to reflect the time or times at which the
shares represented by such certificates will become convertible.
(b) Removal of Limitations. The limitations set forth in Section
4(a) hereof, with respect to the percentage of 6% Preferred shares which may
be converted during certain time periods, shall terminate and all the 6%
Preferred shares shall thereafter be fully convertible if any of the
following events or conditions shall occur or exist: (i) an event described
in Section 2(b) (subject to the exclusion in the last sentence of such
Section) shall occur, whether or
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not the holders of 6% Preferred deem such event to be a liquidation; (ii)
proceedings for relief under any bankruptcy or similar law for the relief of
debtors are instituted by or against the Corporation or any of its
significant subsidiaries and, if instituted against the Corporation or such
subsidiary, are consented to or not dismissed within 30 days; (iii) the
independent auditors of the Corporation shall fail or be unwilling to express
within 90 days after the end of the Corporation's fiscal year a customary
opinion on the financial statements of the Corporation, or shall express such
opinion subject to a "going concern" qualification; (iv) the Common Stock of
the Corporation shall cease to be listed on either the NASDAQ Small-Cap
Market, the NASDAQ National Market, or a national securities exchange; or (v)
there shall be a material breach by the Corporation of any of its obligations
hereunder or under the Preferred Stock Investment Agreements pursuant to
which the 6% Preferred was originally issued which has a material adverse
effect on the holders of 6% Preferred.
(c) Right to Convert. At and after the time it has become
convertible, each share of 6% Preferred shall be convertible, at the option
of the holder thereof, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) the liquidation
preference of the 6% Preferred share determined pursuant to Section 2(a)
hereof on the date the notice of conversion is given, by (ii) the Conversion
Price determined as hereinafter provided in effect on said date, provided
however, that a share of 6% Preferred shall not be converted into Common
Stock if following such conversion the holder thereof together with
affiliates of such holder would be the beneficial owners (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of 10% or more of the Common
Stock of the Corporation.
(d) Mechanics of Conversion. To convert shares of 6% Preferred
into shares of Common Stock, the holder shall give written notice to the
Corporation (which notice may be given by facsimile transmission) that such
holder elects to convert the same and shall state therein the number of
shares to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. Promptly
thereafter the holder shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation. The Corporation shall, immediately upon
receipt of such notice, issue and deliver to or upon the order of such
holder, against delivery of the certificates representing the shares which
have been converted, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled, and a certificate
representing the shares of 6% Preferred not so converted, if any. The
Corporation shall effect such issuance immediately and shall transmit the
certificates by messenger or overnight delivery service to reach the address
designated by such holder within three trading days after the receipt of such
notice. Notice of conversion may be given by a holder at any time of day up
to 5:00 pm Los Angeles time, and such conversion shall be deemed to have been
made immediately prior to the close of business on the date such notice of
conversion is given (the "Conversion Date"). The person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at the close of business on the Conversion Date.
(e) Determination of Conversion Price.
(i) On any Conversion Date prior to the first day of the
thirteenth calendar month after the Closing, the Conversion Price shall not
be less than $1.50, and until the end of the seventh month following the
Closing the Conversion Price shall be $5.50. Subject to the foregoing
sentence and to the provisions of subsection (e)(iii) and subsection (f) of
this Section, on any Conversion Date, the Conversion Price shall be the
average of the three (3) lowest daily trading prices of the Common Stock for
the 22 consecutive trading days ending with the trading day prior to the
Conversion Date, reduced by the Applicable Percentage (as defined below) in
effect on the Conversion Date.
(ii) The Applicable Percentage shall be as follows:
9.8% starting on the first day of the eighth (8th) calendar month
after Closing.
11.1% starting on the first day of the ninth (9th) calendar month after
Closing.
12.4% starting on the first day of the tenth (10th) calendar month
after Closing.
13.7% starting on the first day of the eleventh (11th) calendar month
after Closing.
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15.0% starting on the first day of the twelfth (12th) calendar month
after Closing and thereafter.
(iii) From and after the first day of the sixteenth (16th)
calendar month after Closing, the Maximum Conversion Price ("Conversion Cap")
shall be 85% of the average low daily trading price of the Common Stock
during the period beginning on the first day of the twelfth (12th) calendar
month following Closing and ending on the last day of the fifteenth (15th)
calendar month following Closing. Notwithstanding the prior sentence, in no
event shall the Conversion Cap be less than the greater of: i) two dollars
and fifty cents ($2.50), or ii) the average daily closing price of the Common
Stock for the five (5) trading days immediately prior to the Closing.
(iv) The terms "low trading price" and "last sale price" of the
Common Stock on any day shall mean, respectively, (A) the lowest reported
sale price and the last reported sale price of the Common Stock on the
principal stock exchange on which the Common Stock is listed, or (B) if the
Common Stock is not listed on a stock exchange, the lowest reported sale
price and the last reported sale price of the Common Stock on the principal
automated securities price quotation system on which sale prices of the
Common Stock are reported, or (C) if the Common Stock is not listed on a
stock exchange and sale prices of the Common Stock are not reported on an
automated quotation system, the lowest bid price and the last bid price for
the Common Stock as reported by National Quotation Bureau Incorporated. If
none of the foregoing provisions are applicable, the "low trading price" and
"last sale price" of the Common Stock on a day will be the fair market value
of the Common Stock on that day as determined by a member firm of the New
York Stock Exchange, Inc., selected by the Board of Directors of the
Corporation. The term "trading day" means (x) if the Common Stock is listed
on at least one stock exchange, a day on which there is trading on the
principal stock exchange on which the Common Stock is listed, (y) if the
Common Stock is not listed on a stock exchange but sale prices of the Common
Stock are reported on an automated quotation system, a day on which trading
is reported on the principal automated quotation system on which sales of the
Common Stock are reported, or (z) if the foregoing provisions are
inapplicable, a day on which quotations are reported by National Quotation
Bureau Incorporated. The "closing price" of the Common Stock on any day
means the "last sale price" as defined above.
(v) In the event that during any period of consecutive trading
days provided for above, the Corporation shall declare or pay any dividend on
the Common Stock payable in Common Stock or in rights to acquire Common
Stock, or shall effect a stock split or reverse stock split, or a
combination, consolidation or reclassification of the Common Stock, then the
Conversion Price and (if such event occurs during or after the 12th month
after the date of issuance) the Conversion Cap shall be proportionately
decreased or increased, as appropriate, to give effect to such event, and
like adjustment shall be made in any price per share specified in dollars
herein.
(f) Green Floor. If at any time the Conversion Price falls below
three dollars ($3.00) per share (the "Green Floor Price"), the Corporation
may at its option, exercised by written notice ("Cash Conversion Notice")
given to the holders of the 6% Preferred five days prior to the effective
date specified in such Notice (the "Effective Date") honor any conversion
request otherwise properly made, if at a Conversion Price lower than the
Green Floor Price, by a cash payment in lieu of the issuance of Common Stock
in an amount equal to the proceeds which would otherwise have been received
by the holder if conversion were in fact made into Common Stock and such
Common Stock were sold at the high trade price on the trading day immediately
preceding the date that the conversion notice is received (the "Cash
Conversion Amount"). The Cash Conversion Notice may specify an expiration
date of such Notice, or may specify a limitation on the aggregate number of
dollars which the Corporation will pay in Cash Conversion Amounts. When such
dollar limitation is reached the Corporation shall give immediate notice to
the holders of 6% Preferred that the Cash Conversion Notice is no longer in
effect. The Corporation may at any time reset the Green Floor Price to any
price determined by the Corporation by giving 30 days prior notice to the
holders of the 6% Preferred. If notice of conversion shall be given by a
holder of 6% Preferred shares on a date that a Cash Conversion Notice is in
effect, the Corporation shall within 48 hours following surrender of the
share certificate as provided in Section 4(d) hereof make payment of the Cash
Conversion Amount to such holder by wire transfer of immediately available
funds in U.S. dollars pursuant to such wire transfer instructions as may have
been given by such holder, or otherwise by mailing by certified mail a bank
cashiers' or certified check for the Cash Conversion Amount to the record
address of such holder. A Cash Conversion Notice shall cease to be effective
if the Corporation fails to make payment of the Cash Conversion Amount to any
holder entitled thereto in the manner and within the time specified in the
foregoing sentence, time being of the essence. If a Cash Conversion Notice
ceases to be effective pursuant to the foregoing sentence, it shall not
thereafter be effective as to any holder and no Cash Conversion Notice may
thereafter
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be given by the Corporation. The number of shares that a holder is entitled
to convert, determined pursuant to subsections (a) and (b) of this Section 4,
shall not be affected by the giving or effectiveness of a Cash Conversion
Notice. Any Cash Conversion Notice shall be given as provided in Section 5
hereof.
(g) Distributions. In the event the Corporation shall at any time
or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of its
subsidiaries or other property, other than cash dividends from earnings or
dividends of additional shares of Common Stock, then in each such event
provision shall be made so that the holders of 6% Preferred shall receive,
upon the conversion thereof, the securities or other property which they
would have received had they been the owners on the date of such event of the
number of shares of Common Stock issuable to them upon conversion.
(h) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price or the Conversion Cap
pursuant to Section 4(e)(v) or Section 4(m) hereof, or any adjustment of the
cash per-share prices specified herein, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of 6% Preferred, furnish
or cause to be furnished to such holder a like certificate prepared by the
Corporation setting forth (i) such adjustments and readjustments, and (ii)
the number of other securities and the amount, if any, of other property
which at the time would be received upon the conversion of 6% Preferred with
respect to each share of Common Stock received upon such conversion. If any
holder disputes the computation of such adjustment the Corporation shall
cause independent public accountants selected by the Corporation to verify
and, if necessary, correct such computation.
(i) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property,
or to receive any other right, the Corporation shall give notice to each
holder of 6% Preferred at least 10 days prior to such date specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(j) Issue Taxes. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of 6% Preferred pursuant hereto; provided, however, that
the Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the 6% Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the 6% Preferred, and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the 6%
Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval as promptly as practicable.
(l) Fractional Shares. No fractional shares shall be issued upon
the conversion of any share or shares of 6% Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of 6% Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market
value of such
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<PAGE>
fraction on the date of conversion (as determined in good faith by the Board
of Directors of the Corporation).
(m) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation
or merger of the Corporation with or into any other corporation or
corporations or a sale of all or substantially all of the assets of the
Corporation to any other person, and the holders of 6% Preferred do not elect
to treat such transaction as a liquidation, dissolution or winding up as
provided in Section 2, then, as part of such reorganization, consolidation,
merger or sale, provision shall be made so that each share of 6% Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of 6%
Preferred would have been entitled upon the record date of (or date of, if no
record date is fixed) such event and, in any case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the 6% Preferred, to the end that the provisions
set forth herein shall thereafter be applicable, as nearly as equivalent as
is practicable, in relation to any shares of stock or the securities or
property (including cash) thereafter deliverable upon the conversion of the
shares of 6% Preferred. The Corporation shall have no obligation to obtain
the prior consent of the holders of 6% Preferred, individually or as a class,
except as expressly provided herein or as provided by applicable law.
5. Notices. Any notice to be given to the holders of the 6% Preferred
shall be (i) mailed by first class mail postage prepaid to each holder of 6%
Preferred at the address shown on the records of the Corporation for such
holder, (ii) transmitted by telecopy or facsimile transmission to any holder
which has supplied a telecopy or facsimile address to the Corporation, and
(iii) unless receipted for by telecopy or facsimile on the date such notice
is given, shall be transmitted by an overnight delivery service or courier
service for delivery at the address shown on the records of the Corporation
for such holder on the first business day following the date such notice is
given, or if delivery in one business day to such address cannot be effected
by such delivery service, then on the earliest day on which such delivery can
be made.
6. Other Provisions. For all purposes of this Resolution, the term
"date of issuance" or "closing" shall mean the day on which shares of the 6%
Preferred are first issued by the Corporation, and the terms "trading price",
"low trading price", "closing price", "last trade price", and "trading days"
shall have the meanings given them in Section 4(e) hereof. Any provision
herein which conflicts with or violates any applicable usury law shall be
deemed modified to the extent necessary to avoid such conflict or violation.
7. Restrictions and Limitations. The Corporation shall not undertake
the following actions without the consent of the holders of a majority of the
6% Preferred: (i) modify its Certificate of Incorporation or Bylaws so as to
amend or change any of the rights, preferences, or privileges of the 6%
Preferred, (ii) authorize or issue any other equity security senior to the 6%
Preferred, or (iii) purchase or otherwise acquire for value any Common Stock
or other equity security of the Corporation either junior or senior to or on
a parity with the 6% Preferred while there exists any arrearage in the
payment of cumulative dividends hereunder.
8. Voting Rights. Except as provided herein or as provided for by
law, the 6% Preferred shall have no voting rights.
9. Attorneys' Fees. Any holder of 6% Preferred shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder, if such holder is the prevailing
party in an action or proceeding to compel such enforcement.
10. Limitation on Number of Conversion Shares. The Corporation shall
not be obligated to issue, in the aggregate, more than 3,150,000 shares of
Common Stock as presently constituted (the "Nasdaq Cap") upon conversion of
the 6% Preferred, if issuance of a larger number of shares would constitute a
breach of the Rules or Designation Criteria of the NASDAQ Stock Market (the
"NASDAQ Rules"). Subject to the obligation to effect certain redemptions
pursuant to the last three sentences of this Section, if further issuances of
shares of Common Stock upon conversion of the 6% Preferred would constitute a
breach of the NASDAQ Rules (i.e., all of the shares permitted to be issued
under the Nasdaq Cap shall have been so issued), then so long thereafter as
such limitation shall continue to be applicable and
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any shares of 6% Preferred are submitted for conversion such shares shall
receive in cash an amount equal to the Cash Conversion Amount determined as
provided in Section 4(f) hereof, in lieu of the Common Stock which such
shares would otherwise be entitled to receive upon conversion. Payment of
the Cash Conversion Amount shall be made no later than as specified in
Section 4(f) and shall bear daily interest thereafter at the rate of
one-tenth of one percent per day until paid. The NASDAQ Cap shall be
proportionately and equitably adjusted in the event of stock splits, stock
dividends, reverse stock splits, reclassifications or other such events, in
such manner as the Board of Directors of the Corporation shall reasonably
determine. If (A) the Corporation is unable to obtain the requisite
shareholder approval concerning the issuance of shares of Common Stock upon
conversion of the 6% Preferred to satisfy the NASDAQ Rules prior to December
31, 1997, then (B) the Corporation shall immediately redeem, at a "Special
Redemption Price" equal to 110% of the liquidation preference of such shares,
the smallest number of Shares which is sufficient, in the Corporation's
reasonable judgment, such that following such redemption, conversion of the
remaining shares of 6% Preferred would not constitute a breach of the
Corporation's obligations under the NASDAQ Rules. Any redemption effected
pursuant to the preceding sentence shall require 15 days' notice and the
Redemption Date shall be not more than 15 days after the date specified in
Clause A of the preceding sentence. Such redemption shall be made pro-rata.
If there shall be a default in payment of the Special Redemption Price, the
amount so payable shall bear daily interest from and after the Redemption
Date at the rate of one-tenth of one
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<PAGE>
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE ____ SHARES
of
6% CONVERTIBLE PREFERRED STOCK
No. PW-1 EXPIRES AT 5:00 P.M., PACIFIC TIME, ON SEPTEMBER 30, 2002
INTERLEAF, INC.
This certifies that __________, the registered holder hereof or
assigns (the "Warrantholder") is entitled to purchase from Interleaf, Inc., a
Massachusetts corporation (the "Company"), at any time before the expiration
time and date shown above (the "Expiration Time") at the purchase price per
share of $1,000 (the "Warrant Price"), the number of shares shown above of
the 6% Convertible Preferred Stock ("6% Preferred Stock") of the Company.
The number and class of shares purchasable upon exercise of this Warrant and
the Warrant Price per share shall be subject to adjustment from time to time
as set forth below.
Section 1. Transferability and Form of Warrant.
1.1 Registration. This Warrant shall be numbered and shall be
registered on the books of the Company.
1.2 Transfer. This Warrant shall be transferable on the books of
the Company only upon delivery thereof duly endorsed by the Warrantholder or
duly authorized attorney or representative, accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new Warrant to the person
entitled thereto. This Warrant may be divided or combined, upon request to
the Company by the Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of shares.
Unless the context indicates otherwise, the term "Warrantholder" shall
include any transferee or transferees of a Warrant and the term "Warrant"
shall include any and all warrants issued upon division, exchange,
substitution or transfer of this Warrant. Notwithstanding the foregoing, the
Warrantholder shall not transfer the Warrant or the securities underlying the
Warrants in a private transaction without advance permission from the
Company, except for transfers to partners or immediate family members.
1.3 Form of Warrant. The Warrant shall be executed on behalf of
the Company by its President, Vice President or other authorized officer, and
shall be dated as of the date of signature thereof by the Company either upon
initial issuance or upon division, exchange, substitution or transfer. A
Warrant bearing the signature of an individual who was at any time the proper
officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of
such Warrant. The form of election to exercise this Warrant and the form of
assignment of this Warrant shall be substantially as attached hereto.
Section 2. Payment of Taxes.
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of shares to the Warrantholder;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any secondary transfer of the
Warrant or the shares.
<PAGE>
Section 3. Mutilated or Missing Warrants.
In case this Warrant shall be mutilated, lost, stolen or destroyed,
the Company shall, at the request of the Warrantholder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and in substitution for the lost, stolen or destroyed Warrant,
a new Warrant of like tenor, but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant. The
applicant shall also comply with such other reasonable regulations and pay
such other reasonable administrative charges as the Company may prescribe.
Section 4. Reservation of Shares.
There has been reserved, and the Company shall at all times keep
reserved so long as this Warrant remains outstanding, out of its authorized
shares of capital stock, such number and class of shares as shall be subject
to purchase under this Warrant. Such reserved shares shall be used solely
for issuances upon exercise of this Warrant. Shares of any class issued upon
exercise of this Warrant shall have all the rights and privileges of other
shares of the same class, whenever issued, subject to the adjustment
provisions set forth below.
Section 5. Exercise of Warrant.
5.1 Exercise by Cash Payment. The Holder of this Warrant shall
have the right at any time and from time to time to exercise this Warrant in
full or in part by surrender of this Warrant to the Company accompanied by
payment to the Company in cash or by certified or cashier's check or by wire
transfer of funds of the aggregate Warrant Price for the number of shares in
respect of which this Warrant is then exercised.
5.2 Cashless Exercise. This Warrant may be exercised in full or in
part by surrender of this Warrant to the Company accompanied by written
notice substantially in the form attached hereto of the holder's election to
effect cashless exercise ("Cashless Exercise"). Upon Cashless Exercise, the
holder shall be entitled to receive, in respect of each share for which this
Warrant is then exercised, that number of shares of 6% Preferred Stock (or
such other class of shares as may then be issuable upon exercise hereof)
which, valued at Current Value, have a value equal to the Current Value of
each share as to which this Warrant is then being exercised less the Warrant
Price payable for such share. Current Value of a share as to which this
Warrant is being exercised shall be the total Current Market Value of the
number of shares of Common Stock of the Company issuable upon conversion of
such share at the Conversion Price in effect on the date of such Cashless
Exercise. Current Market Value of the Common Stock shall be as defined in
Section 7.
5.3 Delivery of Certificates. Upon exercise of this Warrant the
Company shall issue and cause to be delivered with all reasonable dispatch to
or upon the written order of the Warrantholder and in such name or names as
the Warrantholder may designate, a certificate or certificates for the number
of full shares issuable upon such exercise together with cash, as provided in
Section 7 hereof, in respect of any fractional shares. The Company shall
effect such issuance immediately and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by
the Warrantholder within two business days after receipt of the Warrant Price
or, in the case of a cashless exercise, after receipt of the Warrant. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such shares as of the date of surrender of the Warrant
and payment of the Warrant Price, as aforesaid, notwithstanding that the
certificates representing such shares shall not actually have been delivered
or that the stock transfer books of the Company shall then be closed. In the
event of partial exercise a new Warrant evidencing the remaining portion of
this Warrant will be issued by the Company.
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5.4 Simultaneous Conversion. Subject to the applicable conversion
restrictions and other terms of the 6% Preferred Stock, the Warrantholder may
elect to convert the convertible securities issuable upon exercise of this
Warrant simultaneously with the exercise of this Warrant and may give written
notice of such election substantially in the form attached hereto. Upon such
election the Company need not issue certificates representing the convertible
securities issuable upon exercise of this Warrant, but shall issue and
deliver as provided in the foregoing Section certificates representing the
securities to which the holder is entitled upon such conversion.
Section 6. Adjustment of Warrant Price and Number of Shares.
6.1 Adjustments. The number and kind of securities purchasable upon
the exercise of the Warrants and the Warrant Price shall be subject to
adjustment from time to time upon the happening of certain events, as
follows:
(a) If the shares purchasable upon exercise of the Warrants are
subdivided, combined or reclassified, or if other shares of the kind so
purchasable are issued in respect thereof as a dividend thereon (excluding
dividends required by the charter provisions governing such shares), the
number and class of shares purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the Warrantholder shall
be entitled to receive the kind and number of shares or other securities of
the Company which it would have owned or would have been entitled to
receive after the happening of any of the events described above, had the
Warrants been exercised immediately prior to the happening of such event or
any record date with respect thereto. Any adjustment made pursuant to this
paragraph (a) shall become effective immediately after the effective date
of such event retroactive to the record date, if any, for such event.
(b) If the shares purchasable upon exercise of the Warrants become
entitled to receive a distribution of evidences of indebtedness or assets
(excluding dividends required by the charter provisions governing such
shares) or rights, options, warrants or convertible securities containing
the right to subscribe for or purchase securities or assets of the Company,
then, in each case, the number of shares thereafter purchasable upon the
exercise of the Warrants shall be determined by multiplying the number of
shares theretofore purchasable upon exercise of the Warrants by a fraction,
of which the numerator shall be the then Current Value on the date of such
distribution, and of which the denominator shall be such Current Value on
such date minus the then fair value of the portion of the assets or
evidence of indebtedness so distributed or of such subscription rights,
options or warrants applicable to one share. Such adjustment shall be made
whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution. Current Value shall
have the meaning set forth in Section 5.2.
(c) No adjustment in the number of shares purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of
at least one percent (1%) in the number of shares then purchasable upon the
exercise of a Warrant; provided, however, that any adjustments which by
reason of this paragraph (c) are not required to be made immediately shall
be carried forward and taken into account in any subsequent adjustment.
(d) Whenever the number or class of shares purchasable upon the
exercise of a Warrant is adjusted as herein provided, a corresponding
adjustment in the Warrant Price shall be made so that the aggregate Warrant
Price payable upon full exercise of this Warrant shall remain the same. If
such adjustment results in more than one class of security being
purchasable upon exercise of this Warrant, the adjusted Warrant Price shall
be allocated to such securities on the basis of their respective fair
market values.
(e) Whenever the number or class of shares purchasable upon the
exercise of a Warrant or the Warrant Price is adjusted as herein provided,
the Company shall cause to be promptly mailed to the
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Warrantholder by first class mail, postage prepaid, notice of such
adjustment or adjustments setting forth the number and class of shares
purchasable upon the exercise of a Warrant and the Warrant Price after such
adjustment, together with a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made. If any
holder disputes the computation of such adjustment the Corporation shall
cause independent public accountants selected by the Corporation to verify
and, if necessary, correct such computation.
(f) The term "Common Stock" shall mean (i) the class of stock
designated as the Common Stock of the Company at the issue date of this
Warrant or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock, and the term "6% Preferred
Stock" shall mean (x) the class or series of stock which is initially
purchasable upon exercise hereof, or (y) any other class or series of stock
resulting from successive reclassifications or changes of such 6% Preferred
Stock. In the event that at any time, as a result of an adjustment made
pursuant to this Section, the Warrantholder shall become entitled to
purchase any securities of the Company other than shares of 6% Preferred
Stock, thereafter the number of such other securities so purchasable upon
exercise of the Warrant and the Warrant Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares
contained in this Section.
6.2 No Adjustment for Dividends. Except as provided in Subsection
6.1, no adjustment in respect of any dividends shall be made during the term
of the Warrant or upon the exercise of the Warrant.
6.3 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any reclassification of the securities of the
Company or any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety
or substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant
Price in effect immediately prior to such action to purchase upon exercise of
the Warrant the kind and amount of shares and other securities and property
which he would have owned or have been entitled to receive after the
happening of such reclassification, consolidation, merger, sale or conveyance
had the Warrant been exercised immediately prior to such action. Such
agreement shall provide for adjustments, which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section. The
provisions of this subsection shall similarly apply to successive
reclassifications, consolidations, mergers, sales or conveyances.
6.4 Statement on Warrant Certificates. Irrespective of any
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the Warrant, the Warrant certificate or certificates
theretofore or thereafter issued may continue to express the same price and
number of securities as are stated in the similar Warrant certificates
initially issued.
Section 7. Fractional Interests; Current Market Price; Closing Bid
Price.
The Company shall not be required to issue fractional shares on the
exercise of the Warrant. If any fraction of a share would, except for the
provisions of this Section, be issuable on the exercise of the Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to
the then Current Value (as defined in Section 5.2) multiplied by such
fraction. The term "Current Market Price" of the Common Stock shall mean (i)
if the Common Stock is traded in the over-the-counter market or on the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ"), the average per share closing bid prices of the Common Stock on
the 20 consecutive trading days immediately preceding the date in question,
as reported by NASDAQ or an equivalent generally accepted reporting service,
or (ii) if the Common Stock is traded on a national securities exchange, the
average for the 20 consecutive trading days immediately preceding the date in
question of the daily per share closing bid prices of the Common Stock on the
principal stock exchange on which it is listed, or (iii) if the Common Stock
is not so listed or traded, the fair market value of the Common Stock as
determined in good faith by the board of directors of the Company. The term
"closing bid price" shall mean the last bid price on the day in question as
reported by NASDAQ or an equivalent generally accepted reporting service or
(as the case may be) as reported by the principal stock exchange on which the
Common Stock is listed, or if not so reported, as reasonably
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determined in good faith by the Board of Directors of the Company.
Section 8. No Rights as Shareholder; Notices to Warrantholder.
Nothing contained herein shall be construed as conferring upon the
Warrantholder any rights whatsoever as a shareholder of the Company,
including the right to vote, to receive dividends, to consent or to receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter. If, however, at
any time prior to the expiration of the Warrant and prior to its exercise,
any of the following events shall occur:
(a) any action which would require an adjustment pursuant to Sections
6.1 or 6.3; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in
writing of such event to the Warrantholder at least 10 business days prior to
the date fixed as a record date or the date of closing the transfer books or
other applicable date with respect thereto. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Any notice to the Warrantholder shall be given at the address of the
Warrantholder appearing on the books of the Company, and if the Warrantholder
has specified a telecopier address, by facsimile transmission to such address.
Section 9. Registration and Indemnification.
The holder of this Warrant and the holder of shares of 6% Preferred
Stock issued upon exercise of this Warrant shall have the same rights and
obligations with respect to registration under the Securities Act of 1933,
and with respect to indemnification in connection with any such registration,
as if such holder were one of the Investors under the Preferred Stock
Investment Agreements entered into between the Company and the original
purchasers of the 6% Preferred Stock of the Company, excluding, however, the
provisions of the first sentence of Section 1.4(b)(iv) of said Agreements.
Such rights and obligations shall continue until one year after the
expiration or earlier exercise of this Warrant.
Section 10. Expiration of Warrant.
10.1 If not theretofore exercised, this Warrant shall terminate at
5:00 p.m. Pacific time on the date shown in the caption hereof.
Section 11. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 12. Merger or Consolidation of the Company.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 6.3 are complied with.
Section 13. Applicable Law.
This Agreement shall be deemed to be a contract made under the laws
of the State of New York and for all purposes shall be construed in
accordance with the laws of said State.
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Section 14. Special Limitations.
The holder agrees that until September 30, 1998 it will not exercise
any Warrants without the Company's approval in any month during which, or
following a month in which, the trading price of the Common Stock is at any
time below $3.00 per share. Further, the holder agrees that it will consult
with the Company prior to exercising any Warrants, but the Company's approval
is not required except as expressly provided herein.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by a duly authorized officer of the Company.
Interleaf, Inc.
By:
------------------------------
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PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant in respect of ______________ of the
shares provided for therein, and requests that certificates be issued in the
name of:
_________________________________________________________________
(Please Print Name, Address and Taxpayer Identification Number)
_________________________________________________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant certificate for the balance of the shares purchasable under
the within Warrant be registered in the name of the undersigned Warrantholder or
his Assignee as below indicated and delivered to the address stated below.
The undersigned:
/ / elects to pay the full Warrant Price in cash or by certified or cashier's
check or wire funds transfer
/ / elects "cashless exercise" pursuant to Section 5.2 of the Warrant
"Current Value" for purposes of Cashless Exercise is: $__________
Number of shares issuable on Cashless Exercise is: ___________
shares
/ / elects simultaneous conversion pursuant to Section 5.4 of the Warrant
Dated: ________________ _____________________________
Signature of Warrantholder
The above signature must correspond with the name appearing upon the face of
this Warrant in every particular, without alteration or enlargement or any
change whatever.
Name of Assignee, if any: ____________________________
(Please Print)
______________________________________________________
(Please print Name, Address and Taxpayer
Identification Number)
_______________________________________________________
Signature Guaranteed: Signature guarantee is required if certificates are to
be registered in the name of any person other than the
name written upon the face of the Warrant. Signature
must be guaranteed by a commercial bank or trust company
or a member firm of the New York Stock Exchange.
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ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
_________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
_________________________________________________________________
(Relationship to Registered Holder)
_________________________________________________________________
(Taxpayer Identification Number of Assignee)
the within Warrant, hereby irrevocably constituting and appointing
____________________ Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: ________________, 19__ ______________________________
Signature of Registered Holder
Signature Guaranteed: The above signature must correspond with the name
appearing upon the face of this Warrant in every
particular, without alteration or enlargement or any
change whatever, and must be guaranteed by a commercial
bank or trust company or a member firm of the New York
Stock Exchange.
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