SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 16, 1996
INTELLIGENT ELECTRONICS, INC.
(Exact name of issuer as specified in charter)
PENNSYLVANIA 0-15991 23-2208404
(State or Other Jurisdiction Commission (I.R.S. Employer
of Incorporation or file number Identification
Organization) Number)
411 Eagleview Boulevard, Exton, Pennsylvania 19341
(Address of principal executive offices)
(610) 458-5500
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
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Private Placement
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On October 16, 1996, Intelligent Electronics, Inc. (the "Company")
raised $5,000,000 by the sale of 5,000 shares of its Series B Convertible
Preferred Stock ("Preferred Stock") and Warrants to purchase 225,000 shares of
its Common Stock in a private placement. In addition, the investor has agreed,
subject to the satisfaction of certain conditions, to purchase an additional
10,000 shares of Preferred Stock and Warrants to purchase 225,000 shares of
Common Stock, for $10,000,000. Included among the conditions is the effective-
ness of a registration statement (the "Registration Statement") to be filed
with the Securities and Exchange Commission to register the resale of the
Common Stock issuable upon conversion of the Preferred Stock and the exercise
of the Warrants. Assuming the sale of the additional shares of Preferred Stock
and Warrants (but not assuming any exercise of the Warrants), the net proceeds
to the Company from the private placement will be approximately $14,300,000
after deduction of placement fees and transaction expenses. The placement
agents in the private placement were Susquehanna Financial Group, Inc. and
Janney Montgomery Scott, Inc.
The Preferred Stock is convertible into Common Stock at the option
of the holder at a conversion ratio based on average trading prices of the
Company's Common Stock, but in any event not exceeding $9.175 per share
(subject to other adjustments under certain circumstances), and converts
automatically into Common Stock in five years. The rights of the Preferred
Stock are set forth in a Statement With Respect to Shares filed with the
Pennsylvania Secretary of State. The Warrants sold on October 16, 1996 are
exercisable for five years at an exercise price of $11.469 per share. The
Warrants to be issued in connection with the issuance of the additional 10,000
shares of Preferred Stock will have an exercise price based on average trading
prices of the Company's Common Stock prior to the issuance of the Warrants.
The sale of the shares of Preferred Stock and the Warrants (including
the underlying Common Stock) were exempt from the registration provisions of
the Securities Act (the "Act") pursuant to Section 4(2) of the Act and Rule 506
under the Act for transactions not involving a public offering, based on the
fact that the private placement was made to one accredited investor which had
access to financial and other relevant data concerning the Company, its
financial condition, business and assets. The securities sold in the private
placement may not be reoffered or resold absent registration under the
Act or available exemptions from such registration requirements. The Company
has agreed to promptly file the Registration Statement with the Securities
and Exchange Commission and use its best efforts to obtain effectiveness
of the Registration Statement as soon as practicable.
A copy of each of the Securities Purchase Agreement, the Statement
With Respect to Shares, the Stock Purchase Warrant, and Registration Rights
Agreement relating to the sale of the Preferred Stock is attached as an
exhibit to this report.
Initial Public Offering of XLConnect Solutions, Inc.
----------------------------------------------------
On October 22, 1996, in an initial public offering of 3,330,000
shares of its common stock, XLConnect Solutions, Inc. (NASDAQ: XLCT), a
subsidiary of the Company, raised approximately $45.5 million (after
deducting underwriting discounts and offering expenses). Approximately $43
million of the net proceeds of the offering were used by XLConnect to repay
indebtedness owed to the Company. As a result of the offering, XLConnect is
now an 80%-owned subsidiary of the Company.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
99.1 Securities Purchase Agreement, dated October 15, 1996.
99.2 Statement With Respect to Shares of the Company, filed with
the Pennsylvania Secretary of State on October 16, 1996.
99.3 Stock Purchase Warrant issued October 16, 1996.
99.4 Registration Rights Agreement dated October 16, 1996.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
INTELLIGENT ELECTRONICS, INC.
Date: October 24, 1996 By:/s/ Thomas J. Coffey
------------------------------------
Thomas J. Coffey,
Senior Vice President and
Chief Financial Officer
EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of October
15, 1996 by and among INTELLIGENT ELECTRONICS, INC., a Pennsylvania
corporation, with headquarters located at 411 Eagleview Boulevard, Exton,
Pennsylvania 19341 (the "Company"), and the purchaser set forth on the
signature pages hereto (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock, designated
as its Series B Convertible Preferred Stock (the "Preferred Stock"), having
the rights, preferences and privileges set forth in the Statement with
Respect to Shares attached hereto as Exhibit "A" (the "Statement with Respect
to Shares");
C. The Preferred Stock is convertible into shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in the Statement with
Respect to Shares;
D. The Buyer desires to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, (i) an aggregate
of Fifteen Thousand (15,000) shares of Preferred Stock, having a stated value
of One Thousand Dollars ($1,000) per share, upon the terms and subject to the
limitations and conditions set forth in the Statement with Respect to Shares,
(ii) warrants (the "First Warrants") in the form attached hereto as Exhibit
"B" to acquire 225,000 shares of Common Stock at the per share price provided
in Section 1(a)(ii) hereof and (iii) additional warrants (the "Second
Warrants" and, together with the First Warrants, the "Warrants") in the form
attached hereto as "Exhibit B" to acquire an additional 225,000 shares of
Common Stock at the per share price provided in Section 1(a)(iii) hereof, for
an aggregate purchase price, as determined in accordance with Section 1(d)
hereof (the "Aggregate Purchase Price"), of Fifteen Million Dollars
($15,000,000);
E. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
--------------------------------------------------
a. Purchase of Preferred Shares and Warrants. On the terms and
subject to the conditions set forth herein, the Company shall issue and sell
to Buyer and Buyer shall purchase from the Company (i) 15,000 shares of
Series B Preferred Stock (collectively, together with any Preferred Stock
issued in replacement thereof or as a dividend thereon or otherwise with
respect thereto in accordance with the terms thereof, the "Preferred
Shares"), (ii) First Warrants to purchase shares of Common Stock at a price
per share equal to 125% of the average of the closing bid prices for the
Common Stock as reported by NASDAQ-NM (as defined herein), or on the
principal securities market on which the Common Stock is then being traded
(such closing bid price being hereinafter referred to as the "Closing Bid
Price"), for the five (5) consecutive Trading Days (as defined in the
Statement with Respect to Shares) ending on the last Trading Day immediately
prior to the Closing Date in respect of the First Closing and (iii) Second
Warrants to purchase shares of Common Stock at a price per share, subject to
the antidilution protections contained in Sections 4(a)-(f) of the Warrants
as if the Second Warrants had been issued at the First Closing, equal to 125%
of the average of the closing bid prices for the Common Stock as reported by
NASDAQ-NM, or on the principal securities exchange or other securities market
on which the Common Stock is then being traded, for the five (5) consecutive
Trading Days ending on the last Trading Day immediately prior to the Second
Warrant Issue Date (as defined below). The issuance, sale and purchase of the
Preferred Shares and Warrants shall take place in two (2) separate closings,
the first of which is hereinafter referred to as the "First Closing" and the
second of which is hereinafter referred to as the "Second Closing." Subject
to the satisfaction (or waiver) of the conditions thereto set forth in
Section 6 and Section 7 below (A) at the First Closing, the Company shall
issue and sell to the Buyer and the Buyer shall purchase from the Company
Five Thousand (5,000) Preferred Shares and the First Warrants for an
aggregate purchase price of Five Million Dollars ($5,000,000) and (B) at the
Second Closing, subject to the penultimate sentence of this paragraph 1(a),
the Company shall issue and sell to the Buyer and the Buyer shall purchase
from the Company Ten Thousand (10,000) Preferred Shares for an aggregate
purchase price of Ten Million Dollars ($10,000,000). On the later of (i) the
Second Closing and (ii) the ninetieth (90th) day following the Closing Date
(as defined below) in respect of the First Closing (such later date is
referred to herein as the "Second Warrant Issue Date"), the Company shall
issue to Buyer the Second Warrants. If the registration statement(s) (the
"Registration Statement") filed by the Company pursuant to Section 2(a) of
the Registration Rights Agreement covering the resale of the Registrable
Securities (as defined in the Registration Rights Agreement) has not been
declared effective within 165 days of the filing of such Registration
Statement, then, in such event, between 166 days after the filing of such
Registration Statement and 256 days after such filing, the Buyer shall have
the right, but shall not be obligated, to purchase the Ten Thousand (10,000)
Preferred Shares issuable at the Second Closing. Notwithstanding the
foregoing, if there shall occur any Mandatory Redemption Event (as defined in
the Statement with Respect to Shares) prior to the Second Closing, the
Company shall, on the date of such occurrence, issue to the Buyer, for no
additional consideration, the Second Warrants.
b. Form of Payment.
(i) On the Closing Date in respect of the First Closing, (a)
Buyer shall pay Five Million Dollars ($5,000,000) for Five Thousand (5,000)
Preferred Shares and all of the First Warrants issuable hereunder by wire
transfer of immediately available funds to the Company, in accordance with
the Company's written wiring instructions, against delivery of duly executed
certificates representing such number of Preferred Shares and First Warrants
which the Buyer is then purchasing, and (b) the Company shall deliver such
certificates against delivery of such funds.
(ii) On the Closing Date in respect of the Second Closing, (a)
Buyer shall pay $10,000,000 (such amount herein referred to as the "Second
Closing Price") for (i) Ten Thousand (10,000) Preferred Shares and (ii) if
such date is the Second Warrant Issue Date, all of the Second Warrants
issuable hereunder by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions,
against delivery of duly executed certificates representing such number of
Preferred Shares and Second Warrants which the Buyer is then purchasing and
(b) the Company shall deliver such certificates against delivery of such
funds.
c. Closing Dates. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares and Warrants pursuant
to this Agreement (the "Closing Dates") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Time in Philadelphia, PA on October 16, 1996
(subject to a two (2) business day grace period at either party's option),
(ii) in the case of the Second Closing, 12:00 noon Eastern Time in
Philadelphia, PA on the fifth (5th) business day following notification of
satisfaction (or waiver) of the conditions to such closing set forth in
Sections 7(a) and 7(b) below or, in each case, such other mutually agreed
upon time. The closings shall occur on the Closing Dates at the offices of
Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street,
Philadelphia, Pennsylvania.
d. Aggregate Purchase Price. Subject to the terms and conditions
of Sections 1 and 7 of this Agreement, the Aggregate Purchase Price shall be
Fifteen Million Dollars ($15,000,000), which shall be allocated
$14,995,500.00 to the Preferred Stock and $4,500.00 to the Warrants.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Buyer represents and warrants (which representations and warranties
shall be true and correct on date hereof and on the date of each closing
hereunder as if made on each of such dates) to the Company that:
a. Organization. The Buyer is an unlimited liability company
duly organized and existing and in good standing under the laws of the Cayman
Islands, and has the requisite corporate power to own its properties and to
carry on its business as it is now being conducted.
b. Authorization; Enforcement. (i) The Buyer has the requisite
corporate power and authority to enter into and perform this Agreement and
the Registration Rights Agreement, (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by the Buyer and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action required by the Buyer's Articles
of Association and Memorandum of Association, Certificate of Incorporation
and otherwise under applicable corporate (or equivalent) law, and no further
consent or authorization of the Buyer, its directors or members is required
with respect thereto, (iii) this Agreement has been duly executed and
delivered by the Buyer, and (iv) this Agreement constitutes, and upon
execution and delivery by the Buyer of the Registration Rights Agreement such
instrument will constitute, a valid and binding obligation of the Buyer
enforceable against the Buyer in accordance with its terms.
c. No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Buyer and the
consummation by the Buyer of the transactions contemplated hereby and thereby
will not result in a violation of the Buyer's Certificate of Incorporation,
Memorandum of Association or Articles of Association.
d. Investment Purpose. The Buyer is purchasing (i) the Preferred
Shares, (ii) the shares of Common Stock or other securities issuable upon
conversion thereof (including, without limitation, upon conversion of any
Premium Amount (as defined in the Statement with Respect to Shares) and such
additional shares, if any, as are issuable as a result of the events
described in Articles VI.E. and VI.F. of the Statement with Respect to
Shares) (collectively, the "Conversion Shares"), (iii) the Warrants and (iv)
the shares of Common Stock or other securities issuable upon exercise of the
Warrants (the "Warrant Shares") (collectively, the "Securities" and
individually, a "Security") for its own account for investment only and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales registered under the 1933 Act.
e. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
f. Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and
the eligibility of the Buyer to acquire the Preferred Shares and Warrants.
Upon each conversion of Preferred Shares which is not exempt from
registration under the 1933 Act pursuant to Section 3(a)(9) thereof, and upon
each exercise of Warrants, the Buyer shall be deemed to have restated the
representations and warranties set forth in paragraphs 2(a) through (f) of
this Agreement on and as of the date of each conversion or exercise.
g. Information. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company and have received what the Buyer believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a high
degree of risk.
h. Governmental Review. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
i. Transfer or Resale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or
(b) the Buyer shall have delivered to the Company an opinion of counsel, in
form, substance and scope customary to opinions typically delivered in
transactions of this nature, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration or (c) sold pursuant to Rule 144 promulgated under the 1933 Act
(or a successor rule); (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such
Securities under the 1933 Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration Rights Agreement).
j. Legends. The Buyer understands that the certificates for the
Preferred Shares, Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of
counsel, in form, substance and scope customary to opinions
typically delivered in transactions of this nature, that
registration is not required under said Act or unless sold pursuant
to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it
is stamped, if, unless otherwise required by state securities laws, (a) the
sale of such Security is registered under the 1933 Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary to opinions typically delivered in transactions of this nature, to
the effect that (i) a public sale or transfer of such Security may be made
without registration under the 1933 Act or (ii) such Security can be sold
pursuant to Rule 144 under the 1933 Act (or a successor rule thereto) without
any restriction as to the number of Securities acquired as of a particular
date that can then be immediately sold. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable securities law.
k. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of
the Buyer enforceable in accordance with their terms.
l. Residency. The Buyer is a resident of the Cayman Islands.
m. Hedged Position. The Buyer has not established, and prior to
the Closing Date in respect of the First Closing, the Buyer will not
establish, a hedged position in anticipation of the transactions provided for
herein.
n. Compliance with Laws. The Buyer represents and warrants to
the Company that it has complied, and the Buyer covenants that it will
comply, with all applicable laws and regulations with respect to the
acquisition, holding and disposition of the Securities.
o. No Brokers. The Buyer has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Susquehanna Financial Group, Inc. ("SFG")
and Janney Montgomery Scott, Inc. ("JMS"), whose commissions and fees will be
paid by the Company as contemplated by Section 3(l) hereof.
p. Balance Sheet. The Buyer has delivered to the Company a true
and complete copy of its July 31, 1996 balance sheet. Such balance sheet
fairly presents in all material respects the consolidated financial position
of the Buyer as of the date thereof. The Buyer's financial position as of
the date of the First Closing has not materially deteriorated from its
financial position as of July 31, 1996.
q. Other Information. The Buyer has delivered to the Company a
true and complete copy of item 2 to the Schedule 13D filed by the Buyer with
the SEC with respect to its beneficial ownership of SC&T International, Inc.
Common Stock and the information provided therein is true and correct in all
material respects as of the date hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants (which representations and
warranties shall be true and correct on date hereof and on the date of each
closing hereunder as if made on each of such dates) to Buyer that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated, and has the
requisite corporate power to own its properties and to carry on its business
as now being conducted. The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary and where the failure so to qualify would have
a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on the operations, properties, condition (financial or
otherwise) or prospects of the Company and its subsidiaries, taken as a
whole, or on the transactions contemplated hereby.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Statement with Respect to Shares, the Registration Rights Agreement and the
Warrants, and to issue the Securities, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Preferred Shares and the
Warrants and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof) have
been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board or Directors, or its
stockholders is required with respect thereto, (iii) this Agreement has been
duly executed and delivered by the Company, and (iv) this Agreement
constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement and the Warrants, each of such instruments will
constitute, a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
c. Capitalization. As of September 30, 1996, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common
Stock of which 34,789,062 shares are issued and outstanding, 9,020,786 shares
are reserved for issuance pursuant to the Company's stock option plans, no
shares are reserved for issuance pursuant to securities (other than the
Preferred Shares and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 6,000,000 shares are reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in
Section 4(h) below); and (ii) 15,000,000 shares of preferred stock, of which
no shares are issued and outstanding (exclusive of the Preferred Shares).
All of such outstanding shares of capital stock have been, or upon issuance
will be, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to (x) preemptive rights or any other
similar rights of the securityholders of the Company under any statute to
which the Company is subject or pursuant to the Company's Articles of
Incorporation (as defined below) or By-laws (as defined below) or through any
action or failure to act of the Company or (y) any liens or encumbrances
imposed through the actions or failure to act of the Company. Except as
disclosed in Schedule 3(c), as of September 30, 1996, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or
any of its subsidiaries is or will become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries. Except as disclosed
in Schedule 3(c), there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any
of its or their securities under the 1933 Act (except the Registration Rights
Agreement). Since September 30, 1996, except as disclosed in Schedule 3(c),
neither the Company nor any of its subsidiaries has issued any shares of
capital stock (other than shares of Common Stock issuable upon exercise of
stock options) or any options, warrants, scrip or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
subsidiaries (other than options issued under stock option plans). The
Company has furnished to the Buyer true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("Articles of
Incorporation"), the Company's By-laws, as in effect on the date hereof (the
"By-laws"). The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive, President or
Chief Financial Officer on behalf of the Company as of each Closing Date.
d. Issuance of Shares. The Preferred Shares, Conversion Shares
and Warrant Shares are duly authorized and, upon issuance in accordance with
the terms of this Agreement or the Statement with Respect to Shares, upon
conversion of the Preferred Shares and upon proper exercise of the Warrants,
as applicable, the Preferred Shares, Conversion Shares and Warrant Shares
shall be validly issued, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of securityholders of
the Company (other than any such rights created by Buyer).
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby
and thereby (including, without limitation, the issuance and reservation for
issuance of the Preferred Shares, Conversion Shares and Warrant Shares) will
not (i) result in a violation of the Articles of Incorporation 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, or
otherwise result in an adverse change in the terms currently in effect under,
any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations, changes and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its subsidiaries is in violation of its
Articles of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both would put the Company
or any of its subsidiaries in default) under, and neither the Company nor
any of its subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration
or cancellation of, or otherwise result in an adverse change in the terms
currently in effect under, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible
defaults as would not, individually or in the aggregate, have a Material
Adverse Effect. The businesses of the Company and its subsidiaries are not
being conducted, and shall not be conducted so long as a Buyer owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement or as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency
or any other person in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement or the
Warrants in accordance with the terms hereof or thereof, other than the
filing of the Statement with Respect to Shares with the Pennsylvania
Department of State.
f. SEC Documents, Financial Statements. Since August 1, 1994,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act of 1934, as amended (the "1934 Act") on a
timely basis (all of the foregoing filed prior to the date hereof, together
with all reports, schedules, forms, statements and other documents filed by
the Company's subsidiaries with the SEC prior to the date hereof, and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to Buyer true and complete copies of its August 3, 1996 financial
statements, and the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the consolidated
financial statements of the Company dated as of August 3, 1996 which were
included in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth or disclosed in the financial statements
of the Company dated as of August 3, 1996 or in the SEC Documents, the
Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to August
3, 1996 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company.
g. Absence of Certain Changes. Since February 3, 1996, there has
been no (and no event has occurred which could reasonably be expected to have
a future) material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations
of the Company and its subsidiaries, taken as a whole, except as disclosed in
Schedule 3(g), the SEC Documents or the August 3, 1996 financial statements
of the Company.
h. Absence of Litigation. Other than as disclosed in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of
its subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, of a nature which would be required to be disclosed in the SEC
Documents pursuant to applicable securities laws and regulations.
i. Disclosure. All information relating to or concerning the
Company set forth in this Agreement and provided to the Buyer pursuant to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the
Company has not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the circumstances under
which they were made, not misleading.
j. Acknowledgment Regarding Buyer's Purchase of Preferred Shares
and Warrants. The Company acknowledges and agrees that the Buyer is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer or any
of its representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Buyer's purchase
of the Preferred Shares and Warrants. The Company further represents to each
Buyer that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its representatives.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offer to
buy any security under circumstances that would require registration under
the 1933 Act of the issuance of the Securities to the Buyer.
l. No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with SFG and JMS, whose commissions and fees will
be paid for by the Company. At the First Closing, the Company shall pay SFG
a fee equal to $200,000. At the Second Closing, or if this Agreement is
terminated at any time prior to the Second Closing (other than because of a
breach by the Buyer of any of its representations, warranties or covenants
set forth herein), the Company shall pay SFG and JMS, in the aggregate, a fee
equal to $400,000, of which amount $300,000 shall be paid to JMS and $100,000
shall be paid to SFG.
m. Listing. The Common Stock is authorized for quotation on
NASDAQ-NM and trading in the Common Stock (or on NASDAQ-NM generally) is not
currently suspended by the SEC or NASDAQ. Further, after reasonable
investigation of the NASDAQ-NM listing requirements, the Company does not
have any knowledge, reason to know or notice that the Common Stock may not be
listed on NASDAQ-NM or that the SEC or NASDAQ plans to suspend or is
considering suspending trading in the Common Stock (or in NASDAQ-NM
generally).
4. COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide
a copy thereof to the Buyer promptly after such filing. The Company shall,
on or before each Closing Date, use it best efforts to take such action as
the Company shall reasonably determine is necessary to qualify the Securities
for, or obtain exemption for the Securities for, sale to the Buyer at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States, and shall provide
evidence of any such action so taken to the Buyer on or prior to such Closing
Date.
c. Reporting Status. So long as the Buyer beneficially owns any
of the Securities, the Company shall use its best efforts to timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares for working capital and general corporate
purposes and shall not, directly or indirectly, use such proceeds for any
loan to or investment in any other corporation, partnership, enterprise or
other person (except in connection with its direct or indirect subsidiaries).
e. Additional Equity Capital; Right of First Offer. The Company
will not conduct any equity financing (including debt with an equity
component) during the period beginning on the date hereof and ending two
hundred seventy (270) calendar days from the date hereof (the "Offer Period")
unless it shall have first conducted good faith negotiations with the Buyer
for at least twenty-one (21) days to sell to the Buyer securities on such
terms and in such amounts that it intends to otherwise offer to a third party
(the "Offered Securities"). The Company shall have no obligation to sell the
Offered Securities to the Buyer except pursuant to definitive purchase
documentation mutually acceptable to the Company and the Buyer in their sole
discretion. If the Company and the Buyer fail to reach an agreement with
respect to the sale of all of the Offered Securities within such twenty-one
(21) day period, the Company shall have forty-five (45) days from the
expiration of such twenty-one (21) day period to sell or enter into an
agreement (pursuant to which the sale of the remaining securities covered
thereby shall be closed, if at all, within seventy-five (75) days (or up to
105 days with the consent of the Buyer, which consent will not be
unreasonably withheld) from the date of said agreement) to sell an aggregate
amount of securities not to exceed the amount of Offered Securities offered
to the Buyer at a price and upon general terms no more favorable in any
material respect to the purchaser(s) of such securities than those last
offered to the Buyer by the Company. If the Company has not so sold such
securities or entered into an agreement to sell such securities within said
forty-five (45) day period (or sold and issued such remaining securities in
accordance with the foregoing within seventy-five (75) days from the date of
said agreement), the Company shall not thereafter conduct any equity
financing (including debt with an equity component) during the Offer Period
without first conducting good faith negotiations with the Buyer as provided
above (the transactions and limitations referred to in this and the
immediately preceding sentences in this Section 4(e) are each collectively
referred to as the "Capital Raising Transactions" and "Capital Raising
Limitations," respectively).
The Capital Raising Transactions and Limitations shall not apply to any
transaction involving the Company's commercial banking or vendor financing
arrangements or issuances of securities in connection with a merger,
consolidation or sale or acquisition of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not
to raise equity capital), or in connection with the disposition or
acquisition of a business, product or license by the Company or exercise of
options by current or former employees, consultants, franchisees, customers
or directors. The Capital Raising Transactions and Limitations also shall
not apply to the issuance of securities in underwritten public offerings or
the issuance of securities or the incurrence of indebtedness by a subsidiary
of the Company or upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or
to the grant of options, warrants or other securities to employees, former
employees, consultants, franchisees, customers, directors and affiliates
under any Company stock option or restricted stock plan.
f. Expenses. SFG acknowledges the receipt of the sum of Fifty
Thousand Dollars ($50,000) from the Company, as a non-accountable expense
allowance to be applied by SFG against all expenses incurred by it and the
Buyer in connection with the due diligence investigation with respect to the
Company and the negotiation, preparation, execution, delivery and performance
of this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, the Buyer's and SFG's attorneys'
fees and expenses. The Company shall have no further obligation to SFG, JMS
or Buyer on account of any expenses incurred by any of them under or in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith or that certain document captioned "Term Sheet" dated
July 29, 1996 by and between the Company and SFG.
g. Financial Information. The Company agrees to send the
following reports to the Buyer until the Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K; and (ii) within one (1) day after
release, copies of all press releases issued by the Company or any of its
subsidiaries. The Buyer agrees to notify the Company promptly upon the
transfer, assignment or sale of all of the Securities.
h. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and the Preferred Shares then issuable hereunder and
issuance of the Conversion Shares in connection therewith and the full
exercise of the Warrants then outstanding and then issuable hereunder and the
issuance of the Warrant Shares in connection therewith (based on the
Conversion Price of the Preferred Shares and the exercise price of the
Warrants in effect from time to time). The Company shall use its best
efforts to ensure that at the end of each fiscal quarter commencing with the
fiscal quarter in which this Agreement is executed, the number of shares of
Common Stock so reserved for issuance shall be no less than two (2) times the
number that is actually issuable upon full conversion of the Preferred Shares
then outstanding plus one (1) times the number that is actually issuable upon
full exercise of the Warrants then outstanding (based on the Conversion Price
of the Preferred Shares and the exercise price of the Warrants in effect on
the last Trading Day of such fiscal quarter); provided, however, that, so
long as the Preferred Shares or Warrants are outstanding, the Company shall
not (except in relation to a reduction in the number of shares of Common
Stock required to be reserved as a result of the conversion or exercise of
Preferred Stock or Warrants, respectively) (x) effectuate any reduction in
the number of shares of Common Stock so reserved for issuance below such
number that the Company would have been required to reserve for issuance
pursuant to this sentence based on the lowest daily Closing Bid Price of the
Common Stock during the ten (10) Trading Day Period ending on the last
Trading Day immediately preceding the effective date of such reduction or (y)
remove from reserved status any of the 6,000,000 shares of Common Stock
initially reserved for issuance upon conversion of the Preferred Shares and
full exercise of the Warrants.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall use its best
efforts to maintain, until no Preferred Shares or Warrants are outstanding
and so long as any other shares of Common Stock shall be so listed (or, if
earlier, until such time as the outstanding Common Stock is acquired or
converted pursuant to a merger, going private transaction, or other
transaction which results in the deregistration of the Common Stock under
Section 12 of the Securities Exchange Act of 1934), such listing of all
Conversion Shares from time to time issuable upon conversion of the Preferred
Shares and Warrant Shares issuable upon exercise of the Warrants. The
Company will use its best efforts to take all action necessary to continue
the listing and trading of its Common Stock on the NASDAQ National Market
("NASDAQ-NM"), the New York Stock Exchange ("NYSE") or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and such exchanges, as applicable.
j. Corporate Existence. So long as the Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall use its best efforts to
maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on NASDAQ-NM, NYSE or AMEX, and
except in the event of a liquidation or dissolution of the Company.
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall instruct its transfer agent to issue certificates,
registered in the name of the Buyer or its nominee, for the Conversion Shares
and Warrant Shares in such denominations as specified from time to time by
the Buyer to the Company upon conversion of the Preferred Shares or exercise
of the Warrants. Prior to registration of the Conversion Shares and Warrant
Shares for resale under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than such instructions referred to in this
Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof, in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares for resale under the
1933 Act, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable securities laws upon resale of the Securities.
If the Buyer provides the Company with an opinion of counsel, in form,
substance and scope customary to opinions typically delivered in transactions
of this nature, that registration of a resale by such Buyer of any of the
Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares and Warrant Shares
promptly instruct its transfer agent to issue one or more certificates in
such name and in such denominations as specified by the Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell the Preferred
Shares and the First Warrants to the Buyer at the First Closing, to issue and
sell the Preferred Shares and, under certain circumstances, the Second
Warrants at the Second Closing, as applicable, is subject to the
satisfaction, at or before the Closing Date in respect of such closing, of
each of the following conditions thereto, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
With respect to the First Closing and the Second Closing:
(i) The Buyer shall have executed this Agreement and the
Registration Rights Agreement and a mutual release in form reasonably
satisfactory to Buyer (the "Mutual Release"), and delivered the same to the
Company.
(ii) The Buyer shall have delivered the applicable Purchase Price
in accordance with Section 1(b) above.
(iii) The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and as of
each Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date which is other than the Closing
Date), and the Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Buyer at or
prior to each Closing Date.
(iv) SFG shall have delivered a letter to the Company at the First
Closing, in form and substance reasonably satisfactory to the Company, with
respect to certain matters relating to the financial condition of the Buyer.
7. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE.
--------------------------------------------
The obligation of the Buyer hereunder to purchase the Preferred Shares
and the First Warrants at the First Closing, to purchase the Preferred Shares
and, under certain circumstances, the Second Warrants at the Second Closing,
as applicable, is subject to the satisfaction, at or before the Closing Date
in respect of such closing of each of the following conditions, provided that
these conditions are for the Buyer's sole benefit and may be waived by the
Buyer at any time in its sole discretion:
a. With respect to the First Closing and the Second Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement and the Mutual Release, and delivered the same
to the Buyer.
(ii) The Statement with Respect to Shares shall have been
accepted for filing with the Secretary of State of the Commonwealth of
Pennsylvania.
(iii) The Company shall have delivered to the Buyer duly
executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and First Warrants (with respect to the
First Closing) or, under certain circumstances, Second Warrants (with respect
to the Second Closing) being so purchased in accordance with Section 1(b)
above.
(iv) The Common Stock shall be authorized for quotation on
NASDAQ-NM, and trading in the Common Stock (or on NASDAQ-NM generally) shall
not have been suspended by the SEC or NASDAQ. Further, the Company shall,
after reasonable investigation of the NASDAQ-NM listing requirements, have no
knowledge, reason to know or notice that the Common Stock may not be listed
on NASDAQ-NM or that the SEC or NASDAQ plans to suspend or is considering
suspending trading in the Common Stock (or on NASDAQ-NM generally).
(v) 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 each Closing Date as though made at such time (except for representations
and warranties that speak as of a specific date which is other than the
Closing Date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by the Company
at or prior to each Closing Date. The Buyer shall have received a
certificate, executed by the chief financial officer of the Company, dated as
of each Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by the Buyer.
(vi) The Buyer shall have received an opinion of the Company's
counsel, dated as of each Closing Date, in substantially the same form as
Exhibit "D" attached hereto.
(vii) The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of each Closing Date.
(viii) The Company shall have permitted inspection by
Klehr, Harrison, Harvey, Branzburg & Ellers, at least two (2) business days
prior to the applicable Closing Date, of the certificates representing the
Preferred Shares to be issued on such Closing Date.
b. With respect to the Second Closing:
(i) The Registration Statement registering (i) the Conversion
Shares issuable upon conversion of the Preferred Shares issued or issuable at
the First Closing and the Second Closing, (ii) the Warrant Shares issuable
upon exercise of the First Warrants issued at the First Closing and (iii) the
Warrant Shares issuable upon exercise of the Second Warrants issuable on the
Second Warrant Issue Date, shall be effective within 165 days of the filing
of such Registration Statement and no stop order shall have been issued in
respect thereof.
(ii) The Company shall not have failed, and shall not have
announced that it will refuse, to issue shares of Common Stock to any holder
of Preferred Stock upon exercise by a holder of its conversion rights in
accordance with the Statement with Respect to Shares.
(iii) The Company or any subsidiary of the Company shall
not have made an assignment for the benefit of creditors, or applied for or
consented to the appointment of a receiver or trustee for it or for all or
substantially all of its property or business; or such a receiver or trustee
shall not otherwise have been appointed.
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under bankruptcy law or any law
for relief of debtors shall not have been instituted by or against the
Company or any subsidiary of the Company.
8. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the principles of conflict of laws. The parties hereto
hereby submit to the exclusive jurisdiction of the United States Federal
Courts located in Philadelphia, Pennsylvania with respect to any dispute
arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of,
this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
f. Notices. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier, in each
case addressed to a party. Any such notice may be sent by facsimile, but
shall in such case be subsequently confirmed by a writing personally
delivered or sent by certified or registered mail or by recognized overnight
mail courier, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attention: Chief Financial Officer
Telecopy: (610) 458-0599
With copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Telecopy: (215) 981-4750
Attn: Barry M. Abelson, Esquire
With copy to:
Steven M. Kawalick
General Counsel
Intelligent Electronics, Inc.
5700 S. Quebec Street
Englewood, CO 80111
Telecopy: (303) 486-8939
If to the Buyer:
Capital Ventures International
c/o Bala International, Inc.
401 City Line Avenue
Suite 220
Bala Cynwyd, PA 19004-1122
Telecopy: (610) 617-2707
Attention: Andrew Frost
With copy to:
Joel Greenberg, Esq.
401 City Line Avenue
Suite 220
Bala Cynwyd, PA 19004-1122
Telecopy: (610) 617-2707
And:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Stephen T. Burdumy, Esquire
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, the Buyer may assign its rights hereunder to
any of its "affiliates," as that term is defined under the 1934 Act, (and any
such assignment prior to the Second Closing, shall require the prior written
consent of the Company), provided, that no assignment shall be valid unless
such assignee joins in this Agreement and agrees to be treated as the "Buyer"
for all purposes of this Agreement; provided, further, that any such
assignment by the Buyer shall not relieve the Buyer of any liability under
this Agreement.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company
and the Buyer and their respective agreements and covenants set forth in
Sections 2, 3, 4, 5 and 8 shall survive the closings hereunder for a period
of three (3) years and shall not be affected by any due diligence
investigation conducted by or on behalf of the Buyer or the Company,
provided, however, that the Company's covenants contained in Sections 4(c)
and 4(h)-(j) shall survive such closings indefinitely and the Buyer's
representations contained in Section 2(f) shall survive such closings until
such time as none of the Preferred Shares or Warrant are outstanding. The
Company agrees to indemnify and hold harmless the Buyer for loss or damage
arising as a result of or related to any breach by the Company of any of its
representations or covenants set forth in Section 3, 4, or 5 hereof,
including advancement of expenses (including attorneys fees and expenses) as
they are incurred. The Buyer agrees to indemnify and hold harmless the
Company for loss or damage arising as a result of or related to any breach by
the Buyer of its obligation set forth in Section 1(b) hereof, including
advancement of expenses (including attorneys fees and expenses) as they are
incurred.
j. Publicity. The Company and the Buyer shall have the right to
review and approve before issuance any press releases, SEC, NASDAQ or NASD
filings, or any other public statements with respect to the issuance of the
Preferred Stock and the Warrants hereunder. The obligations under this
paragraph (j) shall expire and be of no further force or effect from and
after 30 days following the Second Warrant Issuance Date.
k. Further Assurances. Each party shall use its best efforts do
and perform, or cause to be done and performed, all such further acts and
things, and shall use its best efforts execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated hereby.
l. Termination. In the event that the First Closing shall not
have occurred on or before fifteen (15) business days from the date hereof,
unless the parties agree otherwise, this Agreement shall terminate at the
close of business on such date, and neither party shall have any further
obligations to the other pursuant to this Agreement. If the Second Closing
shall not have occurred on or before 260 days after the initial filing of the
Registration Statement, unless the parties agree otherwise, this Agreement
shall terminate on the close of business on such date, and neither party
shall have any further obligations to the other with respect to the shares of
Preferred Stock and the Second Warrants to be issued and sold at the Second
Closing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Thomas J. Coffey
---------------------------------
Name: Thomas J. Coffey
Its: Sr. V.P. and CFO
BUYER:
CAPITAL VENTURES INTERNATIONAL
By: Bala International, Inc., as authorized agent
By: /s/ Andrew Frost
-------------------------------
Name: Andrew Frost
Its: Director
EXHIBIT 99.2
Filed with the Department of State on October 16, 1996
Entity Number 751424
STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15 Pa.C.S. Section 1522(b)
(relating to statement with respect to shares), the undersigned corporation,
desiring to state the designation and voting rights, preferences, limitations,
and special rights, if any, of a class or series of its shares, hereby states
that:
1. The name of the corporation is Intelligent Electronics, Inc.
2. (Check and complete one of the following):
_____ The resolution amending the Articles under 15 Pa.C.S. Section
1522(b) (relating to divisions and determinations by the board
set forth in full, is as follows:
__X__ The resolution amending the Articles under 15 Pa.C.S. Section
1522(b) is set forth in full in Exhibit A attached hereto and
made a part hereof.
3. The aggregate number of shares of such class or series established and
designated by (a) such resolution, (b) all prior statements, if any,
filed under 15 Pa.C.S. Section 1522 or corresponding provisions of
prior law with respect thereto, and (c) any other provision of the
Articles is 200,000 shares.
4. The resolution was adopted by the Board of Directors or an authorized
committee thereof on: 10/16/96
5. (Check, and if appropriate complete, one of the following):
__X__ The resolution shall be effective upon the filing this statement
with respect to shares in the Department of State.
_____ The resolution shall be effective on: ____________ at _________
Date Hour
IN TESTIMONY WHEREOF, the undersigned corporation has caused this
statement to be signed by a duly authorized officer thereof this 16th
day of October 19 96
INTELLIGENT ELECTRONICS, INC.
-------------------------------------
(Name of Corporation)
By: /s/ Thomas J. Coffey
----------------------------------
(Signature)
TITLE: Thomas J. Coffey, Chief Financial Officer
-----------------------------------------
Officer
<PAGE>
EXHIBIT A TO STATEMENT WITH RESPECT TO SHARES -
DOMESTIC BUSINESS CORPORATION
SERIES B CONVERTIBLE PREFERRED STOCK
OF
INTELLIGENT ELECTRONICS, INC.
Intelligent Electronics, Inc., a corporation organized and existing
under the Business Corporation Law of the Commonwealth of Pennsylvania (the
"Corporation"), hereby certifies that the following resolutions were
adopted by the Board of Directors of the Corporation on October 15, 1996
pursuant to authority of the Board of Directors as required by Section
1522(b) of the Pennsylvania Business Corporation Law ("PBCL"):
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Articles of Incorporation
(the "Articles of Incorporation"), the Board of Directors hereby authorizes
a series of the Corporation's previously authorized Preferred Stock, par
value $50.00 per share (the "Preferred Stock"), and hereby states the
designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series B Convertible Preferred Stock:
I. Designation and Amount
----------------------
The designation of this series, which consists of 15,000 shares of
Preferred Stock, is Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be One Thousand Dollars
($1,000) per share (the "Stated Value").
II. Rank
----
The Series B Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.01 per share (together with any rights attached
thereto issued or issuable pursuant to the Rights Plan (as defined herein),
the "Common Stock"); (ii) prior to any class or series of capital stock of
the Corporation hereafter created (unless, with the consent of the holders
of Series B Preferred Stock obtained in accordance with Article IX hereof,
such class or series of capital stock specifically, by its terms, ranks
senior to or pari passu with the Series B Preferred Stock) (collectively,
with the Common Stock, "Junior Securities"); (iii) pari passu with any
class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series B Preferred Stock obtained in
accordance with Article IX hereof) specifically ranking, by its terms, on
parity with the Series B Preferred Stock ("Pari Passu Securities"); and
(iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series B Preferred
Stock obtained in accordance with Article IX hereof) specifically ranking,
by its terms, senior to the Series B Preferred Stock ("Senior Securities"),
in each case as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
III. No Dividends
------------
The Series B Preferred Stock will bear no dividends, and the holders
of shares of Series B Preferred Stock shall not be entitled to receive
dividends on the Series B Preferred Stock.
IV. Liquidation Preference
----------------------
A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order
for relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due, or
if a decree or order for relief in respect of the Corporation shall be
entered by a court having jurisdiction in the premises in an involuntary
case under the Federal bankruptcy laws or any other applicable Federal or
State bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
other similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and
any such decree or order shall be unstayed and in effect for a period of
sixty (60) consecutive days and, on account of any such event (a
"Liquidation Event"), the Corporation shall liquidate, dissolve or wind up,
or if the Corporation shall otherwise liquidate, dissolve or wind up, no
distribution shall be made to the holders of any shares of capital stock of
the Corporation (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto, the holders of shares of
Series B Preferred Stock, subject to Article VI, shall have received the
Liquidation Preference (as defined in Article IV.C) with respect to each
share of Series B Preferred Stock. If upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of
the Series B Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series B Preferred
Stock and the Pari Passu Securities shall be distributed ratably among such
shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on
all such shares.
B. At the option of any holder of Series B Preferred Stock, the
sale, conveyance or disposition of all or substantially all of the assets
of the Corporation, the effectuation of a transaction or series of related
transactions approved by the Corporation's Board of Directors through
either a resolution of the Board or a redemption of rights granted under
the Rights Agreement dated as of March 22, 1996 by and between the Company
and Chemical Mellon Shareholder Services L.L.C. or any successor agreement
(the "Rights Plan") in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined
below) or Persons when the Corporation is not the survivor shall either:
(i) be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Article IV; or (ii) be treated pursuant to
Article VI.C(c) hereof. "Person" shall mean any individual, corporation,
limited liability company, partnership, association, trust or other entity
or organization.
C. For purposes hereof, the "Liquidation Preference" with respect
to a share of the Series B Preferred Stock shall mean an amount equal to the
sum of the Stated Value thereof plus an amount equal to six percent (6%)
per annum of such Stated Value for the period beginning on the date of
issuance of such share and ending on the date of final distribution to the
holder thereof. The Liquidation Preference with respect to any Pari Passu
Securities shall be as set forth in the Statement with Respect to Shares
filed in respect thereof.
V. Cash Redemption of Premium by Corporation;
Redemption of Series B Preferred Stock
-----------------------------------------
A. The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion pursuant to Article VI.E or in the
event of an Automatic Conversion (as defined in Article VII) effected in
accordance with Article VII hereof, to redeem all or any portion of the
Premium Amount (as defined in Article VI.A below) subject to such
conversion for a sum of cash equal to the amount of the Premium Amount
being so redeemed; provided, however, that upon receipt of a Notice of
Conversion, the Corporation shall notify such holder, on or before the
third business day following the Corporation's receipt of such Notice of
Conversion, as to whether it will elect to redeem such Premium Amount in
cash. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears
on the record books of the Corporation (or at such other address as such
holder shall hereafter give to the Corporation by written notice). In the
event the Corporation elects, pursuant to this Article V.A, to redeem all
or any portion of the Premium Amount in cash and fails to pay such holder
the applicable redemption amount to which such holder is entitled by
depositing a check in the U.S. Mail to such holder within seven (7)
business days of receipt by the Corporation of a Conversion Notice (in the
case of a redemption in connection with an Optional Conversion) or
October 15, 2001 (in the case of a redemption in connection with an
Automatic Conversion), the Corporation shall forfeit its right to redeem in
cash such Premium Amount and 110% of such Premium Amount shall be converted
into shares of Common Stock in accordance with Article VI hereof.
B. If (i) the Corporation fails to issue shares of Common Stock (or
makes an announcement that it will not issue shares of Common Stock) to any
holder of Series B Preferred Stock upon exercise by a holder of its
conversion rights in accordance with the terms of this Statement with
Respect to Shares, (ii) fails to transfer any certificate for shares of
Common Stock issued to the holders upon conversion of the Series B
Preferred Stock and when required by this Statement with Respect to Shares
or the Registration Rights Agreement, dated as of October 15, 1996, by and
among the Corporation and the other signatory thereto (the "Registration
Rights Agreement") or (iii) fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and when
required by this Statement with Respect to Shares, the Securities Purchase
Agreement dated as of October 15, 1996, by and between the Corporation and
the other signatory thereto (the "Purchase Agreement") or the Registration
Rights Agreement, and any such failure described in clauses (i), (ii) or
(iii) above shall continue uncured (or an announcement shall not be
retracted) for twenty (20) business days after the Corporation shall have
been notified thereof in writing by the holder (or, with respect to clause
(i) above, such failure continues for a period of at least ninety (90) days
if such failure is solely as a result of the circumstances governed by the
second paragraph of Article VI.F below, and the Corporation is using all
commercially reasonable efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable) (each of the events described in
clauses (i) - (iii) above after expiration of the applicable cure period
being an "Optional Redemption Event"); then, upon the occurrence and during
the continuation of any Optional Redemption Event, at the option of the
holders of at least 50% of the then outstanding shares of Series B
Preferred Stock whose rights have been violated as described in clauses
(i), (ii) or (iii) above by written notice (the "Optional Redemption
Notice") to the Corporation of such Optional Redemption Event, the
Corporation shall purchase all of the shares of Series B Preferred Stock
then held by the holders whose rights have been violated as aforesaid for
an amount per share (the "Optional Redemption Amount") equal to the
Redemption Price in effect at the time of the redemption hereunder,
provided that such purchase would not constitute (with or without notice or
the passage of time) a default under any agreement or commitment to which
the Corporation is a party. If such a default would result from such a
purchase, no such purchase shall be required hereunder.
The "Redemption Price" with respect to each share of Series B
Preferred Stock shall mean the amount equal to the sum of (i) the Stated
Value thereof plus (ii) the amount equal to six percent (6%) per annum of
such Stated Value for the period beginning on the issuance of such share
and ending on the effective date of redemption hereunder.
The holder of any shares of Series B Preferred Stock being redeemed
pursuant to an Optional Redemption Event shall not be entitled to receive
payment of the Optional Redemption Price for such shares until such holder
shall cause to be delivered to the Corporation or its designated transfer
agent (i) the certificates representing such shares of Series B Preferred
Stock and (ii) appropriate endorsements and transfer documents sufficient
to transfer such shares of Series B Preferred Stock to the Corporation free
of any adverse interest.
At any time after an Optional Redemption Price becomes due, the
Corporation may deposit for the pro rata benefit of the holders of the
shares of Series B Preferred Stock to be redeemed the funds necessary for
such redemption with a bank or trust company having a capital and surplus
of at least $100,000,000. Any monies so deposited by the Corporation and
unclaimed at the end of two years from the date designated for such
redemption shall revert to the general funds of the Corporation. After
such reversion, such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust
company shall be relieved of all responsibility in respect thereof to such
holder and such holder shall look only to the Corporation for the payment
of the Optional Redemption Price. Any interest accrued on funds so
deposited pursuant to this paragraph shall be paid from time to time to the
Corporation for its own account.
Upon the deposit of funds pursuant to the preceding paragraph in
respect of shares of Series B Preferred Stock to be redeemed,
notwithstanding that any certificates for such shares shall not have been
surrendered for cancellation, the Optional Redemption Price shall be fixed
and no longer be deemed outstanding, and such shares shall be deemed
redeemed for all purposes, and all rights of the holders of the shares of
Series B Preferred Stock to be redeemed shall cease and terminate,
excepting only the right to receive the Optional Redemption Price therefor,
without interest.
If the Corporation fails to pay the Optional Redemption Amount for
each share or deposit such amount with a bank or trust company as set forth
above within ten (10) business days of written notice that such amount is
due and payable, then each holder of Series B Preferred Stock shall have
the right at any time, so long as the Optional Redemption Event continues,
to require the Corporation, upon written notice, to immediately issue (in
accordance with the terms of Article VI below), in lieu of the Optional
Redemption Amount with respect to each outstanding share of Series B
Preferred Stock held by such holder, the number of shares of Common Stock
of the Corporation equal to the Optional Redemption Amount divided by the
Conversion Price then in effect.
VI. Conversion at the Option of the Holder
--------------------------------------
A. Each holder of shares of Series B Preferred Stock may, at its
option at any time and from time to time, upon surrender of the
certificates therefor, convert any or all of its shares of Series B
Preferred Stock into Common Stock as follows (an "Optional Conversion").
Each share of Series B Preferred Stock shall be convertible into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (x) the sum of (I) the Stated Value thereof, plus
(II) unless the Corporation has timely redeemed such Premium Amount in cash
in accordance with Article V.A, the product of the Stated Value, multiplied
by .06, multiplied by a fraction, the numerator of which is "N" and the
denominator of which is 365 (where "N" equals the number of days elapsed
from the date of issuance of the Series B Preferred Stock to and including
the Conversion Date (as defined below)) (the "Premium Amount"), multiplied
by 1.10 if required by the last sentence of Article V.A, by (y) the then
effective Conversion Price (as defined below); provided, however, that, at
any time prior to the delivery of an Optional Redemption Notice to the
Corporation pursuant to Article V.B., in no event shall a holder of shares
of Series B Preferred Stock be entitled to convert any such shares in
excess of that number of shares upon conversion of which the sum of (x) the
number of shares of Common Stock beneficially owned by the holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series B Preferred Stock or the unexercised or unconverted
portion of any other securities of the Corporation (including, without
limitation, the Warrants issued pursuant to the Purchase Agreement) subject
to a limitation on conversion or exercise analogous to the limitations
contained herein) and (y) the number of shares of Common Stock issuable
upon the conversion of the shares of Series B Preferred Stock with respect
to which the determination of this proviso is being made would result in
beneficial ownership by a holder and such holder's affiliates of more than
4.9% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (x) of such proviso. The restriction contained
in the proviso of this Article V.A shall not be altered, amended, deleted
or changed in any manner whatsoever unless the holders of a majority of the
Common Stock shall approve such alteration, amendment, deletion or change.
The delivery by any holder to the Corporation of a Notice of Conversion (as
defined in paragraph VI.E below) shall constitute the representation and
warranty of such holder to the Corporation that such holder is entitled to
convert the shares of Series B Preferred Stock to which such Notice of
Conversion relates in compliance with this paragraph, upon which the
Corporation shall be entitled to rely without investigation.
B. The "Conversion Price" shall be the lesser of (i) the average of
the closing bid prices for the Common Stock as reported by the NASDAQ
National Market ("NASDAQ-NM"), or on the principal securities exchange or
other securities market on which the Common Stock is then being traded, for
the five (5) consecutive Trading Days ending one Trading Day prior to the
Conversion Date (as defined below) (the "Variable Conversion Price"), and
(ii) $9.175 (the "Fixed Conversion Price") (subject to equitable
adjustments from time to time pursuant to the antidilution provisions of
Article VI.C below). "Trading Day" shall mean any day on which the Common
Stock is traded for any period on NASDAQ-NM, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
C. The Conversion Price shall be subject to adjustment from time to
time as follows:
(a) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If at any time when any Series B Preferred Stock is
issued and outstanding, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, reclassification or other
similar event, by a below-Market Price (as defined in Article VI.D) rights
offering of securities of the Corporation to all holders of Common Stock or
by an exercise of rights granted under the Rights Plan (a "Rights Plan
Exercise") (unless such rights become exercisable as a result of the Common
Stock ownership of Capital Ventures International, Susquehanna Financial
Group, Inc. and/or their respective affiliates), the Fixed Conversion Price
shall be proportionately and equitably reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately and equitably increased.
In such event, the Corporation shall notify its transfer agent ("Transfer
Agent") of such change as promptly as reasonably practicable, and the
Corporation shall use its best efforts to notify the Transfer Agent of such
change on or before the effective date thereof.
(b) Adjustment to Variable Conversion Price. If at any time
when Series B Preferred Stock is issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock
split, stock dividend, combination, reclassification or other similar
event, by a below-Market Price rights offering to all holders of Common
Stock or by a Rights Plan Exercise (unless such rights become exercisable
as a result of the Common Stock ownership of Capital Ventures
International, Susquehanna Financial Group, Inc. and/or their respective
affiliates), which event shall have taken place during the reference period
for determination of the Conversion Price for any Optional Conversion or
Automatic Conversion of the Series B Preferred Stock, then the Variable
Conversion Price shall be recalculated by the Corporation in good faith,
giving appropriate and equitable effect to the stock split, stock dividend,
combination, reclassification or other similar event, the below-Market
Price rights offering or the Rights Plan Exercise, for all five (5) Trading
Days immediately preceding the Conversion Date. In such event, the
Corporation shall notify the Transfer Agent of such change as promptly as
reasonably practicable, and the Corporation shall use its best efforts to
notify the Transfer Agent of such change on or before the effective date
thereof.
(c) Adjustment Due to Merger, Consolidation, Etc. If, at
any time when any Series B Preferred Stock is issued and outstanding and prior
to the conversion of all Series B Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of
Common Stock of the Corporation shall be changed into the same or a
different number of shares of another class or classes of stock or
securities of the Corporation or another entity, or in case of any sale or
conveyance of all or substantially all of the assets of the Corporation
other than in connection with a plan of complete liquidation of the
Corporation, then the holders of Series B Preferred Stock shall thereafter
have the right to receive upon conversion of the Series B Preferred Stock,
upon the bases and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities or assets which the holders of Series B
Preferred Stock would have been entitled to receive in such transaction had
the Series B Preferred Stock been converted in full immediately prior to
such transaction, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the holders of Series B
Preferred Stock to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable
upon the conversion hereof. The Corporation shall not effect any
transaction described in this subsection (c) unless (a) it first gives, to
the extent practical, thirty (30) days' prior written notice (but in any
event at least fifteen (15) business days prior written notice) of such
merger, consolidation, exchange of shares, recapitalization, reorganization
or other similar event or sale of assets (during which time the holders of
Series B Preferred Stock shall be entitled to convert the Series B
Preferred Stock) and (b) the resulting successor or acquiring entity (if
not the Corporation) assumes by written instrument the obligations of this
subsection (c).
(d) [Intentionally Omitted]
(e) Treatment of Unexercised Rights. If, in any case, the
total number of shares of Common Stock issuable upon exercise of rights issued
pursuant to any below-Market Price rights offering for which an adjustment
to the Conversion Price was made under Article VI.C.(a) or VI.C.(b) hereof
or the Rights Plan is not, in fact, issued and such rights shall have been
redeemed, expired or terminated, the Conversion Price then in effect will
be readjusted to the Conversion Price which would have been in effect at
the time of such expiration or termination had such rights, to the extent
outstanding immediately prior to such redemption, expiration or termination
(other than in respect of the actual number of shares of Common Stock
issued upon exercise thereof), never been issued.
D. "Market Price," as of any date, (i) means the average of the
closing bid prices for the shares of Common Stock as reported by NASDAQ-NM
for the five (5) Trading Days immediately preceding such date, or (ii) if
NASDAQ-NM is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the principal
trading market for the Common Stock during the same period, or (iii) if
market value cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the average fair market value as
reasonably determined by a nationally recognized investment banking firm
selected by the Corporation and reasonably acceptable to the holder, with
the costs of the appraisal to be borne by the Corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of
which a determination as to market value must be made hereunder.
E. In order to convert Series B Preferred Stock into full shares of
Common Stock, a holder of Series B Preferred Stock shall: (i) submit a copy
of the fully executed notice of conversion in the form attached hereto as
Exhibit A ("Notice of Conversion") to the Corporation by facsimile
dispatched no later than the Conversion Date (or by other means resulting
in notice to the Corporation no later than the Conversion Date) at the
office of the Corporation or its designated Transfer Agent for the Series B
Preferred Stock that the holder elects to convert the same, which notice
shall specify the number of shares of Series B Preferred Stock to be
converted (assuming conversion of the Premium Amount), the applicable
Conversion Price (if calculable) and a calculation of the number of shares
of Common Stock issuable upon such conversion (if calculable) (together
with a copy of the first page of each certificate to be converted) prior to
Midnight, New York City time (the "Conversion Notice Deadline") on the
Conversion Date; and (ii) surrender the original certificates representing
the Series B Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of
Conversion to the office of the Corporation or the Transfer Agent for the
Series B Preferred Stock as soon as practicable thereafter. The
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the
Preferred Stock Certificates are delivered to the Company or its Transfer
Agent as provided above, or the holder notifies the Corporation or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (a) below). In the case of a
dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not
disputed in accordance with subparagraph (b) below, and the Corporation
shall submit the disputed calculations to its outside accountant via
facsimile within five (5) business days of receipt of the Notice of
Conversion. The Corporation shall use its best efforts to have the
accountant audit the calculations and notify the Corporation and the holder
of the results no later than 48 hours from the time it receives the
disputed calculations. The accountant's calculation shall be deemed
conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series B Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity and
such security (if any) as is reasonably satisfactory to the Corporation,
and upon surrender and cancellation of the Preferred Stock Certificate(s),
if mutilated, the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not
be obligated to reissue such lost or stolen Preferred Stock Certificate(s)
if the holder contemporaneously requests the Corporation to convert such
Series B Preferred Stock.
(b) Delivery of Common Stock Upon Conversion. Upon the
surrender of certificates as described above from a holder of Series B
Preferred Stock accompanied by a Notice of Conversion, the Corporation
shall issue and, within two (2) business days after such surrender (or, in
the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (a) above) (the
"Delivery Period"), deliver to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of Series B
Preferred Stock converted as shall be determined in accordance herewith and
(ii) a certificate representing the balance of the shares of Series B
Preferred Stock not converted, if any. Other than a failure due to the
circumstances described in Article VI.F below, which failure shall be
governed by such Article, in addition to any other remedies available to
the holder, including actual damages and/or equitable relief, commencing on
the seventh (7th) business day after the expiration of the Delivery Period,
the Corporation shall pay to a holder $1000 in cash for each day computed
from the first business day after the expiration of the Delivery Period
until such time as the Corporation has delivered all such Common Stock.
Such cash amount shall be paid to such holder by the third (3rd) day of the
month following the month in which it has accrued or, at the option of the
holder (by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into
Common Stock in accordance with the terms of this Article VI.
(c) No Fractional Shares. If any conversion of Series B
Preferred Stock would result in a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock shall be the
next higher number of shares. At the Corporation's option, the Corporation
may instead pay cash in lieu of any fractional share, valued at the Market
Price.
(d) Conversion Date. The "Conversion Date" shall be the
date specified in the Notice of Conversion, provided (i) that if the advance
copy of the Notice of Conversion is not submitted by facsimile (or by other
means resulting in notice) to the Corporation or its designated Transfer
Agent before Midnight, New York City time, on the Conversion Date indicated
in the Notice of Conversion, then the Conversion Date shall be the date the
Corporation or its designated Transfer Agent receives the Notice of
Conversion. Upon submission by a holder of Series B Preferred Stock of a
Notice of Conversion with respect to shares of Series B Preferred Stock,
such shares shall be deemed converted in shares of Common Stock and the
holder's rights as a holder of such converted shares of Series B Preferred
Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock in accordance with and subject
to Paragraph VI.E hereof. Notwithstanding the foregoing, if the holder has
not received certificates for such shares of Common Stock prior to the
tenth (10th) day after the later of the Conversion Date and the delivery by
the holder of the stock certificates and any agreement and indemnity
required by Paragraph VI.E(b) above, then the holder may notify the
Corporation in writing of such failure and if the holder has not received
certificates for such shares of Common Stock prior to the twentieth (20th)
day after the date of such notice, then (i) the holder shall regain the
rights of a holder of Series B Preferred Stock with respect to the shares
to which the Notice of Conversion relates and shall retain all of such
holder's rights and remedies (including the right to receive cash payments
pursuant to Article VI.E(b) above to the extent required thereby) with
respect to the Corporation's failure to deliver such shares of Common Stock
and (ii) the Conversion Price in respect of each of the shares identified
in the Notice of Conversion shall thereafter be the lesser of (A) the
Conversion Price on the Conversion Date set forth in the initial Notice of
Conversion and (B) the Conversion Price on the Conversion Date subsequently
selected by the holder in respect thereof by submission to the Corporation
of a subsequent Notice of Conversion.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for (i) the conversion of the Series B Preferred
Stock outstanding at the then current Conversion Price and (ii) the
exercise of Warrants shall at all times be reserved by the Corporation,
free from preemptive rights, for such conversion or exercise. If the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into
which each share of the Series B Preferred Stock shall be convertible at
the then current Conversion Price, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient
number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series B Preferred
Stock and exercise of the Warrants on the new basis, if applicable.
If, at any time a holder of shares of Series B Preferred Stock submits
a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a
"Conversion Default"), the Corporation shall issue to the holder all of the
shares of Common Stock which are available to effect such conversion
(including, with the holder's written consent, any shares underlying
Warrants issued or then issuable ("Borrowed Shares")). The number of
shares of Series B Preferred Stock included in the Notice of Conversion
(the "initial Notice of Conversion") which exceeds the amount which is then
convertible into available shares of Common Stock (after utilizing Borrowed
Shares, if any) (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder's option on or at
any time after) the date additional shares of Common Stock are authorized
by the Corporation to permit such conversion, at which time the Conversion
Price in respect thereof shall be the lesser of (i) the Conversion Price on
the Conversion Date set forth in the initial Notice of Conversion and (ii)
the Conversion Price on the Conversion Date subsequently elected by the
holder in respect thereof by submission to the Corporation of a subsequent
Notice of Conversion. The Corporation shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(a) (N/365), multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series B Preferred Stock calculated through the
Authorization Date (as defined below), multiplied by (c) the Default Amount
(as defined below) on the Conversion Date set forth in the initial Notice
of Conversion giving rise to the Conversion Default (the "Conversion
Default Date"), multiplied by (d) .36, where (i) N = the number of days
from the Conversion Default Date to the date (the "Authorization Date")
that the Corporation authorizes a sufficient number of shares of Common
Stock to effect conversion of the full number of shares of Series B
Preferred Stock and the Warrants and (ii) "Default Amount" means the Excess
Amount plus the number of shares of Series B Preferred Stock that would not
be convertible as a result of this Article VI.E but for the Borrowed
Shares. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date
and the amount of holder's accrued Conversion Default Payments. The
accrued Conversion Default Payment for each calendar month shall be paid in
cash or shall be convertible into Common Stock at the Conversion Price, at
the holder's option, as follows:
(a) In the event holder elects to take such payment in cash,
cash payment shall be made to holder by the third (3rd) day of the month
following the month in which it has accrued; and
(b) In the event holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI.
Nothing herein shall limit the holder's right to pursue actual damages
for the Corporation's failure to maintain a sufficient number of authorized
shares of Common Stock as required pursuant to the terms of this Article
VI.F, and each holder shall have the right to pursue all remedies available
at law or in equity (including a decree of specific performance and/or
injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article VI, 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
Series B Preferred Stock 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 Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon
conversion of a share of Series B Preferred Stock.
VII. Automatic Conversion
--------------------
Each share of Series B Preferred Stock issued and outstanding on October
15, 2001 (the "Automatic Conversion Date"), automatically shall be
converted into shares of Common Stock on such date at the then effective
Conversion Price in accordance with the provisions of Article VI hereof
(the "Automatic Conversion"). The Automatic Conversion Date shall be the
Conversion Date for purposes of determining the Conversion Price and the
time within which certificates representing the Common Stock must be
delivered to the holder.
VIII. Voting Rights
-------------
The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the PBCL and in this Article
VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record
of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire (including by way of
merger, consolidation or recapitalization) any share of any class or any
other securities or property, or to receive any other right, or for the
purpose of determining shareholders who are entitled to vote in connection
with any proposed sale, lease or conveyance of all or substantially all of
the assets of the Corporation, or any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified
therein (or 20 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken
for the purpose of such dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time;
provided, however, that the failure of the Corporation to provide any such
notice shall not affect the validity of any shareholder or corporate action
or proceeding.
To the extent that under the PBCL the vote of the holders of the Series
B Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative
vote or consent of the holders of at least a majority of the shares of the
Series B Preferred Stock represented at a duly held meeting at which a
majority of the outstanding shares of Series B Preferred Stock is present
or by written consent of a majority of the outstanding shares of Series B
Preferred Stock (except as otherwise may be required under the PBCL) shall
constitute the approval of such action by the class. To the extent that
under the PBCL holders of the Series B Preferred Stock are entitled to vote
on a matter with holders of Common Stock, voting together as one class,
each share of Series B Preferred Stock shall be entitled to a number of
votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
Holders of the Series B Preferred Stock shall be entitled to notice of (and
copies of proxy materials and other information sent to shareholders) all
shareholder meetings or written consents with respect to which they are
entitled to vote, which notice would be provided pursuant to the
Corporation's Bylaws and the PBCL.
IX. Protective Provisions
---------------------
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the PBCL) of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges
of the Series B Preferred Stock or any other capital stock of the Corporation
so as to affect adversely the Series B Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking
pari passu with the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of Series B
Preferred Stock;
(e) issue any shares of Series B Preferred Stock other than
pursuant to the Purchase Agreement, as the same may be amended from time to
time; or
(f) do any act or thing not authorized or contemplated by
this Statement with Respect to Shares which would result in taxation of the
holders of shares of the Series B Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series B Preferred Stock agree to allow the Corporation to alter
or change the rights, preferences or privileges of any class of capital
stock of the Corporation, pursuant to subsection (a) above, so as to affect
the Series B Preferred Stock, then the Corporation will deliver notice of
such approved change to the holders of the Series B Preferred Stock that
did not agree to such alteration or change (the "Dissenting Holders") and
Dissenting Holders shall have the right for a period of thirty (30) days to
convert their shares pursuant to the terms of this Statement with Respect
to Shares as they exist prior to such alteration or change or continue to
hold their shares of Series B Preferred Stock.
X. Limitations on Transfer
-----------------------
Prior to the delivery of an Optional Redemption Notice to the
Corporation pursuant to Article V.B., no "Subject Holder" (as defined
below) may sell or otherwise transfer shares of Series B Preferred Stock,
except (i) to the Corporation or to a shareholder or a group of
shareholders who immediately prior to the sale control a majority of the
Corporation's voting shares (a "Controlling Shareholder" or "Controlling
Group", as applicable); (ii) to an affiliate of such holder; (iii) in
connection with any merger, consolidation, reorganization, tender offer or
sale of more than 50% of the outstanding Common Stock of the Corporation
(a "Reorganization"); (iv) in a registered public offering or a public sale
pursuant to Rule 144 or other applicable exemption from the registration
requirements of the Securities Act (or any successor rule or regulation);
or (v) in a private sale (otherwise than to the Corporation, to a
Controlling Shareholder or a Controlling Group, to an affiliate of such
holder, or in a Reorganization), provided that the holder shall not sell or
otherwise transfer during any ninety (90) day period a number of shares of
Series B Preferred Stock, a portion(s) of the Warrants or any other
securities of the Corporation subject to a limitation on sale or transfer
analogous to the limitation contained herein, which, if exercised for or
converted into Common Stock at the time of the transfer, would represent,
in the aggregate (together with any other shares of Common Stock
transferred), beneficial ownership by the transferee(s) of more than 4.9%
of the Common Stock then outstanding. Subject Holder means any holder who,
but for Article VI.A hereof and this Article X., would beneficially own 5%
or more of the outstanding Common Stock of the Corporation. The
restriction contained in the proviso of this Article X shall not be
altered, amended, deleted or changed in any manner whatsoever unless the
holders of a majority of the Common Stock shall approve such alteration,
amendment, deletion or change. The Corporation or the Transfer Agent may
require, prior to the recording of any transfer of any shares of Series B
Preferred Stock, that the record holder of such shares of Series B
Preferred Stock deliver to the Corporation and/or the Transfer Agent a
written certification that the proposed transfer does not violate the terms
and provisions contained in this Article X, and the Corporation and the
Transfer Agent shall be entitled to rely on such certification without
investigation.
XI. Tax Withholding
---------------
A. Notwithstanding anything contained in this Statement with Respect
to Shares to the contrary,
(i) If any portion of a distribution is to be paid by the Corpora-
tion in cash in accordance with the provisions of Articles V.A, VI.E(b) or VI.F
hereof to a holder that is a Foreign Person (as defined below), the
Corporation may withhold from such distribution an amount of cash
sufficient to enable the Corporation to satisfy its withholding tax
obligations (if any) (the "Withholding Amount") with respect to the portion
of such distribution to be paid in cash. The Withholding Amount shall
equal the amount that is necessary to enable the Corporation to satisfy its
withholding obligations at the applicable statutory withholding rates (or
at a reduced withholding rate if the holder delivers to the Corporation
such certificates, documents or other evidence reasonably satisfactory to
the Corporation or as otherwise may be required under the Internal Revenue
Code of 1986, as amended (the "Code"), or treasury regulations promulgated
thereunder, establishing that such cash payments either are not subject to
withholding tax or are subject to tax at a rate reduced by an appropriate
tax treaty). The Corporation shall inform the holder of the amount of the
Withholding Amount (a) at the time the Corporation notifies the holder of
the Corporation's election to redeem the Premium Amount pursuant to Article
V.A hereof, (b) on or before the third business day preceding the date of
the cash distribution required pursuant to the terms of Article VI.E(b)
hereof or (c) on or before the third business day preceding the date of the
cash distribution required pursuant to the terms of Article VI.F hereof,
applicable.
(ii) If any portion of a distribution is to be paid by the Corpor-
ation in shares of Common Stock (the "Distributed Shares") in accordance with
the provisions of Articles V.A. or VI (including but not limited to Articles
VI. E and VI.F hereof) to a holder that is a Foreign Person, and the holder
has not paid the Withholding Amount with respect to the Distributed Shares
in cash to the Corporation on or before the second business day preceding
the date on which the Distributed Shares are required to be delivered
pursuant to the terms hereof, the Corporation may withhold such number of
shares of Common Stock or other securities issuable with respect to the
Distributed Shares having an aggregate value (with each share valued at the
closing bid price for the Common Stock as reported by NASDAQ-NM, or on the
principal securities exchange or other securities market on which the
Common Stock is then being traded, on the Trading Day immediately preceding
the date of the distribution) equal to the Withholding Amount with respect
to the Distributed Shares. On or before the third business day preceding
the date on which the shares of Common Stock or other securities
representing the distribution are required to be delivered pursuant to the
terms hereof, the Corporation shall notify the holder as to the amount of
the Withholding Amount.
B. For purposes of this Article XI, the term "Foreign Person" means
a person other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under
the laws of the United States or of any state or political subdivision
thereof or (iii) an estate or trust that is a United States Person (as
defined in the Code).
C. The Corporation shall pay the full amount of any Withholding Amount
set forth in Article XI.A to the relevant taxing authority in accordance
with applicable law.
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series B Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Intelligent Electronics, Inc. (the "Corporation")
according to the conditions of the Statement with Respect to Shares of
Series B Preferred Stock, as of the date written below. If securities are
to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any. A copy of
each Preferred Stock Certificate is attached hereto (or evidence of loss,
theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion
of the Series B Preferred Stock shall be made pursuant to registration of
the securities under the Securities Act of 1933, as amended (the "Act"), or
pursuant to an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series B Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or
its Transfer Agent. The Corporation shall issue and deliver shares of Common
Stock to an overnight courier not later than two (2) business days following
receipt of the original Preferred Stock Certificate(s) to be converted and
shall make payments if and to the extent required by the Statement with
Respect to Shares for the number of business days such issuance and delivery
is late.
EXHIBIT 99.3
Warrant No. CVI-
EXHIBIT B
to
Securities
Purchase
Agreement
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A
SECURITIES PURCHASE AGREEMENT DATED AS OF OCTOBER 15, 1996,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT
OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES
LAWS.
Right to
Purchase
225,000
Shares of
Common Stock,
$.01 par value
Date:
INTELLIGENT ELECTRONICS, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CAPITAL VENTURES
INTERNATIONAL or its registered assigns, is entitled to purchase from
INTELLIGENT ELECTRONICS, INC., a Pennsylvania corporation (the "Company"),
at any time or from time to time during the period specified in Paragraph 2
hereof, Two Hundred and Twenty-five Thousand (225,000) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per
share (together with any rights attached thereto issued or issuable
pursuant to the Rights Plan (as defined herein), the "Common Stock"), at an
exercise price of $11.469 per share. The term "Warrant Shares", as used
herein, refers to the shares of Common Stock purchasable hereunder. The
Warrant Shares and the Exercise Price are subject to adjustment as provided
in Paragraph 4 hereof. The term "Warrants" means this Warrant and the
other warrants of the Company issued or to be issued pursuant to the
Securities Purchase Agreement (as hereinafter defined).
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed exercise agreement in the form attached hereto
(the "Exercise Agreement"), to the Company during normal business hours on
any business day at the Company's principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), and upon (i) payment to the Company in cash, by certified
or official bank check or by wire transfer for the account of the Company
of the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if the resale of the Warrant Shares by the holder is not
registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), on or before
October 16, 1998, delivery to the Company of a written notice of an
election to effect a "Cashless Exercise" (as defined in Paragraph 11(c)
below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder
hereof or such holder's designee, as the record owner of such shares, as of
the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered,
and payment shall have been made for such shares as set forth above.
Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding
three (3) business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as may be
requested by the holder hereof and shall be registered in the name of such
holder or such other name as shall be designated by such holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have
been exercised.
If, at any time a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price, and
the Company does not have sufficient authorized but unissued shares of
Common Stock available to effect such exercise in accordance with the
provisions of this Section 1 (an "Exercise Default"), the Company shall
issue to the holder all of the shares of Common Stock which are available
to effect such exercise and, within three (3) business days of the
attempted exercise of this Warrant, refund to the holder that portion of
the holder's payment of the Exercise Price allocable to the number of
shares of Common Stock included in the Exercise Agreement which exceeds the
amount which is then issuable by the Company (the "Excess Amount"). The
Excess Amount shall, notwithstanding anything to the contrary contained
herein, not be exercisable for Common Stock in accordance with the terms
hereof until (and at the holder's option on or at any time after) the date
additional shares of Common Stock are authorized by the Company to permit
such exercise. The Company shall pay to the holder payments ("Exercise
Default Payments") for an Exercise Default in the amount of (a) (N/365),
multiplied by (b) the difference between the Market Price (as defined in
Section 4(1) below) on the Exercise Default Date (as defined below) less
the Exercise Price, multiplied by (c) the Excess Amount on the date the
Exercise Agreement giving rise to the Exercise Default is transmitted in
accordance with this Section 1 (the "Exercise Default Date"), multiplied by
(d) .36, where N = the number of days from the Exercise Default Date to the
date (the "Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect exercise of this Warrant in
full. The Company shall send notice to the holder of the authorization of
additional shares of Common Stock, the Authorization Date and the amount of
holder's accrued Exercise Default Payments. The accrued Exercise Default
Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock at the Exercise Price, at the holder's
option, as follows:
(a) In the event holder elects to take such payment in
cash, cash payment shall be made to holder by the third (3rd) day of the
month following the month in which it has accrued; and
(b) In the event holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock
at the Exercise Price (as in effect at the time of conversion) at any time
after the fifth day of the month following the month in which it has
accrued in accordance with the terms contained in Article VI.A. of the
Statement with Respect to Shares governing the Company's Series B
Convertible Preferred Stock ("Statement with Respect to Shares").
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of
Section 4(h) of the Securities Purchase Agreement (as defined below), and
each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive
relief).
Notwithstanding anything in this Warrant to the contrary, in no
event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or
portions thereof) upon exercise of which the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unexercised Warrants and the unconverted
portion of the Company's Series B Convertible Preferred Stock) and (ii) the
number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein
is being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except
as otherwise provided in clause (i) hereof. The delivery by Holder to the
Company of an Exercise Agreement shall constitute the representation and
warranty of Holder to the Company that Holder is entitled to exercise this
Warrant in compliance with this Paragraph, upon which the Company shall be
entitled to rely without investigation.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time on or after the Vesting Date (as defined herein), and
before 5:00 p.m., New York City time on October 15, 2001 (the "Exercise
Period"). The term "Vesting Date" shall mean the date on which the Second
Closing (as defined in that certain Securities Purchase Agreement, dated as
of October 15, 1996, by and among the Company and the Buyer listed on the
execution page thereof (the "Securities Purchase Agreement") occurs or, if
earlier, the date on which the Securities Purchase Agreement is terminated
other than because of a breach by said Buyer of any of its representation
warranties or covenants set forth therein.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges
with respect to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange
or automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to
adjustment from time to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be
rounded up to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after October 16, 1996, the Company
issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection
therewith) less than the Market Price (as hereinafter defined) on the date
of issuance (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to
the sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received
by the Company upon such Dilutive Issuance, divided by the Market Price in
effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding
(as hereinafter defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or
other securities exercisable, convertible into or exchangeable for Common
Stock ("Convertible Securities") (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter referred to
as "Options") and the price per share for which Common Stock is issuable
upon the exercise of such Options is less than the Market Price on the date
of issuance ("Below Market Options"), then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of
such Below Market Options, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of
the preceding sentence, the "price per share for which Common Stock is
issuable upon the exercise of such Below Market Options" is determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the issuance or granting of all such Below
Market Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Below Market Options, plus, in the case of Convertible Securities issuable
upon the exercise of such Below Market Options, the minimum aggregate
amount of additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number
of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the exercise of such Below
Market Options or upon the exercise, conversion or exchange of Convertible
Securities issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options but including upon
any Convertible Securities issued upon exercise of rights granted under
that certain Rights Agreement dated as of March 22, 1996 by and between the
Company and Chemical Mellon Shareholder Services L.L.C. or any successor
agreement (the "Rights Plan"), and the price per share for which Common
Stock is issuable upon such exercise, conversion or exchange (as determined
pursuant to Paragraph 4(b)(ii)(B) if applicable) is less than the Market
Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is issuable
upon such exercise, conversion or exchange" is determined by dividing (i)
the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible
or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon exercise, conversion or
exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a variable conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Paragraph
4(b)(ii)(A) shall be deemed to be the lowest price per share which would be
applicable (assuming all holding period and other conditions to any
discounts contained in such Convertible Security have been satisfied) if
the Market Price on the date of issuance of such Convertible Security were
75% of the actual Market Price on such date (the "Assumed Variable Market
Price"). Further, if the Market Price at any time or times thereafter is
less than or equal to the Assumed Variable Market Price last used for
making any adjustment under this Section 4 with respect to any Variable
Rate Convertible Security, the Exercise Price in effect at such time shall
be readjusted to equal the Exercise Price which would have resulted if the
Adjusted Variable Market Price at the time of issuance of the Variable Rate
Convertible Security had been 90% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) Change in Option Price or Conversion Rate. If
there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at
which any Convertible Securities are convertible into or exchangeable for
Common Stock (other than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued
or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of
Common Stock issuable upon exercise of any Option or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact,
issued and the rights to exercise such Option or to exercise, convert or
exchange such Convertible Securities shall have expired or terminated, the
Exercise Price then in effect will be readjusted to the Exercise Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination (other than
in respect of the actual number of shares of Common Stock issued upon
exercise, conversion or exchange thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which
shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Market Price
thereof as of the date of receipt. The fair value of any consideration
other than cash or securities will be determined in good faith by an
investment banker or other appropriate expert of national reputation
selected by the Company and reasonably acceptable to the holder hereof,
with the costs of such appraisal to be borne by the Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made under Section 4(a) or this
Section 4(b) (i) upon the exercise of any warrants, options or convertible
securities issued and outstanding on October 16, 1996 (other than rights
granted under the Rights Plan); (ii) upon the issuance, grant or exercise
of any stock or options which may hereafter be issued, granted or exercised
under any employee benefit plan, franchisee stock option plan or customer
stock option plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by the
Board of Directors of the Company or a committee of directors established
for such purpose; (iii) upon the exercise of the Warrants or issuance or
conversion of the Series B Preferred Stock (including, without limitation,
any Premium Amount (as defined in the Statement with Respect to Shares) or
any other issuance of securities pursuant to the Statement with Respect to
Shares); (iv) upon the issuance of any securities in connection with an
acquisition by the Company of or a merger of the Company with an entity (or
an interest therein) in exchange for securities of the Company, so long as
the aggregate purchase price or merger consideration to be paid to acquire
or merge with such entity (or interest therein) by the Company is approved
by the Board; (v) upon the issuance of any securities in an underwritten
public offering to the extent that the offering price of such Securities is
not less than 90% of the Market Price of such Securities on the date the
price of such public offering is determined; or (vi) in connection with the
exercise of rights granted under the Rights Plan to the extent such rights
became exercisable as a result of the Common Stock ownership of Capital
Ventures International, Susquehanna Financial Group, Inc. and/or their
respective affiliates.
(c) Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price
in effect immediately prior to such combination will be proportionately and
equitably increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4 (other than
an adjustment pursuant to Section 4(f) hereof), the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted by
multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock issuable
upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation
of the Company with, or merger of the Company into any other corporation,
or in case of any sale or conveyance of all or substantially all of the
assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation,
merger or sale or conveyance, adequate provision will be made whereby the
holder of this Warrant will have the right to acquire and receive upon
exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of
stock, securities or assets as may be issued or payable with respect to or
in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of this Warrant had
such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will
not effect any consolidation, merger or sale or conveyance unless prior to
the consummation thereof, the successor corporation (if other than the
Company) assumes by written instrument the obligations under this Paragraph
4 and the obligations to deliver to the holder of this Warrant such shares
of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return
of capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
distribution to the Company' shareholders of cash or shares (or rights to
acquire shares) of capital stock of a subsidiary, including, but not
limited to XLConnect Solutions, Inc. (i.e. a spin-off, but excluding any
dividends payable in cash in the ordinary course out of retained earnings
consistent with the Company's past practices) (a "Distribution"), the
Exercise Price will be reduced, effective on the day immediately following
the date of record for determining shareholders entitled to such
Distribution, by an amount equal to the fair market value of the assets
distributable in such Distribution with respect to each share of the
Company's Common Stock then outstanding (calculated as if all shares of
Common Stock then issuable upon exercise, conversion or exchange of this
Warrant and of all other securities issued by the Company which contain a
provision affording the holders of such securities antidulution rights with
respect to such Distribution were outstanding). For purposes of
determining the fair market value of any assets to be so distributed, the
fair market value of any cash to be distributed shall be the amount of such
cash, the fair market value of any security to be distributed shall be the
Market Price of such security as determined pursuant to Section 4(l)(ii)
hereof and the fair market value of any other assets to be so distributed
shall be determined by an expert of national reputation in appraising the
value of assets of the type so distributed, which expert shall be selected
by the Company and be reasonably acceptable to the holder, with the costs
of such expert to be borne by the Company. No adjustment to the number of
shares issuable upon exercise of this Warrant shall be made as a result of
an adjustment to the Exercise Price in accordance with this Paragraph (f).
In the event there is any change after the effective date of any adjustment
required under this Section 4(f) in the type, quality or amount of any
assets included as part of any Distribution for which an adjustment under
this Section 4(f) was required (other than a change solely in the fair
market value of the assets comprising such Distribution), the Exercise
Price in effect at the effective time of such change will be readjusted to
the Exercise Price which would have been in effect at such time had the
adjustment initially made under this Section 4(f) been determined based on
the changed Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment
and the increase or decrease in the number of Warrant Shares purchasable at
such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the
Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class of the Company or make any
other distribution (other than dividends or distributions payable in cash
out of retained earnings consistent with the Company's past practices with
respect to declaring dividends and making distributions) to the holders of
the Common Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this
Warrant (a) notice of the date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common
Stock entitled to receive any such dividend, distribution, or subscription
rights or for determining the holders of Common Stock entitled to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, notice of the date (or, if not then
known, a reasonable approximation thereof by the Company) when the same
shall take place. Such notice shall also specify the date on which the
holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for
stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 20
days prior to the record date or the date on which the Company's books are
closed in respect thereto (but in no event more than 10 days prior to the
date notice of such event is to be given by the Company to the public).
Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii), (iii) and
(iv) above.
(k) Intentionally Omitted.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number
of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common
Stock issuable upon the exercise of Options and the exercise, conversion or
exchange of Convertible Securities (including any Convertible Securities
issuable upon the exercise of Options), as of the date of such issuance or
grant of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii)
hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options and the exercise, conversion or exchange of
Convertible Securities (including any Convertible Securities issuable upon
the exercise of Options), as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average
of the closing bid prices for the shares of Common Stock as reported by the
National Association of Securities Dealers Automated Quotation National
Market ("NASDAQ-NM") for the five (5) trading days immediately preceding
such date, or (ii) if the NASDAQ-NM is not the principal trading market for
the shares of Common Stock, the average of the last reported sale prices on
the principal trading market for the Common Stock during the same period,
or (iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by a nationally recognized investment banking firm
selected by the Company and reasonably acceptable to the holder, with the
costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of
which a determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4,
includes the Common Stock, par value $.01 per share, and any additional
class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant
to this Warrant shall include only shares of Common Stock, par value $.01
per share, in respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof, the stock or
other securities or property provided for in such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than the holder of this
Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence
of affirmative action by the holder hereof to purchase Warrant Shares, and
no mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the Exercise
Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in
the form attached hereto, at the office or agency of the Company referred
to in Paragraph 7(e) below, provided, however, that any transfer or
assignment shall be subject to the conditions set forth in Paragraph 7(f)
hereof and to the applicable provisions of the Securities Purchase
Agreement. Until due presentment for registration of transfer on the books
of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be
affected by any notice to the contrary. Notwithstanding anything to the
contrary contained herein, the registration rights described in Paragraph 8
are assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of October 16, 1996, by and among
the Company and the other signatory thereto (the "Registration Rights
Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below,
for new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase
such number of shares as shall be designated by the holder hereof at the
time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant and, in the case of any such loss, theft, or destruction,
upon delivery of an indemnity agreement and security (if any) reasonably
satisfactory in form and amount to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by
the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any,
incurred by the Holder or transferees) and charges payable in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Paragraph 7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise,
the Warrant Shares issuable hereunder), shall not be registered under the
Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such exercise, transfer, or
exchange, (i) that the holder or transferee of this Warrant, as the case
may be, furnish to the Company a written opinion of counsel, in form,
substance and scope customary to opinions typically delivered in
transactions of this nature, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under
applicable state securities or blue sky laws, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act; provided that no such opinion, letter or status as an
"accredited investor" shall be required in connection with a transfer
pursuant to Rule 144 under the Securities Act.
8. Registration Rights.
The initial holder of this Warrant (and certain assignees
thereof) is entitled to the benefit of such registration rights in respect
of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. Notices. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of
this Warrant shall be in writing, and shall be personally delivered, or
shall be sent by certified or registered mail or by recognized overnight
mail courier, postage prepaid and addressed, to such holder at the address
shown for such holder on the books of the Company, or at such other address
as shall have been furnished to the Company by notice from such holder.
All notices, requests, and other communications required or permitted to be
given or delivered hereunder to the Company shall be in writing, and shall
be personally delivered, or shall be sent by certified or registered mail
or by recognized overnight mail courier, postage prepaid and addressed, to
the office of the Company at 411 Eagleview Boulevard, Exton, Pennsylvania
19341, Attention: Chief Financial Officer, or at such other address as
shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by
recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given
either at the time of the receipt thereof by the person entitled to receive
such notice at the address of such person for purposes of this Paragraph 9,
or, if mailed by registered or certified mail or with a recognized
overnight mail courier upon deposit with the United States Post Office or
such overnight mail courier, if postage is prepaid and the mailing is
properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF
LAW. THE UNITED STATES FEDERAL COURTS LOCATED IN PHILADELPHIA,
PENNSYLVANIA SHALL HAVE EXCLUSIVE JURISDICTION WITH RESPECT TO ANY DISPUTE
ARISING UNDER THIS WARRANT.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the provi-
sions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration
statement under the Securities Act on or before the later of (i)
October 15, 1998 and (ii) the date of any exercise of this Warrant, this
Warrant may be exercised by presentation and surrender of this Warrant to
the Company at its principal executive offices with a written notice of the
holder's intention to effect a cashless exercise, including a calculation
(to the extent then calculable) of the number of shares of Common Stock to
be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise", and the date of such presentation and surrender being
herein referred to as the "Cashless Exercise Date"). In the event of a
Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder
shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
excess, if any, of the Market Price as of the Cashless Exercise Date over
the Exercise Price, and the denominator of which shall be the Market Price
as of the Cashless Exercise Date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Thomas J. Coffey
---------------------------------
Name: Thomas J. Coffey
Title: Sr. V.P. & CFO
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered
by such Warrant, and makes payment herewith in full therefor at the price
per share provided by such Warrant in cash or by certified or official bank
check in the amount of, or, if the resale of such Common Stock by the
undersigned is not registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended, on or before
October 16, 1998, by surrender of securities issued by the Company
(including a portion of the Warrant) having a market value (in the case of
a portion of this Warrant, determined in accordance with Section 11(c) of
the Warrant) equal to $_________. Please issue a certificate or certifi-
cates for such shares of Common Stock in the name of and pay any cash for
any fractional share to:
Name:________________________________
Signature:___________________________
Address:_____________________________
_____________________________
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the
name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said
Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated: _____________________, ____,
In the presence of
__________________
Name: ____________________________
Signature: _______________________
Title of Signing Officer or Agent (if
any): ___________________________
Address: ________________________
________________________
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
EXHIBIT 99.4
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of October 15,
1996 by and among INTELLIGENT ELECTRONICS, INC., a Pennsylvania corporation,
with headquarters located at 411 Eagleview Boulevard, Exton, PA 19341 (the
"Company"), and the undersigned (together with its affiliates and any
assignee or transferee of all of its rights hereunder, the "Initial
Investor").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and between
the parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investor (i)
shares of its Series B Convertible Preferred Stock (the "Preferred Stock")
that are convertible into shares (the "Conversion Shares") of the Company's
common stock (the "Common Stock") upon the terms and subject to the
limitations and conditions set forth in the Statement with Respect to Shares
in respect thereof (the "Statement with Respect to Shares"), (ii) warrants
(the "First Warrants") to acquire 225,000 shares of Common Stock (the
"Closing Warrant Shares") and (iii) under certain circumstances, additional
warrants (together with the First Warrants, the "Warrants") to acquire
225,000 shares of Common Stock (together with the Closing Warrant Shares, the
"Warrant Shares"); and
B. To induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the "1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
each of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
-----------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investor and any
transferees or assignees who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares
and the Warrant Shares issued or issuable and any shares of capital stock
issued or issuable as a dividend on or in exchange for or otherwise with
respect to any of the foregoing (including all shares of capital stock
issuable pursuant to Articles V.B., VI.E. and VI.F. of the Statement with
Respect to Shares) together with all rights issuable under the Rights Plan
(as defined in the Statement with Respect to Shares) with respect to other
Registrable Securities.
(iv) "Registration Statement" means a registration statement
of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is twenty (20) business days after the date with
respect to the First Closing under the Securities Purchase Agreement (the
"Closing Date"), file with the SEC a Registration Statement on Form S-3 (or,
if Form S-3 is not then available to the Company, on such form of
Registration Statement as is then available to effect a registration of the
Registrable Securities, subject to the consent of the Initial Investor, which
consent will not be unreasonably withheld, provided that the Company's
obligation hereunder to file a Registration Statement shall be suspended so
long as the Investor's consent is withheld for any reason and the Investor
fails to consent to the use of another form available and which is reasonable
for use by the Company) covering the resale of at least 6,000,000 shares of
Registrable Securities underlying the securities issued or issuable at the
First Closing and Second Closing, which Registration Statement, to the extent
allowable under the 1933 Act and the Rules promulgated thereunder (including
Rule 416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock and exercise of the Warrants
(i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions or (ii) by reason of changes in the Conversion Price (as
defined in the Statement with Respect to Shares) of the Preferred Stock or
the Exercise Price of the Warrants in accordance with the terms thereof.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the
consent of the Initial Investor, shall have the right to select one legal
counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
c. Effectiveness of Registration Statement. The Company shall
use its best efforts to obtain effectiveness of the Registration Statement as
soon as practicable and shall continue to use such best efforts to maintain
such effectiveness for the Registration Period (as defined herein).
Notwithstanding the foregoing, if the Second Closing does not occur under the
Securities Purchase Agreement as a result of a material breach by the Initial
Investor of its obligations thereunder, the Company shall have no further
obligation to maintain the effectiveness of the Registration Statement after
the first anniversary of the First Closing thereunder. For the avoidance of
doubt, the Company's obligations to use its best efforts to cause the
Registration Statement to become effective and to maintain the effectiveness
of such Registration Statement through the first anniversary of the First
Closing under the Securities Purchase Agreement shall continue
notwithstanding any breach by the Initial Investor of its obligations under
the Securities Purchase Agreement.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other
than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock
option or other employee benefit plans), the Company shall send to each
Investor who is entitled to registration rights under this Section 2(d)
written notice of such determination and, if within fifteen (15) days after
the effective date of such notice, such Investor shall so request in writing,
the Company shall include in such Registration Statement all or any part of
the Registrable Securities such Investor requests to be registered, except
that if, in connection with any underwritten public offering for the account
of the Company the managing underwriter(s) thereof shall impose a limitation
on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing
or other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder as the underwriter shall permit, if any. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that
the Company shall not exclude any Registrable Securities unless the Company
has first excluded all outstanding securities, the holders of which are not
entitled to inclusion of such securities in such Registration Statement or
are not entitled to pro rata inclusion with the Registrable Securities; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit
any registration required under Section 2(a) hereof. If an offering in
connection with which an Investor is entitled to registration under this
Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall,
unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything herein to the contrary, at
any time a Registration Statement is effective and available for use by
Investors to resell all of the Registrable Securities then held by the
Investors, the rights and obligations contained in this Section 2(d) shall
only be applicable to a Registration Statement relating to an underwritten
offering.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets as of the date hereof the requirements for the use of Form S-3
for registration of the sale by the Initial Investor and any other Investor
of the Registrable Securities and the Company shall use its best efforts to
file all reports required to be filed by the Company with the SEC in a timely
manner so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not
later than twenty (20) business days after the Closing Date, a Registration
Statement with respect to the number of Registrable Securities provided in
Section 2(a), and thereafter use its best efforts to cause such Registration
Statement relating to Registrable Securities to become effective as soon as
possible after such filing, and keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i)
the date on which all of the Registrable Securities have been sold and (ii)
the date on which all Registrable Securities (in the reasonable opinion of
counsel to the Initial Investor or the Company) may be immediately sold
without registration (the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein, or necessary
to make the statements therein not misleading. The Registration Statement
will include a broad description of the Plan of Distribution, which
description shall be substantially in the form attached hereto as Schedule
3(a).
b. The Company shall use its best efforts to prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to keep the
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the Company's obligations under the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until such
time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number
of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of such Registrable Securities then
reserved for issuance by the Company, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
and is brought to the attention of the Company by written notice (based on
the market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely after consultation with the Initial
Investor). The Company shall use its best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel
(i) promptly after the same is prepared and publicly distributed, filed with
the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and prospectus and
each amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents in the Company's possession as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States, to the extent required pursuant to such laws, as the Investors
who hold a majority in interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications
in effect at all times during the Registration Period, and (iv) take all
other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject
itself to general taxation in any such jurisdiction, (c) file a general
consent to service of process in any such jurisdiction, (d) provide any
undertakings that cause the Company undue expense or burden, or (e) make any
change in its charter or bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best interests of the Company
and its stockholders.
e. In the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering (with the approval of
the Initial Investor) select underwriters for the offering, the Company shall
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included
in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and use its best efforts promptly to prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and
deliver such number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request; provided, that, not more
than once in any twelve month period, for up to a period of thirty (30) days,
the Company may delay the disclosure of material non-public information
concerning the Company the disclosure of which at the time is not, in the
good faith opinion of the Board of Directors of the Company, in the best
interest of the Company and, in the opinion of counsel to the Company,
otherwise required by applicable law (an "Allowed Delay"); provided, further,
that the Company shall promptly (i) notify the Investors in writing of the
existence of material non-public information giving rise to an Allowed Delay
and (ii) advise the Investors in writing to cease all sales under the
Registration Statement until the end of the Allowed Delay. Notwithstanding
the first proviso of the immediately preceding sentence, the provisions of
Section 2(c) shall be applicable during the period of an Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the
first sentence of this Section 3(f) with respect to the information giving
rise thereto.
g. The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof.
h. The Company shall permit a single firm of counsel designated
by the Initial Investor to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing
with the SEC, and not file any document in a form to which such counsel
reasonably objects. The Company's obligations pursuant to Sections 2(c),
3(f) and 6 hereof shall be suspended during any period in which any filing by
the Company which is necessary in order to comply with such Sections is
delayed as a result of review or objection by such counsel.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish on
the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof,
(i) an opinion, dated as of such date, from counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as
is customarily given in an underwritten public offering by issuer's counsel,
addressed to the underwriters, if any, and the Investors and (ii) a letter,
dated such date from the Company's independent certified public accountants
in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the underwriters, if any, and the Investors (to the extent permitted in
accordance with applicable accounting rules).
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to
the Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investor, (iv) one firm
of attorneys and one firm of accountants or other agents retained by all
other Investors, and (v) one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request for purposes of such due diligence; provided, however, that each
Inspector shall hold in confidence and shall not make any disclosure (except
to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement after a failure by the Company to make such disclosure for a period
of ten (10) business days after receiving written notice from the Inspector
of the need to make such disclosure (provided that no such disclosure shall
be made during any thirty (30) day period referred to in Section 3(f)
hereof), (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement.
The Company shall not be required to disclose any confidential information in
such Records to any Inspector until and unless such Inspector shall have
entered into confidentiality agreements (in form and substance satisfactory
to the Company) with the Company with respect thereto, substantially in the
form of this Section 3(k). Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential. Nothing herein shall be deemed to limit the
Investor's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations. The Investors
shall cause all Inspectors to coordinate their review of the Records at the
Company's offices in the manner reasonably requested by the Company.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with federal
or state securities or other laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to
the public other than by disclosure in violation of this or any other
agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor prior to making such disclosure, and allow the
Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
m. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by the Registration Statement to be listed
on each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on the NASDAQ National Market ("NASDAQ-
NM") or, if not eligible for the NASDAQ-NM on the NASDAQ Small Cap Market
and, without limiting the generality of the foregoing, to arrange for at
least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than
the effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable
such certificates to be in such denominations or amounts, as the case may be,
as the managing underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing underwriter
or underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to the transfer
agent for the Registrable Securities (with copies to the Investors whose
Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as Exhibit 1 and an opinion of such
counsel in the form attached hereto as Exhibit 2.
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor
shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably required to
effect the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least three (3) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in the Registration Statement.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being registered (with the approval of the Initial
Investor) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in
writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and,
if so directed by the Company, such Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of
receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual
and customary form entered into by the Company, (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
f. Each Investor agrees to comply with all applicable laws and
regulations in connection with any sale, transfer or other disposition of
Registrable Securities.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting fees, discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and the Company's
accounting fees, the fees and disbursements of counsel for the Company, and
the reasonable fees and disbursements of one counsel selected by the Initial
Investor pursuant to Section 2(b) hereof ("Initial Investor Counsel Fees")
shall be borne by the Company; provided, however, that the Company shall not
be responsible for Initial Investor Counsel Fees to the extent they aggregate
in excess of $15,000 for all registrations under this Agreement (except for
Initial Investor Counsel Fees incurred in connection with any registrations
effectuated pursuant to the penultimate sentence of Section 3(b) hereof, for
each of which registrations there shall be a separate $15,000 limitation).
The Initial Investor Counsel Fees are in addition to the expenses payable by
the Company pursuant to Section 4(f) of the Securities Purchase Agreement.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and
each person who controls any Investor within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, and
(iii) any underwriter (as defined in the 1933 Act) for the Investors; and the
directors, officers, partners, employees and each person who controls any
such underwriter within the meaning of the 1933 Act or the 1934 Act, if any,
(each, an "Indemnified Person"), against any joint or several losses, claims,
damages, liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, in respect thereof, "Claims") to which any
of them may become subject insofar as such Claims arise out of or are based
upon: (i) any untrue statement or alleged untrue statement of a material fact
in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus
if used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading, (the matters in the
foregoing clauses (i) and (ii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(c) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply
to a Claim to the extent it arises out of or is based upon a Violation which
is based upon or arises out of information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld; and (iii) with respect to any preliminary
prospectus or prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained therein
was corrected on a timely basis in the final prospectus or a corrected
prospectus, as then amended or supplemented, such final or corrected
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof, and the Indemnified Person was promptly advised in writing not to use
the incorrect prospectus prior to the use giving rise to a Violation and such
Indemnified Person, notwithstanding such advice, used it. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not
jointly to indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its directors,
officers, employees, agents and each person who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any
of its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation is based upon or arises out of
written information furnished to the Company by such Investor expressly for
use in connection with such Registration Statement; and subject to Section
6(c) such Investor will reimburse any legal or other expenses (promptly as
such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b)
and Section 7) for only that amount as does not exceed the net proceeds
(i.e., after deduction of selling commissions and discounts) to such Investor
as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed, to
assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party,
as the case may be; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the
fees and expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation by
such counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or likely differing
interests between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding. The indemnifying party
shall pay for only one separate legal counsel for the Indemnified Persons or
the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim relates
(with the approval of the Initial Investor), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action shall not relieve such indemnifying party of any liability
to the Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or liability
is incurred and is due and payable.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault
standards set forth in Section 6, (ii) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification
or other obligations under this Agreement) by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received
by such seller from the sale of such Registrable Securities and provided,
further, that such contribution shall be made in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand, and
the Investor or Investors on the other, in connection with the statements or
omissions which resulted in such claims.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell restricted
securities of the Company to the public without registration ("Rule 144"),
the Company agrees to use its best efforts to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company as to the status of its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant
to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) the
Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b)
the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws, (iv) at
or before the time the Company receives the written notice contemplated by
clause (ii) of this sentence, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein, (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, and (vi) such transferee
shall be an "accredited investor" as that term defined in Rule 501 of
Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company,
the Initial Investor (to the extent the Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
-------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) or which receipt is refused if delivered by hand or by courier
or sent by certified mail, return receipt requested, properly addressed and
with proper postage pre-paid,
If to the Company:
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attention: Chief Financial Officer
Telecopy: (610) 458-0599
With copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103-2799
Telecopy: (215)981-4750
Attention: Barry Abelson, Esquire
and:
Steven M. Kawalick
General Counsel
Intelligent Electronics, Inc.
5700 S. Quebec Street
Englewood, CO 80111
Telecopy: (303) 486-8939
if to Capital Ventures International,
Capital Ventures International
c/o Bala International, Inc.
401 City Line Avenue, Suite 220
Bala Cynwyd, PA 19004-1122
Telecopy: (610) 617-2707
Attention: Andrew Frost
with copy to:
Joel Greenberg, Esq.
c/o Bala International, Inc.
401 City Line Avenue, Suite 220
Bala Cynwyd, PA 19004-1122
Telecopy: (610) 617-2707
and:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Stephen T. Burdumy, Esquire
and if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such
party furnishes by notice given in accordance with this Section 11(b), and
shall be effective, when personally delivered, upon receipt and, when so sent
by certified mail, four days after deposit with the United States Postal
Service.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof. The parties hereto
hereby submit to the exclusive jurisdiction of the United States Federal
Courts located in Philadelphia, Pennsylvania with respect to any dispute
arising under this Agreement or the transactions contemplated hereby.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This Agreement and the Securities Purchase Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made by Investors holding a
majority of the Registrable Securities, determined as if all shares of
Preferred Stock and Warrants then outstanding (including Warrants issuable
pursuant to the Securities Purchase Agreement) have been converted into or
exercised for Registrable Securities.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor
have caused this Agreement to be duly executed as of the date first above
written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Thomas J. Coffey
------------------------------
Name: Thomas J. Coffey
Its: Sr. V.P. & CFO
CAPITAL VENTURES INTERNATIONAL
By: Bala International, Inc., as authorized agent
By: /s/ Andrew Frost
-------------------------------------
Name: Andrew Frost
Its: Director
<PAGE>
EXHIBIT 1
to
Registration
Rights
Agreement
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and
direction to you (1) to transfer or re-register the certificates for the
shares of Common Stock, $.01 par value (the "Common Stock"), of Intelligent
Electronics, Inc., a Pennsylvania corporation (the "Company"), represented by
certificate numbers _____ for an aggregate of _____ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of
Investor] (which shares were previously issued upon conversion or exercise of
the Company's Series A Convertible Preferred Stock (the "Preferred Stock") or
Warrants (as hereinafter defined) upon surrender of such certificates to you
(or evidence of loss, theft or destruction thereof), notwithstanding the
legend appearing on such certificates, and (2) to issue shares (the
"Conversion Shares") of Common Stock to or upon the order of the registered
holder from time to time upon conversion of the Preferred Stock upon
surrender to you of a properly completed and duly executed Conversion Notice
and such Preferred Stock, notwithstanding the legend appearing on such
Preferred Stock and (3) to issue shares (the "Warrant Shares") of Common
Stock to or upon the order of the registered holder from time to time upon
exercise of the warrants of the Company issued pursuant to the terms of the
Securities Purchase Agreement dated as of October __, 1996 between the
Company and Capital Ventures International (the "Warrants") upon surrender
to you of a properly completed and duly executed Exercise Agreement and such
Warrants (or evidence of loss, theft or destruction thereof) and confirmation
from the Company that the exercise price has been paid to the Company,
notwithstanding the legend appearing on such Warrants. The transfer or re-
registration of the certificates for the Outstanding Shares by you should be
made at such time as you are requested to do so by the record holder of the
Outstanding, subject to the surrender and confirmation requirements set forth
in the preceding sentence. The certificate issued upon such transfer or re-
registration should be registered in such name as requested by the holder of
record of the certificate surrendered to you and should not bear any legend
which would restrict the transfer of the shares represented thereby. In
addition, you are hereby directed to remove any stop-transfer instruction
relating to the Outstanding Shares. Certificates for the Conversion Shares
and Warrant Shares should not bear any restrictive legend and should not be
subject to any stop-transfer restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of ___________________ as to registration of the
Outstanding Shares, the Conversion Shares and the Warrant Shares under the
Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please
contact me.
Very truly yours,
INTELLIGENT ELECTRONICS, INC.
By: _________________________
Name:
Title:
Enclosures:
cc: [Name of Investor]
<PAGE>
EXHIBIT 2
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: Intelligent Electronics, Inc.
Ladies and Gentlemen:
We are counsel to Intelligent Electronics, Inc., a Pennsylvania
corporation (the "Company"), and we understand that [Name of Investor] (the
"Holder") has purchased from the Company (i) shares of the Company's Series
A Convertible Preferred Stock (the "Preferred Stock") that is convertible
into the Company's Common Stock, par value $.01 (the "Common Stock") and (ii)
warrants (the "Warrants") to acquire Common Stock. The Preferred Stock and
Warrants were purchased by the Holder pursuant to a Securities Purchase
Agreement, dated as of October ___, 1996, between the Holder and the Company
(the "Agreement"). Pursuant to a Registration Rights Agreement, dated as of
October ___, 1996, between the Company and the Holder (the "Registration
Rights Agreement"), the Company agreed with the Holder, among other things,
to register the Registrable Securities (as that term is defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended
(the "Securities Act"), upon the terms provided in the Registration Rights
Agreement. In connection with the Company's obligations under the
Registration Rights Agreement, on _____ __, 1996, the Company filed a
Registration Statement on Form S-___ (File No. 333- _____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities, which names the Holder as a
selling stockholder thereunder.
[Other reasonable introductory and scope of examination language to be
inserted by counsel rendering the opinion]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Registration Statement for resale
by the Holder under the Securities Act.
Very truly yours,
cc: [Name of investor]
