SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 21, 1997
INTELLICALL, INC.
Exact name of registrant as specified in its charter
Delaware
State or other jurisdiction of incorporation
0-10588 75-1993841
Commission File Number I.R.S. Employer
Identification No.
2155 Chenault, Suite 410 Carrollton, Texas 75006
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Address of Principal Executive Offices
Registrant's telephone number, including area code: (972) 416-0022
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ITEM 5. Other Events
On July 21, 1997 (the "Closing Date") the Registrant entered into a
Securities Purchase Agreement (the "Purchase Agreement") with four institutional
investors (the "Investors") pursuant to which the Investors purchased $4,000,000
of the Registrant's 7% Series A Convertible Preferred Stock (the "Preferred
Stock"). The Preferred Stock was sold in a private placement pursuant to the
provisions of Regulation D promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "Act"). The
Registrant utilized the net proceeds from the sale of the Preferred Stock
(approximately $3,800,000) to pay down indebtedness to its senior secured
lender.
Commencing 90 days after the Closing Date, the Preferred Stock, plus all
accrued dividends, is convertible into common stock, $.01 par value (the "Common
Stock") of the Registrant at the option of each Purchaser at a conversion price
equal to the lower of $5.05 per share (the "Fixed Conversion Price") or eighty
percent (80%) of the average fifteen day trading price preceding the date of
conversion (the "Variable Conversion Price"). However, in the event any
Investor acquires Common Stock which is issued without a restrictive legend
upon conversion of the Preferred Stock at any time within one year of the
Closing Date and the conversion price is based on the Variable Conversion Price,
such Investor must pay a fee to the Registrant as follows:
a) in the event the issuance of such Common Stock occurs from 91 to 180
days after the Closing Date, the fee payable to the Registrant is 25% times the
Variable Conversion Price times the number of such shares of Common Stock; and
b) in the event the issuance of such Common Stock occurs from 181 to 365
days after the Closing Date, the fee payable to the Registrant is 6.25% times
the Variable Conversion Price times the number of such shares of Common Stock.
Any shares of Preferred Stock outstanding two years after the Closing Date
are automatically converted into Common Stock.
The Investors may require the Registrant to redeem certain shares of
Preferred Stock (i) in the event the number of shares of Common Stock issuable
upon conversion (based on the conversion price in existence from time to time)
multiplied by 1.25 would exceed the maximum number of shares of Common Stock
which the Registrant can issue without shareholder approval pursuant to
applicable New York Stock Exchange Guidelines, unless shareholder approval is so
obtained within 120 days of such occurrence, (ii) in the event the Registrant
fails to reserve an adequate number of shares of Common Stock as contemplated by
the designation of preferred stock creating the Preferred Stock (the
"Designation"), unless such failure is cured by board of directors and/or
shareholder approvals as required, (iii) in the event the Registrant fails to
honor a conversion notice and (iv) in other events as more fully set forth in
the Designation filed with this Form 8-K Current Report. Any redemptions,
however, are limited to the Registrant's borrowing availability under its loan
agreement with Finova Capital Corporation ("Finova"), as further described
below.
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The Designation grants to the Registrant the option, under certain
circumstances, to redeem for cash any shares of Preferred Stock submitted for
conversion if the Variable Conversion Price is less than $4.00 per share and
funds are available under the Registrant's loan agreement with Finova.
The Registrant also agreed with the Investors to file a registration
statement on the Common Stock underlying the conversion of the Preferred Stock
and to have such registration statement declared effective by the SEC within
ninety days of the Closing Date.
In conjunction with the issuance of the Preferred Stock, the Registrant
entered into a Second Amendment to Loan and Security Agreement with Finova (the
"Second Amendment"). The Second Amendment modified one financial covenant and
allowed the Registrant to redeem the Preferred Stock as contemplated in the
Designation if (i) following and giving effect to such redemption the Registrant
shall have excess borrowing availability under its borrowing base of not less
than $500,000, and shall have paid in full or made provision for payment in full
of all of Registrant's accounts payable in excess of $500,000 which are
outstanding beyond their due date and are not contested in good faith by the
Registrant and all book overdrafts and (ii) at the time of such redemption no
event of Monetary Default, as defined in the loan agreement with Finova, and no
event which, with notice or passage of time or both, would constitute an event
of Monetary Default under the loan agreement with Finova has occurred and is
continuing, or would result from such redemption.
The above discussion is qualified in its entirety by the documents attached
as exhibits to this report.
ITEM 7. Financial Statements and Exhibits
(c) The following exhibits are filed as a part of this Form 8-K
Current Report:
4.1 Certificate of Designation of Series A Convertible
Preferred Stock of Intellicall, Inc.
10.1 Securities Purchase Agreement executed with the
Investors.
10.2 Registration Rights Agreement executed with the
Investors.
10.3 Second Amendment to Loan and Security Agreement with
Finova Capital Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTELLICALL, INC.
(Registrant)
Dated: July 24, 1997 /s/ Michael H. Barnes
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Michael H. Barnes
Senior Vice President and
Chief Financial Officer
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DOCUMENT 4.1
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
INTELLICALL, INC.
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Intellicall, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that, pursuant to the authority contained in its Certificate of Incorporation,
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware, its Board of Directors has adopted the following
resolution creating a series of its Preferred Stock designated as Series A
Convertible Preferred Stock:
"BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation, the Board of Directors
does hereby provide for the issue of a series of Preferred Stock, $1,000 face
amount per share, in connection with that certain Securities Purchase Agreement
dated July 21, 1997 by and among the Corporation and certain investors, there
shall be a series of shares of the Preferred Stock of the Corporation designated
"Series A Convertible Preferred Stock"; that the number of shares of such series
shall be 4,000 and that the rights and preferences of such series shall be as
follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,000 shares of Preferred
Stock, is the Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and the face amount shall be One Thousand U.S. Dollars ($1,000.00) per
share (the "Face Amount").
II. DIVIDENDS
The Series A Preferred Stock, as such stock, will bear no dividends, but the
holders of the Series A Preferred Stock shall be entitled to participate in the
dividends and distributions made on the Common Stock, as hereinafter provided.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall have
the following meanings:
A. "Conversion Date" means, for any Optional Conversion, the date specified
in the notice of conversion (the "Notice of Conversion") as long as the copy of
the Notice of Conversion is
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faxed (or delivered by other means resulting in notice) to the Corporation
before 11:59 p.m. Eastern Time, on the Conversion Date indicated in the Notice
of Conversion. If the Notice of Conversion is not so faxed or otherwise
delivered before such time, then the Conversion Date shall be the date the
holder faxes or otherwise delivers the Notice of Conversion to the Corporation.
The Conversion Date for the Required Conversion at Maturity shall be the
Maturity Date (as such terms are defined in Paragraph D of Article IV).
B. "Conversion Price" means, with respect to any Conversion Date, the lower
of the Fixed Conversion Price and the Variable Conversion Price, each as in
effect as of such date and subject to adjustment as provided herein.
C. "Fixed Conversion Price" means 120% of the volume-weighted average trade
price, as reported by Bloomberg Financial Markets ("Bloomberg"), of the Common
Stock for the fifteen (15) consecutive trading days ending on the trading day
immediately preceding the Closing Date (subject to equitable adjustment for any
stock splits, stock dividends, reclassifications or similar events during such
fifteen (15) trading day period), and shall be subject to adjustment as provided
herein.
D. "N" means the number of days from, but excluding, the Closing Date (the
"Closing Date") of the Closing under that certain Securities Purchase Agreement
(the "Securities Purchase Agreement") dated July 21, 1997 by and among the
Corporation and the Purchasers of the Corporation's Series A Preferred Stock
through and including the Conversion Date for such share of Series A Preferred
Stock.
E. "Premium" means 1000 x (N/365) x (.07).
F. "Redemption Conversion Amount" with respect to a share of Series A
Preferred Stock means an amount equal to:
1000 + Premium
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( CP ) X WAP
where:
"CP" means the Conversion Price in effect on the date of the Redemption Notice;
and
"WAP" means the volume weighted average trade price, as reported by Bloomberg,
of a share of Common Stock for the preceding fifteen (15) trading days, or if
such volume weighted average trade price is no longer reported by Bloomberg, an
equivalent price report per share of Common Stock by a recognized reporting
service reasonably acceptable to the holders of a majority of the outstanding
shares of Series A Preferred Stock, or if such equivalent price report is not
available, the fair market value per share of Common Stock determined by an
investment
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banking firm of national reputation selected by the Corporation which is
reasonably acceptable to the holders of a majority of the outstanding shares of
Series A Preferred Stock.
G. "Variable Conversion Price" means 80% of the volume-weighted average trade
price, as reported by Bloomberg, of the Common Stock for the fifteen (15)
consecutive trading days ending on the trading day immediately preceding the
Conversion Date (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such fifteen (15) trading
day period), and shall be subject to adjustment as provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series A Preferred Stock may, at any time and from time to time, beginning on
the ninetieth (90th)day after the Closing Date, convert (an "Optional
Conversion") each of its shares of Series A Preferred Stock into a number of
fully paid and nonassessable shares of Common Stock determined in accordance
with the following formula:
(Premium + 1000)
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Conversion Price
provided however, that if the Conversion Date is less than 180 days after the
Closing Date, then the following formula shall be used in lieu of the preceding
formula:
1000
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Conversion Price
B. Mechanics of Conversion. In order to effect an Optional Conversion, a holder
shall: (x) fax a copy of the fully executed Notice of Conversion to the
Corporation and (y) surrender or cause to be surrendered (subject to Article
XIV.B) the original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates") accompanied by duly executed
stock powers (with signature guaranteed in customary form if the holder
effecting conversion is other than the original Purchaser of the shares of
Series A Preferred Stock being converted) and a copy of the Notice of
Conversion. Upon receipt by the Corporation of the fax copy of a Notice of
Conversion from a holder, the Corporation shall immediately send, via fax, a
confirmation to such holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion and the name and telephone number of a
contact person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion unless
either the Preferred Stock Certificates are delivered to the Corporation as
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provided above, or the holder notifies the Corporation that such certificates
have been lost, stolen or destroyed (and the requirements of Article XIV.B are
complied with).
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of Preferred
Stock Certificates and executed stock powers from a holder of Series A Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the third business day following the Conversion Date
(provided the holder shall have complied with clause (y) above within one
business day of delivery such fax Notice of Conversion ) and (b) two business
days following the date of such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of indemnity pursuant to Article XIV.B)
(the "Delivery Period"), issue to the holder and deliver to the holder (or at
its direction) (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series A Preferred Stock being converted and (y) a
certificate representing the number of shares of Series A Preferred Stock not
being converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes (other than transfer
taxes) which may be imposed with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A Preferred Stock would
result in the issuance of a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon such conversion shall be the nearest whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with subparagraph (i) above. If such
dispute involves the calculation of the Conversion Price, the Corporation shall
submit the disputed calculations to its outside accountant via facsimile within
two (2) business days of receipt of the Notice of Conversion. The accountant
shall issue a report regarding the calculations and notify the Corporation and
the holder of the results no later than two (2) business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above, it being understood and agreed that the Company shall not be in default
because of its failure to issue shares of Common Stock which are subject to a
dispute before the resolution of such dispute.
C. Limitations on Conversions. The conversion of shares of Series A
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless otherwise permitted by the New York Stock Exchange
("NYSE")
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in no event shall the total number of shares of Common Stock issued upon
conversion of the Series A Preferred Stock exceed the maximum number of shares
of Common Stock that the Corporation can without shareholder approval so issue
pursuant to NYSE Listed Company Manual Section 312.03(c) (or any successor rule)
("Rule 312.03(c)") (the "Cap Amount") which, as of the date of issuance of the
Series A Preferred Stock, shall be 1,860,500 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series A Preferred Stock as provided in
Article XIV.D. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Notwithstanding anything to the contrary contained
herein, the Series A Preferred Stock shall not be convertible by a holder or at
the Maturity Date to the extent (but only to the extent) that, if converted by
such holder or at the Maturity Date, the holder would beneficially own in excess
of 4.9% of the shares of Common Stock. To the extent this limitation applies,
the determination of whether Series A Preferred Stock shall be convertible
(vis-a-vis other securities owned by such holder) and of which Series A
Preferred Stock shall be converted shall be in the sole discretion of the holder
and submission of the Series A Preferred Stock for conversion shall be deemed to
be the holder's determination of whether such Series A Preferred Stock is
convertible, subject to such aggregate percentage limitation. No prior inability
to convert Series A Preferred Stock pursuant to this subparagraph shall have any
effect on the applicability of its provisions with respect to any subsequent
determination of convertibility. For the purposes of this subparagraph,
beneficial ownership and all calculations, including without limitation, with
respect to calculations of percentage ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this
subparagraph may be waived and/or implemented in a manner otherwise than in
strict conformity with the terms hereof with the approval of the Board of
Directors of the Corporation and the holders of a majority in interest of the
then outstanding Series A Preferred Stock: (i) with respect to any matter to
cure any ambiguity herein, to correct this subparagraph (or any portion thereof)
which may be defective or inconsistent with the intended 4.9% beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such 4.9% limitation; and (ii)
with respect to any other matter, with the further consent of the holders of a
majority of the then outstanding shares of Common Stock. The limitations
contained in this subparagraph shall apply to a successor holder of Series A
Preferred Stock if, and to the extent, elected by such successor holder
concurrently with its acquisition of such Series A Preferred Stock, such
election to be promptly confirmed in writing to the Corporation (provided no
transfer or series of transfers to a successor holder or holders shall be used
by a holder to evade the limitations contained herein).
D. Required Conversion at Maturity. Subject to the limitations set forth in
Paragraph C(i) and C(ii) of this Article IV and provided all shares of Common
Stock issuable upon conversion
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of all outstanding shares of Series A Preferred Stock are then (i) authorized
and reserved for issuance, (ii) registered under the Securities Act of 1933, as
amended (the "Securities Act") for resale by the holders of such shares of
Series A Preferred Stock and (iii) eligible to be traded on either the Nasdaq,
the New York Stock Exchange or the American Stock Exchange, each share of Series
A Preferred Stock issued and outstanding on the second anniversary of the
Closing Date (the "Maturity Date") (and any accrued and unpaid Conversion
Default Payments), automatically shall be converted into shares of Common Stock
on such date in accordance with the conversion formulas set forth in Paragraph A
of this Article IV (the "Required Conversion at Maturity"). If a Required
Conversion at Maturity occurs, the Corporation and the holders of Series A
Preferred Stock shall follow the applicable conversion procedures set forth in
Paragraphs B and C of this Article IV; provided, however, that the holders of
Series A Preferred Stock are not required to deliver a Notice of Conversion.
E. Limited Right to Deliver Cash in Lieu of Stock Upon Conversion. So long as no
Redemption Event shall have occurred and provided the Corporation is not in
violation of any of its obligations under the Securities Purchase Agreement or
the Registration Rights Agreement and provided that the Variable Conversion
Price is less than $4.00, the Corporation may deliver a notice to each holder of
the Series A Preferred Stock (a "Cash Conversion Payment Notice") stating that
it elects to pay all or a portion of the consideration to be delivered to a
holder of Series A Preferred Stock that elects to convert such shares in cash in
lieu of shares of Common Stock in accordance with the provisions of this
Paragraph E and stating the maximum amount per share of Series A Preferred Stock
(the "Maximum Per Share Cash Payment") and the maximum aggregate amount
("Aggregate Maximum") that the Corporation will pay as a result of satisfying
such conversions in cash. During the seven day period commencing on the date of
the delivery of a Cash Conversion Payment Notice (the "Required Cash Conversion
Period") to a holder, the Corporation shall have the right and obligation to
satisfy any Notice of Conversion by payment of the Cash Redemption Amount for
each share of Series A Preferred Stock being redeemed in cash within twenty-four
(24) hours after the delivery of any Notice of Conversion rather than by
delivery of Common Stock; provided, however, that the right and obligation to
pay cash in lieu of Common Stock shall only be effective in the event that the
cash payment per share of Series A Preferred Stock does not exceed the Maximum
Per Share Cash Payment and shall only be effective to the extent the total cash
payment required as a result of a Cash Conversion Payment Notice does not exceed
the Aggregate Maximum, with the Corporation's obligation to deliver shares of
Common Stock in response to a Notice of Conversion being unaffected to the
extent of any limitation on the Corporation's right and obligation to pay cash
set forth in this proviso. To the extent the Aggregate Maximum is exceeded,
holders of Series A Preferred Stock will receive cash in lieu of shares of
Common Stock in the order of the date of delivery of their Notices of
Conversion, with any holders delivering Notices of Conversion on the same day
receiving cash pro rata in accordance with the number of shares of Series A
Preferred Stock converted by them on such date. The "Cash Redemption Amount"
with respect to a share of Series A Preferred Stock shall be a cash
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amount equal to the number of shares of Common Stock that would otherwise be
received upon the exercise of the Optional Conversion with respect to such share
of Series A Preferred Stock multiplied by the closing bid price of the
Corporation's Common Stock on the trading day immediately preceding the date
that would otherwise be the Conversion Date.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series A
Preferred Stock, Two Million Five Hundred Thousand (2,500,000) of the authorized
but unissued shares of Common Stock shall be reserved for issuance upon
conversion of the Series A Preferred Stock and thereafter the number of
authorized but unissued shares of Common Stock so reserved (the "Reserved
Amount") shall not be decreased until the Series A Preferred Stock has been
fully converted and shall at all times be sufficient to provide for the
conversion of the Series A Preferred Stock outstanding at the then current
Conversion Price. The Reserved Amount shall be allocated to the holders of
Series A Preferred Stock as provided in Article XIV.D.
B. Increases to Reserved Amount. If the Reserved Amount for any five (5)
consecutive trading days (the last of such five (5) trading days being the
"Authorization Trigger Date") shall be less than 150% of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock on such
trading days, the Corporation shall immediately notify the holders of Series A
Preferred Stock of such occurrence and shall immediately take all necessary
action (including, if necessary, shareholder approval to authorize the issuance
of additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series A Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within: (i) thirty (30) days after an Authorization
Trigger Date if shareholder approval is not required by applicable law for such
increase; or (ii) one hundred twenty (120) days after an Authorization Trigger
Date if shareholder approval is required by applicable law (provided, however,
that the Corporation must file preliminary proxy materials with the Securities
and Exchange Commission ("SEC") within thirty (30) days of an Authorization
Trigger Date), each holder of Series A Preferred Stock shall thereafter have the
option, exercisable in whole or in part (but only to the extent that it would
not cause the Corporation to be in "Monetary Default" (as herein defined)) at
any time and from time to time by delivery of a Redemption Notice (as defined in
Article VIII. C) to the Corporation, to require the Corporation, to purchase for
cash, at an amount per share equal to the Redemption Conversion Amount, up to a
portion of the holder's Series A Preferred Stock such that, after giving effect
to such purchase, the holder's allocated portion of the Reserved Amount exceeds
200% of the total number of Common Stock issuable to such holder upon conversion
of its Series A Preferred Stock. If the Corporation fails to redeem any of such
shares within five (5) business days after its receipt of a Redemption Notice,
then such holder shall be entitled to the remedies provided in Article VIII. C.
For purposes hereof, "Monetary Default" shall mean the existence of an event
specified on Schedule 1 attached hereto.
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VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares of
Series A Preferred Stock submits a Notice of Conversion and the original
certificates representing the Series A Preferred Stock and the stock powers
required by paragraph IV(B) and the Corporation fails for any reason (other than
because such issuance would exceed such holder's allocated portion of the
Reserved Amount or Cap Amount, for which failures the holders shall have the
remedies set forth in Articles V and VII) to deliver, on or prior to the second
business day following the expiration of the Delivery Period for such conversion
(said period of time being the "Extended Delivery Period"), such number of
freely tradeable shares of Common Stock to which such holder is entitled upon
such conversion, or (y) the Corporation provides notice (including by way of
public announcement) to any holder of Series A Preferred Stock at any time of
its intention not to issue freely tradeable shares of Common Stock upon exercise
by any holder of' its conversion rights in accordance with the terms of this
Certificate of Designation (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount) (each of (x)
and (y) being a "Conversion Default"), then the Corporation shall pay to the
affected holder, in the case of a Conversion Default described in clause (x)
above, and to all holders, in the case of a Conversion Default described in
clause (y) above, payments for the first ten (10) business days following the
expiration of the Extended Delivery Period, in the case of a Conversion Default
described in clause (x), and for the first ten (10) business days of a
Conversion Default described in clause (y), an amount equal to $1000 per day for
the first ten days. In the event any Conversion Default continues beyond such
ten (10) business day period, the Corporation shall pay to the holder an
additional amount per day equal to 1% of the Face Amount of the Series A
Preferred Stock with respect to which the Conversion Default exists.
The payments to which a holder shall be entitled pursuant to this Paragraph A
are referred to herein as "Conversion Default Payments." A holder may elect to
receive accrued Conversion Default Payments in cash or to convert all or any
portion of such accrued Conversion Default Payments, at any time, into Common
Stock at the lowest Conversion Price in effect during the period beginning on
the date of the Conversion Default through the Conversion Date for such
conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Article
XIV.F. In the event a holder elects to convert all or any portion of the
Conversion Default Payments, the holder shall indicate on a Notice of Conversion
such portion of the Conversion Default Payments which such holder elects to so
convert and such conversion shall otherwise be effected in accordance with the
provisions of Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Extended Delivery Period with respect to a
conversion of Series A Preferred Stock for any reason (other
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than because such issuance would exceed such holder's allocated portion of the
Reserved Amount or Cap Amount, for which failures the holders shall have the
remedies set forth in Articles V and VII), then the Fixed Conversion Price in
respect of any shares of Series A Preferred Stock held by such holder shall
thereafter be the lesser of (i) the Fixed Conversion Price on the Conversion
Date specified in the Notice of Conversion which resulted in the Conversion
Default and (ii) the lowest Conversion Price in effect during the period
beginning on, and including, such Conversion Date through and including the day
such Conversion Default is cured. If there shall occur a Conversion Default of
the type described in clause (y) of Article VI.A., then the Fixed Conversion
Price with respect to any conversion thereafter shall be the lowest Conversion
Price in effect at any time during the period beginning on, and including, the
date of the occurrence of such Conversion Default through and including the day
such Conversion Default is cured. The Fixed Conversion Price shall thereafter be
subject to further adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable holder in
writing that the Corporation is unable to honor conversions prior to the
delivery of a Notice of Conversion, if (i) the Corporation fails for any reason
to deliver during the Delivery Period shares of Common Stock to a holder upon a
conversion of shares of Series A Preferred Stock and (ii) after the applicable
Delivery Period with respect to such conversion, such holder purchases (in an
open market transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such holder of the shares of Common Stock (the "Sold
Shares") which such holder anticipated receiving upon such conversion (a
"Buy-In"), the Corporation shall pay such holder (in addition to any other
remedies available to the holder) the amount by which (x) such holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the net proceeds received by such holder
from the sale of the Sold Shares. For example, if a holder purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification indicating any amounts payable to such holder pursuant to
this Paragraph C. The Corporation shall make any payments required pursuant to
this Paragraph C in accordance with and subject to the provisions of Article
XIV.F.
D. Redemption Right. If the Corporation fails, and such failure continues
uncured for five (5) business days after the Corporation has been notified
thereof in writing by the holder, for any reason (other than because such
issuance would exceed such holders allocated portion of the Reserved Amount or
Cap Amount, for which failures the holders shall have the remedies set forth in
Articles V and VII) to issue shares of Common Stock within ten (10) business
days after the expiration of the Extended Delivery Period with respect to any
conversion of Series A Preferred Stock, then the holder may elect at any time
and from time to time prior to the cure of such failure, by delivery of a
Redemption Notice (as defined in Article VIII.C) to the Corporation, to have all
or any portion of such holder's outstanding shares of Series A Preferred
<PAGE>
Stock purchased by the Corporation for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B). If the Corporation fails to
redeem any of such shares within five (5) business days after its receipt of a
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C.
VII. INABILITY TO CONVERT SHARES OF SERIES A PREFERRED STOCK DUE
TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of any holder's
Cap Amount is less than 125% of the number of shares of Common Stock then
issuable upon conversion of such holder's shares of Series A Preferred Stock (a
"Trading Market Trigger Event"), the Corporation shall immediately notify the
holders of Series A Preferred Stock of such occurrence and shall immediately
take all necessary action (including, if necessary, approval of its shareholders
to authorize the issuance of the full number of shares of Common Stock which
would be issuable upon the conversion of Series A Preferred Stock but for the
Cap Amount provided, however, that (A) the Corporation must file preliminary
proxy materials with the SEC within thirty (30) days of the Trading Market
Trigger Event and (B) officers and directors of the Corporation shall promptly
upon the occasion of any such Trading Market Trigger Event enter into
irrevocable agreements to vote all of their shares in favor of eliminating such
prohibitions) to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock in
excess of the Cap Amount. In the event the Corporation fails to eliminate all
such prohibitions within one hundred twenty (120) days after the Trading Market
Trigger Event, each holder of Series A Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation, subject to the Corporation not being in
Monetary Default as a result of such exercise, to purchase for cash, at an
amount per share equal to the Redemption Conversion Amount, a portion of the
holder's Series A Preferred Stock such that, after giving effect to such
purchase, the holder's allocated portion of the Cap Amount exceeds 125% of the
total number of shares of Common Stock issuable to such holder upon conversion
of its Series A Preferred Stock on the date of such Redemption Notice. If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such holder shall be entitled to
the remedies provided in Article VIII.C.
B. Remedies. If the Corporation fails to eliminate the applicable
prohibitions within the one hundred twenty (120) day cure period referred to in
Paragraph A of this Article VII and thereafter the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of Series A
Preferred Stock to any holder because such issuance would exceed such holder's
allocated portion of the Cap Amount because of applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory
<PAGE>
organization with jurisdiction over the Corporation or its securities, any
holder who is so prohibited from converting its Series A Preferred Stock may:
(i) require, with the consent of holders of at least fifty percent (50%) of the
outstanding shares of Series A Preferred Stock (including any shares of Series A
Preferred Stock held by the requesting holder), the Corporation to terminate the
listing of its Common Stock and to cause its Common Stock to be eligible for
trading on the American Stock Exchange, the Nasdaq National Market System, the
Nasdaq Small Cap Market or on the over-the-counter electronic bulletin board, at
the option of the requesting holder; or
(ii) require the Corporation to issue shares of Common Stock in accordance with
such holder's Notice of Conversion at a conversion price equal to the Conversion
Price in effect on the date of the holder's written notice to the Corporation of
its election to receive shares of Common Stock pursuant to this subparagraph
(ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock) is suspended from trading on, or is
not listed (and authorized) for trading on, the New York Stock Exchange for an
aggregate of five trading days in any nine (9) month period,
(ii) the Corporation fails, and any such failure continues uncured for five (5)
business days after the Corporation has been notified thereof in writing by the
holder, to remove any restrictive legend on any certificate of any shares of
Common Stock issued to the holders of Series A Preferred Stock upon conversion
of the Series A Preferred Stock as and when required by this Certificate of
Designation, the Securities Purchase Agreement, or the Registration Rights
Agreement, dated as of July 21, 1997, by and among the Corporation and the other
signatories thereto (the "Registration Rights Agreement"),
(iii) the Corporation provides notice to any holder of Series A Preferred Stock,
including by way of public announcement, at any time, of its intention not to
issue shares of Common Stock to any holder of Series A Preferred Stock upon
conversion in accordance with the terms of this Certificate of Designation
(other than due to the circumstances contemplated by Articles V or VII for which
the holders shall have the remedies set forth in such Articles),
(iv) the Corporation breaches any material covenant or other material term
or condition of
<PAGE>
this Certificate of Designation; the Securities Purchase Agreement or the
Registration Rights Agreement and such breach continues for a period of fifteen
(15) business days after written notice thereof to the Corporation,
(v) any representation or warranty of the Corporation made in any agreement,
statement or certificate given in writing in connection with the issuance of the
Series A Preferred Stock (including, without limitation the Securities Purchase
Agreement and the Registration Rights Agreement), shall be false or misleading
in any material respect when made and the breach of which would have a material
adverse effect on the Corporation or the rights of the Corporation with respect
to any of the shares of Series A Preferred Stock or the shares of Common Stock
issuable upon conversion thereof, or
(vi) (x) the Registration Statement is not effective by October 18, 1997 or (y)
the Company fails to maintain an effective registration statement as required by
Section 2.1 and Section 3.1 of the Registration Rights Agreement and such
failure exists for a period of ninety (90) days in any twelve (12) month period;
provided, however, that it shall not constitute a Redemption Event if the
failure described in clause (x) exists for up to forty five (45) days after the
ninety day period set forth above if the Corporation is using its best efforts
to correct such failure and if such failure is caused by a stop action issued or
an enforcement action commenced or threatened in writing by the SEC.
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series A Preferred Stock shall thereafter have the option, exercisable in whole
or in part (but only to the extent that it would not cause the Corporation to be
in Monetary Default) at any time and from time to time by delivery of a
Redemption Notice (as defined in Paragraph C below) to the Corporation while
such Redemption Event continues, to require the Corporation to purchase for cash
any or all of the then outstanding shares of Series A Preferred Stock held by
such holder for an amount per share equal to the Redemption Amount (as defined
in Paragraph B below) in effect at the time of the redemption hereunder. For the
avoidance of doubt, the occurrence of any event described in clauses (i), (iii),
(v) or (vi)(x) above shall immediately constitute a Redemption Event and there
shall be no cure period.
B. Definition of Redemption Amount. The "Redemption Amount" with respect
to a share of Series A Preferred Stock means an amount equal to:
1000 + Premium
--------------
( C P ) X M
where:
"CP" means the Conversion Price in effect on the date of the Redemption Notice;
and
<PAGE>
"M" means the highest closing bid price of the Corporation's Common Stock during
the period beginning on the date of the Redemption Notice and ending on the date
of the redemption, as reported on the principal securities exchange or trading
market on which the Common Stock is traded.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount, the Cash Redemption Amount or the Redemption Conversion
Amount, as the case may be, with respect to any share of Series A Preferred
Stock within five (5) business days of its receipt of a notice requiring such
redemption (a "Redemption Notice"), then the holder of Series A Preferred Stock
delivering such Redemption Notice (i) shall be entitled to interest on the
Redemption Amount, the Cash Redemption Amount or Redemption Conversion Amount,
at a per annum rate equal to the lower of twenty-four percent (24%) and the
highest interest rate permitted by applicable law from the date of the
Redemption Notice until the date of redemption hereunder, and (ii) shall have
the right, at any time and from time to time, to require the Corporation, upon
written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of the Redemption Amount, the Cash
Redemption Amount or Redemption Conversion Amount, plus interest as aforesaid,
into shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Redemption Notice and ending on the
Conversion Date with respect to the conversion of such Redemption Amount. In the
event the Corporation is not able to redeem all of the shares of Series A
Preferred Stock subject to Redemption Notices, the Corporation shall redeem
shares of Series A Preferred Stock from each holder pro rata, based on the total
number of shares of Series A Preferred Stock included by such holder in the
Redemption Notice relative to the total number of shares of Series A Preferred
Stock in all of the Redemption Notices.
IX. RANK; PARTICIPATION
A. All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (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 A Preferred Stock
obtained in accordance with Article XIII hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
A 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 A Preferred Stock
obtained in accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock (the "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 A
Preferred Stock obtained in accordance with Article XIII hereof) specifically
ranking, by its terms, senior to the Series A Preferred Stock (the "Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
<PAGE>
B. Subject to the rights of the holders (if any) of Pari Passu Securities and
Senior Securities, the holders of Series A Preferred Stock shall, as such
holders, be entitled to such dividends paid (other than those payable solely in
Common Stock) and distributions made to the holders of Common Stock to the same
extent as if such holders of Series A Preferred Stock had converted the same
into Common Stock and had been issued the same on the day before the record date
for said dividend or distribution. Payments under the preceding sentence shall
be made concurrently with the dividend or distribution to the holders of Common
Stock. Nonetheless, payments due under this paragraph B to the holders of Series
A Preferred Stock shall be reduced, but not below zero, by an amount equal to 7%
per annum of the Face Amount, calculated from the Closing Date to and including
the date of payment on the basis of a 365 day year.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S. Federal
bankruptcy laws or any other applicable 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 U.S. Federal bankruptcy laws or any other applicable
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, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), 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 A Preferred Stock shall have received the Liquidation
Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Series A 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 A 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. The purchase or redemption by the Corporation of stock of any class, in
any manner
<PAGE>
permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series A Preferred
Stock means an amount equal to the Face Amount thereof plus the Premium with
respect thereto plus any other amounts that may be due from the Corporation with
respect thereto through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the Closing
Date, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, combination, reclassification or other similar event, the
Fixed Conversion Price shall be proportionately 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 increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. Certain Public Announcements. In the event that (i) the Corporation makes a
public announcement that it intends to consolidate or merge with any other
entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged and there is not
distribution thereof) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Common Stock (the date of the announcement referred to in clause (i) or (ii) of
this paragraph is hereinafter referred to as the "Announcement Date"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the consummation of the proposed tender offer or transaction or the
Abandonment Date (as defined below), be equal to the lesser of (x) the
Conversion Price calculated as provided in Article III.B and (y) the Conversion
Price which would have been applicable for an Optional Conversion occurring on
the Announcement Date. From and after the Abandonment Date, as the case may be,
the Conversion Price shall be determined as set for in Article III.B. The
"Abandonment Date" means with respect to any proposed transaction or tender
offer for which a public announcement as contemplated by this paragraph has been
made, the date which is sixteen (16) trading days after the date upon which the
Corporation (in the case
<PAGE>
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer which causes this paragraph to become operative.
C. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Closing Date, there shall be (a "Major Transaction") (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of the Corporation with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Corporation or (iv) any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, then the holders of Series A Preferred Stock shall thereafter have the
right to receive upon conversion, in lieu of the shares of Common Stock
immediately theretofore issuable (without regard to any conversion limitations
herein contained),the greater of (in such holder's sole discretion) (a) such
shares of stock, securities and/or other property as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore issuable upon conversion (without regard to any
conversion limitations herein contained) had such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event not
taken place, or (b) 125% of the Face Amount per share being so converted. In the
event of any Major Transaction, thus in any such case, appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Series A 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 A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this Paragraph C unless (i) each holder of Series A Preferred Stock has
received written notice of such transaction at least thirty (30) days prior
thereto, but in no event later than ten (10) days prior to the record date for
the determination of shareholders entitled to vote with respect thereto;
provided, however, that the Corporation shall not be required to disclose any
material inside information to a holder of Series A Preferred Stock prior to the
public disclosure thereof, and (ii) the resulting successor or acquiring entity
(if not the Corporation) assumes by written instrument the obligations of this
Paragraph C. The above provisions shall apply regardless of whether or not there
would have been a sufficient number of shares of Common Stock authorized and
available for issuance upon conversion of the shares of Series A Preferred Stock
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
D. Adjustment Due to Distribution. If at any time after the Closing Date,
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of
<PAGE>
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Corporation's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e. a spin-off)) (a "Distribution"), then the holders of Series A
Preferred Stock shall be entitled, upon any conversion of shares of Series A
Preferred Stock after the date of record for determining shareholders entitled
to such Distribution, to receive the amount of such assets which would have been
payable to the holder with respect to the shares of Common Stock issuable upon
such conversion had such holder been the holder of such shares of Common Stock
on the record date for the determination of shareholders entitled to such
Distribution.
Ei [Intentionally Deleted.]
Fi Purchase Rights. If at any time after the Closing Date, the Corporation
issues any Convertible Securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holders of Series A Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series A Preferred Stock immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Gi Special Adjustment. If the Corporation takes any actions (including under or
by virtue of this Article) which would have a dilutive effect on the holder or
which would materially and adversely affect the holder with respect to its
investment in the Series A Convertible Preferred Stock, and if the provisions of
this Article are not strictly applicable to such actions or, if applicable to
such actions, would not operate to equitably protect the holder against such
actions, then within ten business days, the Corporation shall appoint its
independent certified public accountants to determine as promptly as practicable
an appropriate adjustment to the terms hereof to so equitably protect such
holder and prevent any such dilution and any such material adverse effect, as
the case may be. Following such determination, the Corporation shall forthwith
make the adjustments described therein. Hi Notice of Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Article XI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series A
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 A Preferred Stock, furnish 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
<PAGE>
securities or property which at the time would be received upon conversion of a
share of Series A Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power whatsoever,
except as otherwise provided by the Delaware General Corporation Law (the
"General Corporation Law"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of Series A
Preferred Stock with prior notification of any meeting of the shareholders (and
copies of proxy materials and all other information sent to shareholders). If
the Corporation takes a record of its shareholders for the purpose of
determining shareholders entitled to (a) 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 fight, or (b)
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 merger,
consolidation, 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 thirty (30) days prior to the
consummation of the transaction or event, whichever is earlier, but in no event
earlier than public announcement of such proposed transaction), of the date on
which any such record is to be taken for the purpose of such vote, dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such vote, dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the General Corporation Law the vote of the holders of
the Series A 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 A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the General
Corporation Law) shall constitute the approval of such action by the class. To
the extent that under the General Corporation Law holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series A 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.
XIII. PROTECTION PROVISIONS
<PAGE>
So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock;
(b) alter or change the rights, preferences or privileges of any capital
stock of the Corporation so as to affect adversely the Series A Preferred Stock;
(c) create any new class or series of capital stock having a preference over the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking pari passu with the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
IX hereof; "Pari Passu Securities");
(e) increase the authorized number of shares of Series A Preferred Stock;
(f) redeem, or declare or pay any cash dividend or distribution on, any
Junior Securities.
If holders of at least a majority of the then outstanding shares of Series A
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series A Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right, for a period of thirty (30) days, to convert pursuant to the
terms of this Certificate of Designation as they existed prior to such
alteration or change or to continue to hold their shares of Series A Preferred
Stock.
XIV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of Series A Preferred
Stock are converted pursuant to Article IV, the shares so converted shall be
canceled, shall return to the status of authorized but unissued preferred stock
of no designated series, and shall not be issuable by the Corporation as Series
A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the
<PAGE>
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 A Preferred Stock.
C. [Intentionally Omitted]
D. Allocations of Cap Amount and Reserved Amount. The initial Cap Amount and
Reserved Amount shall be allocated to the holders of Series A Preferred Stock in
accordance with their holdings of shares of Series A Preferred Stock. Each
increase to the Cap Amount and Reserved Amount shall be allocated pro rata among
the holders of Series A Preferred Stock based on the number of shares of Series
A Preferred Stock held by each holder at the time of the increase in the Cap
Amount or Reserved Amount, as the case may be. In the event a holder shall sell
or otherwise transfer any of such holder's shares of Series A Preferred Stock,
each transferee shall be allocated a pro rata portion of such transferor's Cap
Amount and Reserved Amount. Any portion of the Cap Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares of Series
A Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such holders.
E. Statements of Available Shares. Upon request, the Corporation shall deliver
to each holder a written report notifying the holders of any occurrence which
prohibits the Corporation from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of Series A
Preferred Stock outstanding as of the date of the request, (ii) the total number
of shares of Common Stock issued upon all conversions of Series A Preferred
Stock through the date of the request, (iii) the total number of shares of
Common Stock which are reserved for issuance upon conversion of the Series A
Preferred Stock as of the date of the request, and (iv) the total number of
shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series A Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation shall provide, within
fifteen (15) days after delivery to the Corporation of a written request by any
holder, all of the information enumerated in clauses (i) - (iv) of this
Paragraph E.
F. Payment of Cash; Defaults. Whenever the Corporation is required to make any
cash payment to a holder under this Certificate of Designation (as a Conversion
Default Payment, upon redemption or otherwise), such cash payment shall be made
to the holder within five (5) business days after delivery by such holder of a
notice specifying that the holder elects to receive such payment in cash and the
method (e.g., by check, wire transfer) in which such payment should be made. If
such payment is not delivered within such five (5) business day period, such
holder shall thereafter be entitled to interest on the unpaid amount at a per
annum rate equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law
<PAGE>
until such amount is paid in full to the holder. To the extent that the holders
have a remedy as a result of the interest provided for in clause (i) of Article
VIII.C, the payment of interest that would otherwise be required pursuant to
this Article XIV.F shall not be required.
G. Status as Stockholder. Upon submission of a Notice of Conversion by a holder
of Series A Preferred Stock, the shares covered thereby shall be deemed
converted into shares of Common Stock and the holder's rights as a holder of
such converted shares of Series A Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Extended Delivery Period with
respect to a conversion of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock)
the holder shall regain the rights of a holder of Series A Preferred Stock with
respect to such unconverted shares of Series A Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares to the
holder. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion Default
Payments pursuant to Article VI.A to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Article VI.B) for the Corporation's failure to convert Series A
Preferred Stock.
H. Remedies, Other Obligations, Breaches and Injunctive Relief. The remedies
provided in this Certificate of Designation shall be cumulative and in addition
to all other remedies available under this Certificate of Designation, at law or
in equity (including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provision giving rise to such remedy and nothing herein shall limit a
holder's right to pursue actual damages for any failure by the Corporation to
comply with the terms of this Certificate of Designation. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the holder hereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Corporation (or the performance thereof). The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of Series A Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Corporation therefore agrees,
in the event of any such breach or threatened breach, the holders of Series A
Preferred Stock shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned authorized officer has executed this
Certificate this 21st day of July, 1997.
William O. Hunt, Chief Executive Officer
and President of the Corporation
<PAGE>
Schedule 1
[list of Monetary Defaults will be added after discussion on Monday]
DOCUMENT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of July 21,
1997, by and between Intellicall, Inc., a Delaware corporation (the "Company"),
with headquarters located at Carrollton, Texas and the purchasers ("Purchasers")
set forth on the execution pages hereof, with regard to the following:
RECITALS
A. The Company and Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of 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 "Securities Act").
B. Purchasers desire to purchase, upon the terms and conditions stated in this
Agreement, preferred stock of the Company, having the rights set forth in the
form attached hereto as Exhibit A (the "Preferred Stock" or the "Convertible
Securities"), which shall be convertible into shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), as stated in Exhibit A.
The shares of Common Stock issuable upon conversion of the Preferred Stock are
referred to herein as the "Conversion Shares". The Preferred Stock and the
Conversion Shares are collectively referred to herein as the "Securities."
C. 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 B (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and Purchasers hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
I.1 Purchase of Preferred Stock. Subject to the terms and conditions of this
Agreement, the issuance, sale and purchase of the Preferred Stock shall be
consummated in a "Closing". The purchase price (the "Purchase Price") per share
of Preferred Stock shall be equal to the Face Amount thereof, namely, $1,000.
Each Purchaser shall purchase the number of shares of Preferred Stock set forth
on the signature page executed by such Purchaser. All dollar amounts in this
Agreement are U.S. Dollars.
<PAGE>
I.2 Form of Payment. At the Closing, each Purchaser shall pay the aggregate
Purchase Price for the Preferred Stock being purchased by such Purchaser by wire
transfer to the Company, in accordance with the Company's written wiring
instructions, against delivery of duly executed stock certificates for the same,
and the Company shall deliver such Preferred Stock against delivery of such
aggregate Purchase Price. The obligations of each Purchaser shall be separate
from the obligations of each other Purchaser. The obligations of the Company
with respect to each Purchaser shall be separate from the obligations of each
other Purchaser and shall not be conditioned as to any Purchaser upon the
performance of obligations of any other Purchaser.
I.3 Closing Date. Subject to the satisfaction (or waiver) of the conditions set
forth in Articles VI and VII below, the date and time of the issuance, sale and
purchase of the Convertible Securities pursuant to this Agreement shall be at
10:00 a.m. Chicago time, on July 21, 1997 (the "Closing Date"), at the offices
of Altheimer & Gray, 10 S. Wacker Drive, Chicago, IL 60606.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself and its
purchase hereunder and not with respect to any other Purchaser or the purchase
hereunder by any other Purchaser (and no Purchaser shall be deemed to make or
have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
II.1 Investment Purpose. Purchaser is purchasing the Convertible Securities for
Purchaser's own account for investment only and not with a view toward or in
connection with the public sale or distribution thereof. Purchaser will not
resell the Convertible Securities or any securities which may be issued upon
conversion thereof except pursuant to sales that are exempt from the
registration requirements of the Securities Act and all applicable state
securities laws, and/or sales registered under the Securities Act and all
applicable state securities laws. Purchaser understands that Purchaser must bear
the economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities
laws or an exemption from such registration is available, and that the Company
has no present intention of registering any such Securities other than as
contemplated by the Registration Rights Agreement. By making the representations
in this Section 2.1, the Purchaser does not agree to hold the Securities for any
minimum or other specific term and reserves the right to dispose
<PAGE>
of the Securities at any time in accordance with or pursuant to a registration
statement or an exemption from registration under the Securities Act and all
applicable state securities laws.
II.2 Accredited Investor Status. Purchaser is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D in that Purchaser has a net worth
of $5,000,000 and was not formed for the specific purpose of investing in the
Company. By reason of its business and financial experience and knowledge,
Purchaser is capable of evaluating the risks and merits of the investment made
pursuant to this Agreement.
II.3 Reliance on Exemptions. Purchaser understands that the Convertible
Securities are being offered and sold to Purchaser 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 Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Convertible Securities.
II.4 Information. Purchaser and its counsel have been furnished all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Convertible Securities, including the SEC
Documents, which have been specifically requested by Purchaser or its counsel.
Purchaser and its counsel have been afforded the opportunity to ask questions of
the Company and have received what Purchaser believes to be complete and
satisfactory answers to any such inquiries. Neither such inquiries nor any other
due diligence investigation conducted by Purchaser or its counsel or any of its
representations shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Article III. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
II.5 Governmental Review. Purchaser 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.
II.6 Transfer or Resale. Purchaser understands that (i) except as provided in
the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless subsequently registered thereunder or an exemption
from such registration is available (which exemption the Company expressly
agrees may be established as contemplated in clauses (b) and (c) of Section 5.1
hereof;) (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("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 without registration under the Securities Act will
require compliance with some other exemption under the Securities
<PAGE>
Act or the rules and regulations of the Securities and Exchange Commission
("SEC") thereunder; and (iii) neither the Company nor any other person is under
any obligation to register such Securities under the Securities 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 this Agreement or the
Registration Rights Agreement).
II.7 Legends. Purchaser understands that, subject to Article V hereof, the
certificates for the Preferred Stock and, until such time as the Conversion
Shares have been registered under the Securities Act as contemplated by the
Registration Rights Agreement or otherwise may be sold by Purchaser pursuant to
Rule 144, the certificates for the Conversion Shares will bear a restrictive
legend (the "Legend") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
II.8 Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
II.9 Residency. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that:
<PAGE>
III.1 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 where
the failure so to qualify would have a Material Adverse Effect. "Material
Adverse Effect" means any material adverse effect on the business, operations,
properties, financial condition, operating results or prospects of the Company
and its Subsidiaries, taken as a whole on a consolidated basis or on the
transactions contemplated hereby. "Subsidiary" means (a) any entity of which the
Company owns, directly or indirectly, securities having a majority of the
economic interests or of the voting power in electing the board of directors
directly or through one or more subsidiaries, including, without limitation, ILD
Communications, Inc. (or, in the case of a partnership, limited liability
company or other similar entity, securities conveying, directly or indirectly, a
majority of the economic interests in such partnership or entity), or (b) any
other entity of which the Company or any Subsidiary serves as general partner or
managing member.
III.2 Authorization; Enforcement. (a) The Company has the requisite corporate
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, to issue, sell and perform its obligations with
respect to the Preferred Stock in accordance with the terms hereof, and to issue
the Conversion Shares in accordance with the terms of Exhibit A; (b) the
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Preferred Stock and the issuance and reservation for issuance of the
Conversion Shares) have been duly authorized by the Company's board of directors
and, except as set forth on Schedule 3.2 hereof, no further consent or
authorization of the Company, its board of directors, or its stockholders is
required with respect to any of the transactions contemplated hereby or thereby
(whether under New York Stock Exchange rules or otherwise); (c) this Agreement
has been duly executed and delivered by the Company; and (d) this Agreement
constitutes, and upon execution and delivery by the Company of the Registration
Rights Agreement and the Preferred Stock, such instruments and agreements will
constitute, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms.
III.3 Capitalization. The capitalization of the Company as of the date hereof,
including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Stock) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares to be reserved for issuance upon conversion of the Preferred Stock is
set forth on Schedule 3.3. All of such outstanding shares of capital stock have
been, or upon issuance will be, validly
<PAGE>
issued, fully paid and nonassessable. No shares of capital stock of the Company
(including the Preferred Stock and the Conversion Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except as disclosed in Schedule 3.3, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable 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 may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement). The Company has furnished to Purchaser true and
correct copies of the Company's Certificate of Incorporation as in effect
("Certificate of Incorporation"), and the Company's By-laws as in effect (the
"By-laws"). The Company has set forth on Schedule 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
securities convertible into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser copies thereof upon the
request of Purchaser). The Company shall provide Purchaser with a written update
of this representation signed by the Company's Chief Executive Officer or Chief
Financial Officer on behalf of the Company as of the date of the Closing and of
the first anniversary of the Closing.
III.4 Issuance of Shares. The Conversion Shares are duly authorized and reserved
for issuance, and, upon conversion of the Preferred Stock in accordance with the
terms thereof, will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances and will not be subject to
preemptive rights or other similar rights of stockholders of the Company. The
Preferred Stock is duly authorized and reserved for issuance, validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company.
III.5 No Conflicts. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement by the Company, and the consummation by
the Company of transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance, as applicable, of the
Preferred Stock and Conversion Shares) will not (a) result in a violation of the
Certificate of Incorporation or By-laws or (b) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. 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
<PAGE>
of its subsidiaries, is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Except
as set forth on Schedule 3.5, neither the Company nor any of its subsidiaries is
in violation of its Certificate of Incorporation 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, nor has there
occurred any event giving others (with notice or lapse of time or both) any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible defaults or rights as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company and its subsidiaries are not being conducted, and shall not be
conducted so long as a Purchaser owns any of the Securities, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the Securities Act and any applicable state
securities laws (all of which exceptions are set forth on Schedule 3.5), the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of the NYSE
and does not reasonably anticipate that the Common Stock will be delisted by the
NYSE for the foreseeable future.
III.6 SEC Documents. Except as disclosed in Schedule 3.6, since December 31,
1993, the Company has timely 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 Securities Exchange Act of 1934, as amended (the
"Exchange Act") (all of the foregoing filed after December 31, 1993 and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being referred to herein as the
"SEC Documents"). The Company has delivered to Purchaser true and complete
copies of the SEC Documents, except for exhibits, schedules and incorporated
documents the SEC documents filed prior to the date hereof (the "Filed SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder 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. Other than as set forth in Schedule 3.6(a), none of the statements
made in any such SEC Documents is, or has been, required to be updated or
amended under applicable law. The financial statements of the Company included
in the SEC Documents have been
<PAGE>
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and the rules and regulations of the SEC 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 do not include footnotes or are condensed or
summary statements) and present accurately and completely 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, to the extent the existence of the facts
giving rise to such adjustments would not have a Material Adverse Effect).
Except as set forth in the financial statements of the Company included in the
Filed SEC Documents or as disclosed in Schedule 3.6(b), the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of such financial statements
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, in each case of clause
(i) and (ii) next above which, individually or in the aggregate, are not
material to the financial condition, business, operations, properties, operating
results or prospects of the Company. The Filed SEC Documents contain a complete
and accurate list of all material undischarged written or oral contracts,
agreements, leases or other instruments to which the Company or any subsidiary
is a party or by which the Company or any subsidiary is bound or to which any of
the properties or assets of the Company or any subsidiary is subject (each a
"Contract"). None of the Company, its subsidiaries or, to the best knowledge of
the Company, any of the other parties thereto, is in breach or violation of any
Contract, which breach or violation would have a Material Adverse Effect. No
event, occurrence or condition exists which, with the lapse of time, the giving
of notice, or both, or the happening of any further event or condition, would
become a default by the Company or its subsidiaries thereunder which would have
a Material Adverse Effect.
III.7 Absence of Certain Changes. Since December 31, 1996, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3.7.
III.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, or self-regulatory organization or body pending
or, to the knowledge of the Company or any of its subsidiaries, threatened
against or affecting the Company, any of its subsidiaries, or any of their
respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect or
would adversely affect the transactions contemplated by this Agreement or any of
the documents contemplated hereby or which would adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
<PAGE>
There are no facts which, if known by a potential claimant or governmental
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its subsidiaries,
could have a Material Adverse Effect.
III.9 Disclosure. No information relating to or concerning the Company set forth
in this Agreement or provided to Purchaser in connection with the transactions
contemplated hereby contains an untrue statement of a material fact. The Company
has not omitted to state a 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. Except for the execution and performance of this
Agreement or as set forth in Schedule 3.9, no material fact (within the meaning
of the federal securities laws of the United States) exists with respect to
Company which has not been publicly disclosed.
III.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser, or
any of its representatives or agents, in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers or directors. The Company further
represents to Purchaser that the Company's decision to enter into this Agreement
and the transactions contemplated hereby have been based solely on an
independent evaluation by the Company and its representatives.
III.11 Current Public Information. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. III.12 No General Solicitation. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as described in Rule
502(c) under Regulation D, with respect to any of the Securities being offered
hereby.
III.13 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 of any security or solicited any offers to buy any security
under circumstances that would prevent the parties hereto from consummating the
transactions contemplated hereby pursuant to an exemption from registration
under the Securities Act pursuant to the provisions of Regulation D. The
transactions contemplated hereby are exempt from the registration requirements
of the Securities Act, assuming the accuracy of the representations and
warranties herein contained of each Purchaser to the extent relevant for such
determination.
<PAGE>
III.14 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
by Purchaser relating to this Agreement or the transactions contemplated hereby,
except for dealings with Swartz Investments, LLC ("Swartz") the fees of which
shall be paid in full by the Company. The Company will indemnify each Purchaser
from and against any fees and expenses sought or other claims made by Swartz.
III.15 Acknowledgment of Dilution. The number of Conversion Shares issuable upon
conversion of the Preferred Stock may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize that they have a potential dilutive effect. The board of directors
of the Company has concluded in its good faith business judgment that such
issuance is in the best interests of the Company. The Company acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred Stock
is binding upon it and enforceable regardless of the dilution that such issuance
may have on the ownership interests of other stockholders.
III.16 Intellectual Property. Each of the Company and its subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being conducted and as described in the Company's Annual Report
on Form 10-K for its most recently ended fiscal year. Neither the Company nor
any subsidiary of the Company infringes on any right of any other person with
respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its subsidiaries, which
infringement or claim, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
III.17 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, the Company and its
subsidiaries have not directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual
<PAGE>
and regular compensation to its or their employees and sale representatives with
respect to such sales.
III.18 Key Employees. Each Key Employee (as defined below) is currently serving
the Company in the capacity disclosed in Schedule 3.18. No Key Employee, to the
best of the knowledge of the Company and its subsidiaries, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate his employment with, or
services to, the Company or any of its subsidiaries. "Key Employee" means any
director or executive officer of the Company, as defined in Regulation D of the
Securities Act.
ARTICLE IV
COVENANTS
IV.1 Best Efforts. The parties shall use their best efforts timely to satisfy
each of the conditions described in Articles VI and VII of this Agreement.
IV.2 Securities 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 each
Purchaser on or prior to the date of Closing. The Company shall, on or before
the date of Closing, take such action as is necessary to sell the Securities to
each Purchaser under applicable securities laws of the states of the United
States, and shall provide evidence of any such action so taken to each Purchaser
on or prior to the date of the Closing.
IV.3 Reporting Status. So long as any Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination. IV.4 Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Stock as set forth (and only as set forth) on Schedule 4.4
hereto.
IV.5 Restriction on Below Market Issuance of Securities. (a) For a period of one
hundred eighty (180) days following the date of Closing, the Company shall not
issue or agree to issue, (except (i) to Purchasers pursuant to this Agreement,
(ii) pursuant to any employee stock purchase plan or employee stock option plan
of the Company in effect on June 1, 1997, up to the aggregate amounts set forth
on Schedule 4.5 hereto or (iii) pursuant to any existing security,
<PAGE>
option, warrant, scrip, call or commitment or right in each case as disclosed on
Schedule 3.3 hereof,) any equity securities of the Company (or any security
convertible into or exercisable or exchangeable, directly or indirectly, for
equity securities of the Company) if such securities are issued at a price (or
in the case of securities convertible into or exercisable or exchangeable,
directly or indirectly, for Common Stock such securities provide for a
conversion, exercise or exchange price) which may be less than the current
market price for Common Stock on the date of issuance (in the case of Common
Stock) or the date of conversion, exercise or exchange (in the case of
securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock (the "Discounted Securities")).
(b) After the expiration of the 180-day restricted period in paragraph (a)
above, the Company may issue Discounted Securities, provided, however, that any
such security shall be ineligible for conversion and ineligible for resale until
the date which is one year after the Closing.
(c) Without the consent of the holders of a majority in interest of the
Preferred Stock, the Company shall not until after the first anniversary of the
date of Closing grant any additional so-called "registration rights".
IV.6 Right of First Offer. From and after the date which is 180 days after the
Closing until the date which is 360 days after the Closing, the Company shall
not issue or sell, or agree to issue or sell any equity or debt securities of
the Company or any of its subsidiaries (or any security convertible into or
exercisable or exchangeable, directly or indirectly, for equity or debt
securities of the Company or any of its subsidiaries) ("Future Offerings")
unless the Company shall have first delivered to each Purchaser at least fifteen
(15) business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Purchaser and its affiliates an option during the
ten (10) business day period following delivery of such notice to purchase up to
the full amount of the securities being offered in the Future Offering on the
same terms as contemplated by such Future Offering (the limitations referred to
in this sentence are collectively referred to as the "Capital Raising
Limitations"). The Capital Raising Limitations shall not apply to any
transaction involving issuances of securities in connection with a merger or
consolidation or exercise of options by employees, consultants or directors. In
addition, the Capital Raising Limitations also shall not apply to (a) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or
(c) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants to the aggregate
extent set forth on Schedule 4.6. This Section 4.6 shall not limit the Company's
obligations under Section 4.5 above.
IV.7 Expenses. The Company shall pay to CC Investments, LDC ("CC"), or at
its direction,
<PAGE>
at the Closing reimbursement for the out-of-pocket expenses reasonably incurred
by it and its affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, CC's and
its affiliates' and advisors' due diligence and attorneys' fees and expenses
(the "Expenses"). In addition, from time to time thereafter, upon CC's written
request, the Company shall pay to CC such additional Expenses, if any, not
covered by such payment, in each case to the extent reasonably incurred by CC.
The Company's total obligation under this Section 4.7 shall not exceed $40,000.
IV.8 Public Information. The Company agrees to send the following reports to
each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (a) within three (3) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within one (1) day after
release, copies of all press releases issued by the Company or any of its
subsidiaries.
IV.9 Reservation of Shares. The Company shall at all times have authorized and
reserved for the purpose of issuance upon conveyance of the Preferred Stock that
number of shares of Common Stock as is required by Article V of Exhibit A.
IV.10 Listing. The Company shall use its best efforts to continue the listing
and trading of its Common Stock on the New York Stock Exchange ("NYSE"); and
shall comply in all respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the NYSE.
IV.11 Prospectus Delivery Requirement. Each Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold, and each Purchaser shall use its reasonable efforts to comply with
the applicable prospectus delivery requirements of the Securities Act in
connection with any such sale.
IV.12 Intentional Acts or Omissions. The Company shall not intentionally perform
any act which if performed, or intentionally omit to perform any act which, if
omitted to be performed, would prevent or excuse the performance of this
Agreement or any of the transactions contemplated hereby.
IV.13 Certain Short Sales. The Company understands that some or all of the
Purchasers are so-called "hedge" funds and the Company hereby expressly agrees
that each Purchaser shall not (except to the extent stated in Section 5.4) in
any way be prohibited or restricted from any purchases or sales of any
securities of or related to the Company, including, without limitation,
so-called "short" sales and (a) subject to the provisions of Section 5.4, using
Conversion Shares
<PAGE>
received by it on conversion of its Preferred Stock to cover short sales of the
Common Stock and (b) engaging in so-called "hedging" and "arbitrage"
transactions.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
V.1 Removal of Legend. The Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be shared equally by the Company and such holder), to the
effect that a public sale or transfer of such Security may be made without
registration under the Securities Act or (c) such holder provides the Company
with reasonable assurances that such Security can be sold pursuant to Rule 144.
Each Purchaser agrees to sell all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which were originally
issued without the Legend, pursuant to an effective registration statement and
to deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of the Securities Act. In the event
the Legend is removed from any Security or any Security is issued without the
Legend and thereafter the effectiveness of a registration statement covering the
resale of such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser holding such Security, the Company may
require that the Legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or Rule 144 or with respect to
which the opinion referred to in clause (b) next above has not been rendered,
which Legend shall be removed when such Security may be sold pursuant to an
effective registration statement or Rule 144 or such holder provides the opinion
with respect thereto described in clause (b) next above.
V.2 Transfer Agent Instructions. The Company shall instruct its transfer agent
to issue certificates, registered in the name of each holder or its nominee, for
the Conversion Shares in such amounts as specified from time to time by such
holder to the Company upon conversion of the Preferred Stock. Such certificates
shall bear the Legend only to the extent permitted by Section 5.1 above. The
Company warrants that no instruction other than such instructions referred to in
this Article V, and stop transfer instructions to give effect to Section 2.6
hereof in the case of the Conversion Shares prior to registration of the
Conversion Shares under the Securities 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. Nothing in this Section shall affect in
any way each holder's obligations and agreement set forth in Section 5.1 hereof
to resell the Securities pursuant to an effective registration statement and to
deliver a
<PAGE>
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of applicable securities laws. If (a) a holder
provides the Company with an opinion of counsel, which opinion of counsel shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions (the reasonable cost of which shall be shared equally by the
Company and such holder), to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
registration or (b) a holder transfers Securities to an affiliate which is an
accredited investor or pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such holder. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to a holder by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article V will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Article
V, that a holder shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond or
other security being required.
V.3 Legend Removal Fee.
(a) A Purchaser or any affiliate to whom the Securities are transferred pursuant
to paragraph 5.2 who, within one year after the date of Closing acquires Common
Stock which is issued without a Legend in accordance with this Article V in a
conversion based solely on the Variable Conversion Price (as provided in Exhibit
A), shall pay to the Company, promptly upon its acquisition of such Common
Stock, in consideration of the removal of the Legend from such Common Stock or
the issuance without Legend of such Common Stock, a fee equal to "X" times said
Variable Conversion Price in respect of the Common Stock so issued, as follows:
Days after Closing "X"
- ------------------ ------
91-180 0.2500
181-365 0.0625
(b) In the event (each such event being a "Discount Event"):
(i) the Common Stock (including any of the shares of Common Stock issuable upon
conversion of the Preferred Stock) is suspended from trading on, or is not
listed (and authorized) for trading on, the New York Stock Exchange for an
aggregate of five (5) trading days in any nine (9) month period, or
(ii) the Company fails to maintain an effective registration statement as
required by Section 2.1 and Section 3.1 of the Registration Rights Agreement and
such failure exists for a period
<PAGE>
of ninety (90) days in any twelve (12) month period;
then, after the occurrence of any such Discount Event, upon the acquisition by a
holder of Common Stock pursuant to a conversion based on the Variable Conversion
Price (as provided in Exhibit A), the Company shall pay to such holders an
amount in cash equal to .0625 times the aggregate Variable Conversion Price of
the number of shares of Common Stock which such holders convert.
V.4 Certain Short Sales. Each Purchaser agrees that it will not use Conversion
Shares received by it on conversion of its Preferred Stock to cover short sales
of the Common Stock made by such Purchaser within fifteen (15) business days of
such conversion. If however, such Conversion Shares are not delivered to the
Purchaser within five (5) business days after the Purchaser's faxed conversion
notice, the preceding sentence shall not apply to such Conversion Shares.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
VI.1 Conditions to the Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Convertible Securities to a Purchaser at
the Closing is subject to the satisfaction, as of the closing date and with
respect to such Purchaser, 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:
(i) Such Purchaser shall have executed the signature page to this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
(ii) Such Purchaser shall have delivered the applicable Purchase Price for the
Convertible Securities purchased at the Closing.
(iii) The representations and warranties of such Purchaser shall be true and
correct as of the date when made and as of the Closing as though made at that
time (except for representations and warranties that speak as of a specific
date), and such Purchaser 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 applicable
Purchaser at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
<PAGE>
hereby which restricts or prohibits the consummation of any of the transactions
contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
VII.1 The obligation of each Purchaser hereunder to purchase the Convertible
Securities to be purchased by it on the Closing date is subject to the
satisfaction of each of the following conditions, provided that these conditions
are for each Purchaser's sole benefit and may be waived by such Purchaser at any
time in such Purchaser's sole discretion:
(i) The Company shall have executed the signature page to this Agreement and the
Registration Rights Agreement and delivered the same to Purchaser.
(ii) The Company shall have delivered duly executed certificates for the
Preferred Stock (in such denominations as Purchaser shall request) being so
purchased by Purchaser at the Closing.
(iii) The Common Stock shall be listed on the NYSE and trading in the Common
Stock shall not have been suspended by the NYSE or the SEC or other regulatory
authority.
(iv) The representations and warranties of the Company shall be true and correct
as of the date when made and as of the Closing as though made at that time
(except that representations and warranties that speak as of a specific date
shall be remade as of such date) and the Company shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing. Purchaser shall have received a
certificate, executed by the chief financial officer of the Company, dated as of
the Closing to the foregoing effect and as to such other matters as may be
reasonably requested by Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(vi) Purchaser shall have received the officer's certificate described in
Section 3.3, dated as of the Closing.
(vii) Purchaser shall have received opinions of the Company's counsel, dated as
of the Closing, in form, scope and substance reasonably satisfactory to
Purchaser.
<PAGE>
(viii) The Company shall have delivered evidence reasonably satisfactory to
Purchaser that the Company's transfer agent has agreed to act in accordance with
irrevocable instructions in the form attached hereto as Exhibit C. (ix) The
Company shall have entered into agreements with each of its persons listed on
Schedule 7.1(ix) hereto restricting dispositions of Common Stock beneficially
owned by such persons and in the form attached hereto as Exhibit D.
(x) The Certificate of Designation shall have been accepted for filing with the
Secretary of State of the State of Delaware and a copy thereof certified by the
Secretary of State of Delaware shall have been delivered to Purchaser.
(xi) The aggregate number of shares of Preferred Stock purchased by the
Purchasers shall be not less than 3,600 nor more than 4,000; provided, however
that the Company will afford each Purchaser a reasonable opportunity to purchase
any shares of Preferred Stock which are not purchased by the other Purchasers.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
VIII.1 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts and
state courts located in the County of New Castle in the State of Delaware in any
suit or proceeding based on or arising under this Agreement or the transactions
contemplated hereby and irrevocably agree that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the Company
mailed by certified mail return receipt requested shall be deemed in every
respect effective service of process upon the Company in any suit or proceeding
arising hereunder. Nothing herein shall affect Purchaser's right to serve
process in any other manner permitted by law. The parties hereto agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
VIII.2 Counterparts. This Agreement may be executed in two or more counterparts,
including, without limitation, by facsimile transmission, all of which
counterparts 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. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause four additional
original executed signature pages to be delivered to the other party within
three days of the execution and delivery hereof.
<PAGE>
VIII.3 Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
VIII.4 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.
VIII.5 Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the maters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and each Purchaser.
VIII.6 Notice. Any notice herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by
facsimile-machine confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
Intellicall, Inc.
2155 Chenault
Suite 410
Carrollton, Texas 75006
Telecopy: (972) 416-9454
Attention: William O. Hunt
with a copy to:
Kane, Russell, Coleman & Logan, P.C.
3700 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75205-7207
Telecopy: (214) 777-4200
Attention: Patrick Stark
If to CC:
<PAGE>
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Telecopy: (312) 435-2636
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Telecopy: (312) 715-4800
Attention: Kenneth M. Crane
If to any other Purchaser, to such address set forth under Purchaser's name on
the signature page hereto executed by such Purchaser.
VIII.7 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 any Purchaser shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the
foregoing, each Purchaser may assign its rights and obligations hereunder to any
of its "affiliates," as that term is defined under the Exchange Act, without the
consent of the Company so long as such affiliate is an accredited investor. This
provision shall not limit each Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement or to assign such Purchaser's rights
hereunder to any such transferee.
VIII.8 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.
VIII.9 Survival. The representations and warranties of the Company and the
agreements and
<PAGE>
covenants set forth in Articles III, IV, V and VIII shall survive the closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of Purchaser. The Company agrees to indemnify and hold harmless each
Purchaser and each of each Purchaser's officers, directors, employees, partners,
agents and affiliates for loss or damage arising as a result of or related to
any breach or alleged breach by the Company of any of its representations or
covenants set forth herein, including advancement of expenses as they are
incurred. The representations and warranties of the Purchasers pursuant to
Article II of this Agreement shall survive the closing hereunder and the
Purchasers shall indemnify and hold harmless the Company for any loss or damage
arising as a result of the breach of such representations and warranties which
would require registration of the securities purchased pursuant to this
Agreement.
VIII.10 Public Filings; Publicity. Immediately following execution of this
Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby and shall, within five (5) business days after
Closing, file a Form 8-K with the Securities and Exchange Commission attaching
all transaction documents as Exhibits thereto. The Company and each Purchaser
shall have the right to approve before issuance any press releases, SEC or NYSE
filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or SEC,
NASDAQ, NASD or exchange filings with respect to such transactions as is
required by applicable law and regulations (although each Purchaser shall be
consulted by the Company in connection with any such press release prior to its
release and shall be provided with a copy thereof).
VIII.11 Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
VIII.12 Remedies. No provision of this Agreement providing for any remedy to a
Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity. Nothing in this Agreement shall limit any rights
a Purchaser may have with any applicable federal or state securities laws with
respect to the investment contemplated hereby.
VIII.13 Termination. In the event that the Closing shall not have occurred on or
before August 1, 1997, unless the parties agree otherwise, this Agreement shall
terminate at the close of business on such date.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.
PURCHASER:
PROPRIETARY CONVERTIBLE
INVESTMENT GROUP, INC.
By:
Its:
AGGREGATE NUMBER OF PREFERRED SHARES: 1,250
COMPANY:
INTELLICALL, INC.
John M. Carradine,
Vice President of Finance
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.
PURCHASER:
CC INVESTMENTS, LDC
By:
Its:
AGGREGATE NUMBER OF PREFERRED SHARES: 1,600
COMPANY:
INTELLICALL, INC.
John M. Carradine,
Vice President of Finance
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.
PURCHASER:
THE MATTHEW FUND, N.V.
By:
Its:
AGGREGATE NUMBER OF PREFERRED SHARES: 150
COMPANY:
INTELLICALL, INC.
John M. Carradine,
Vice President of Finance
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER:
CANADIAN IMPERIAL HOLDINGS, INC.
By:
Its:
AGGREGATE NUMBER OF PREFERRED SHARES: 1,000
COMPANY:
INTELLICALL, INC.
John M. Carradine,
Vice President of Finance
<PAGE>
Schedule 3.2 - Corporate Consents Required
None.
<PAGE>
Schedule 3.3 - Current Capitalization Table
A. Outstanding
-----------
Common Stock, $.01 par value; 20,000,000 shares authorized; 9,319,339
shares outstanding.
B. Warrants and Convertibles
-------------------------
<TABLE>
<CAPTION>
Common Stock
Issuable Upon Date of
Security Holder Security Conversion Strike Price Issuance Maturity
- --------------- -------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Banca Del Gottardo 8% Convertible 765,482 $4.20 29-DEC-95 31-DEC-00 Note A
Banca Del Gottardo 8% Convertible 1,000,000 $5.00 22-NOV-96 22-NOV-01 Note A
Banca Del Gottardo Warrant 500,000 $4.20 29-DEC-95 31-DEC-00 * Note A
Banca Del Gottardo Warrant 350,000 $5.00 22-NOV-96 22-NOV-01 * Note A
Broker Commission Warrant 200,000 $4.20 29-DEC-95 31-DEC-00 Note A
Broker Commission Warrant 150,000 $5.00 22-NOV-96 22-NOV-01 Note A
T.J. Berthel Investments 10% Convertible 160,000 $6.25 15-FEB-94 31-MAR-99
<FN>
* Expiration Date
Note A - May be subject to increase in number of shares issuable and reduction
in purchase price payable based on the defining instrument.
</FN>
</TABLE>
C. Option Plans
------------
Incentive Stock Option Plan; 1,525,000 shares reserved for issuance.
Non-Qualified Stock Option Plan; 600,000 shares reserved for issuance.
Director's Stock Option Plan; 350,000 shares reserved for issuance.
Employee Stock Purchase Plan; 300,000 shares reserved for issuance.
D. Series A Preferred Stock
------------------------
2,500,000 shares of Common Stock reserved for issuance.
E. Registration Rights Obligations
-------------------------------
1.) Registration Rights Agreement dated February 14, 1994 with T. J.
Berthel Investments, L.P.
2.) Conversion Agency Agreement dated December 29, 1995 with Banca del
Gottardo.
3.) Conversion Agency Agreement dated November 22, 1996 with Banca del
Gottardo.
4.) SF-W-1 Warrant to purchase 200,000 shares.
5.) SF-W-2 Warrant to purchase 150,000 shares.
1
<PAGE>
Schedule 3.5 - Defaults Under Contracts and Organizational Documents
1.) Execution and performance of the Agreement and the terms of the Series A
Preferred Stock will require the consent of Finova Capital Corporation.
2.) The Company anticipates issuing the Series A Preferred Stock pursuant to the
provisions of Regulation D under the Securities Act of 1933 and in connection
therewith will file a Form D. The Company may be required to make a filing in
certain states depending on the residency of the Purchasers.
<PAGE>
Schedule 3.6 - Compliance with SEC Reporting
The Company has filed all reports, schedules, statements and other documents as
required by the SEC pursuant to the reporting requirements of the SEC since
December 31, 1993 in a timely manner.
Schedule 3.6(a)
None.
Schedule 3.6(b)
None.
<PAGE>
Schedule 3.7 - Material Changes Since December 31, 1996
None. However, see Securities and Exchange Commission Form 10-Q for period ended
March 31, 1997 relating to losses by the Company during such period.
Additionally, the Company anticipates that there will be similar losses reported
for period ended June 30, 1997.
<PAGE>
Schedule 3.8 - Litigation
In April, 1997, U.S. Long Distances, Inc. ("USDLI") filed a Second Amended
Complaint against the Company and other defendants including ILD Communications,
Inc. The case is pending in the United States District Court for the Western
District in San Antonio, Texas. The Second Amended Complaint seeks actual
damages of $4.0 million, exemplary damages, attorney's fees and interest for the
Company's alleged tortious interference of USLDI's existing and prospective
contractual relationships with PhoneTel Technologies, Inc. ("PhoneTel"). The
Second Amended Complaint alleges the Company and its then subsidiary,
Intellicall Operator Services, Inc., interfered with USLDI's existing
contractual relationship with PhoneTel, another defendant, when PhoneTel
executed an operator services agreement with the Company and its subsidiary. The
Company intends to vigorously contest the allegations contained in the Second
Amended Complaint.
<PAGE>
Schedule 3.9 - Disclosures
None.
<PAGE>
Schedule 3.18 - Key Employees
Directors
William O. Hunt
B. Michael Adler
Thomas J. Berthel
Lewis E. Brazelton III
Richard B. Curran
Richard E. Hanlon
Officers
William O. Hunt - Chairman of the Board of Directors, Chief Executive
Officer and President
Michael H. Barnes - Senior Vice President & Chief Financial Officer
John J. McDonald - Senior Vice President - Sales and Marketing
John M. Carradine - Vice President of Finance & Controller
Thomas R. Kessler - Vice President of Operations
<PAGE>
Schedule 3.19 - Registration Rights Agreement
1.) Registration Rights Agreement dated Feburuary 14, 1994 with T.J. Berthel
Investments, L.P.
2.) Conversion Agency Agreement dated December 29, 1995 with Banca del Gottardo
3.) Conversion Agency Agreement dated November 22, 1996 with Banca del Gottardo
4.) SF-W-1 Warrant to purchase 200,000 shares
5.) SF-W-2 Warrant to purchase 150,000 shares.
<PAGE>
Schedule 4.4 - Use of Proceeds
The Company intends to use the net proceeds from the sale of the Preferred Stock
to pay down its advances with Finova Capital Corporation.
<PAGE>
Schedule 4.5 - Stock Issuance Allowed
See Schedule 3.3
<PAGE>
Schedule 4.6 - Stock Issuance Allowed
See Schedule 3.3
<PAGE>
Schedule 7.1 (ix) - Stand Still Agreements
William O. Hunt
John J. McDonald, Jr.
John M. Carradine
<PAGE>
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
INTELLICALL, INC.
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Intellicall, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that, pursuant to the authority contained in its Certificate of Incorporation,
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware, its Board of Directors has adopted the following
resolution creating a series of its Preferred Stock designated as Series A
Convertible Preferred Stock:
"BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation, the Board of Directors
does hereby provide for the issue of a series of Preferred Stock, $1,000 face
amount per share, in connection with that certain Securities Purchase Agreement
dated July 21, 1997 by and among the Corporation and certain investors, there
shall be a series of shares of the Preferred Stock of the Corporation designated
"Series A Convertible Preferred Stock"; that the number of shares of such series
shall be 4,000 and that the rights and preferences of such series shall be as
follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,000 shares of Preferred
Stock, is the Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and the face amount shall be One Thousand U.S. Dollars ($1,000.00) per
share (the "Face Amount").
II. DIVIDENDS
The Series A Preferred Stock, as such stock, will bear no dividends, but the
holders of the Series A Preferred Stock shall be entitled to participate in the
dividends and distributions made on the Common Stock, as hereinafter provided.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall have
the following
<PAGE>
meanings:
A. "Conversion Date" means, for any Optional Conversion, the date specified in
the notice of conversion (the "Notice of Conversion") as long as the copy of the
Notice of Conversion is faxed (or delivered by other means resulting in notice)
to the Corporation before 11:59 p.m. Eastern Time, on the Conversion Date
indicated in the Notice of Conversion. If the Notice of Conversion is not so
faxed or otherwise delivered before such time, then the Conversion Date shall be
the date the holder faxes or otherwise delivers the Notice of Conversion to the
Corporation. The Conversion Date for the Required Conversion at Maturity shall
be the Maturity Date (as such terms are defined in Paragraph D of Article IV).
B. "Conversion Price" means, with respect to any Conversion Date, the lower
of the Fixed Conversion Price and the Variable Conversion Price, each as in
effect as of such date and subject to adjustment as provided herein.
C. "Fixed Conversion Price" means 120% of the volume-weighted average trade
price, as reported by Bloomberg Financial Markets ("Bloomberg"), of the Common
Stock for the fifteen (15) consecutive trading days ending on the trading day
immediately preceding the Closing Date (subject to equitable adjustment for any
stock splits, stock dividends, reclassifications or similar events during such
fifteen (15) trading day period), and shall be subject to adjustment as provided
herein.
D. "N" means the number of days from, but excluding, the Closing Date (the
"Closing Date") of the Closing under that certain Securities Purchase Agreement
(the "Securities Purchase Agreement") dated July 21, 1997 by and among the
Corporation and the Purchasers of the Corporation's Series A Preferred Stock
through and including the Conversion Date for such share of Series A Preferred
Stock.
E. "Premium" means 1000 x (N/365) x (.07).
F. "Redemption Conversion Amount" with respect to a share of Series A
Preferred Stock means an amount equal to:
1000 + Premium
--------------
( CP ) X WAP
where:
"CP" means the Conversion Price in effect on the date of the Redemption Notice;
and
"WAP" means the volume weighted average trade price, as reported by Bloomberg,
of a share of Common Stock for the preceding fifteen (15) trading days, or if
such volume weighted
<PAGE>
average trade price is no longer reported by Bloomberg, an equivalent price
report per share of Common Stock by a recognized reporting service reasonably
acceptable to the holders of a majority of the outstanding shares of Series A
Preferred Stock, or if such equivalent price report is not available, the fair
market value per share of Common Stock determined by an investment banking firm
of national reputation selected by the Corporation which is reasonably
acceptable to the holders of a majority of the outstanding shares of Series A
Preferred Stock.
G. "Variable Conversion Price" means 80% of the volume-weighted average trade
price, as reported by Bloomberg, of the Common Stock for the fifteen (15)
consecutive trading days ending on the trading day immediately preceding the
Conversion Date (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such fifteen (15) trading
day period), and shall be subject to adjustment as provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series A Preferred Stock may, at any time and from time to time, beginning on
the ninetieth (90th)day after the Closing Date, convert (an "Optional
Conversion") each of its shares of Series A Preferred Stock into a number of
fully paid and nonassessable shares of Common Stock determined in accordance
with the following formula:
(Premium + 1000)
- ----------------
Conversion Price
provided however, that if the Conversion Date is less than 180 days after the
Closing Date, then the following formula shall be used in lieu of the preceding
formula:
1000
- ----
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax a copy of the fully executed Notice of Conversion to the
Corporation and (y) surrender or cause to be surrendered (subject to Article
XIV.B) the original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates") accompanied by duly executed
stock powers (with signature guaranteed in customary form if the holder
effecting conversion is other than the original Purchaser of the shares of
Series A Preferred Stock being converted) and a copy of the Notice of
Conversion. Upon receipt by the Corporation of the fax copy of a Notice of
Conversion from a holder, the Corporation shall immediately send, via fax,a
confirmation to such holder stating that the Notice of Conversion has been
received, the date
<PAGE>
upon which the Corporation expects to deliver the Common Stock issuable
upon such conversion and the name and telephone number of a contact person at
the Corporation regarding the conversion. The Corporation shall not be obligated
to issue shares of Common Stock upon a conversion unless either the Preferred
Stock Certificates are delivered to the Corporation as provided above, or the
holder notifies the Corporation that such certificates have been lost, stolen or
destroyed (and the requirements of Article XIV.B are complied with).
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of Preferred
Stock Certificates and executed stock powers from a holder of Series A Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the third business day following the Conversion Date
(provided the holder shall have complied with clause (y) above within one
business day of delivery such fax Notice of Conversion ) and (b) two business
days following the date of such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of indemnity pursuant to Article XIV.B)
(the "Delivery Period"), issue to the holder and deliver to the holder (or at
its direction) (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series A Preferred Stock being converted and (y) a
certificate representing the number of shares of Series A Preferred Stock not
being converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes (other than transfer
taxes) which may be imposed with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A Preferred Stock would
result in the issuance of a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon such conversion shall be the nearest whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with subparagraph (i) above. If such
dispute involves the calculation of the Conversion Price, the Corporation shall
submit the disputed calculations to its outside accountant via facsimile within
two (2) business days of receipt of the Notice of Conversion. The accountant
shall issue a report regarding the calculations and notify the Corporation and
the holder of the results no later than two (2) business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above, it being understood and agreed that the Company shall not be in default
because of its failure to issue shares of Common Stock which are subject to a
dispute before the resolution of such dispute.
<PAGE>
C. Limitations on Conversions. The conversion of shares of Series A
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless otherwise permitted by the New York Stock Exchange
("NYSE") in no event shall the total number of shares of Common Stock issued
upon conversion of the Series A Preferred Stock exceed the maximum number of
shares of Common Stock that the Corporation can without shareholder approval so
issue pursuant to NYSE Listed Company Manual Section 312.03(c) (or any successor
rule) ("Rule 312.03(c)") (the "Cap Amount") which, as of the date of issuance of
the Series A Preferred Stock, shall be 1,860,500 shares. The Cap Amount shall be
allocated pro-rata to the holders of Series A Preferred Stock as provided in
Article XIV.D. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Notwithstanding anything to the contrary contained
herein, the Series A Preferred Stock shall not be convertible by a holder or at
the Maturity Date to the extent (but only to the extent) that, if converted by
such holder or at the Maturity Date, the holder would beneficially own in excess
of 4.9% of the shares of Common Stock. To the extent this limitation applies,
the determination of whether Series A Preferred Stock shall be convertible
(vis-a-vis other securities owned by such holder) and of which Series A
Preferred Stock shall be converted shall be in the sole discretion of the holder
and submission of the Series A Preferred Stock for conversion shall be deemed to
be the holder's determination of whether such Series A Preferred Stock is
convertible, subject to such aggregate percentage limitation. No prior inability
to convert Series A Preferred Stock pursuant to this subparagraph shall have any
effect on the applicability of its provisions with respect to any subsequent
determination of convertibility. For the purposes of this subparagraph,
beneficial ownership and all calculations, including without limitation, with
respect to calculations of percentage ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this
subparagraph may be waived and/or implemented in a manner otherwise than in
strict conformity with the terms hereof with the approval of the Board of
Directors of the Corporation and the holders of a majority in interest of the
then outstanding Series A Preferred Stock: (i) with respect to any matter to
cure any ambiguity herein, to correct this subparagraph (or any portion thereof)
which may be defective or inconsistent with the intended 4.9% beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such 4.9% limitation; and (ii)
with respect to any other matter, with the further consent of the holders of a
majority of the then outstanding shares of Common Stock. The limitations
contained in this subparagraph shall apply to a successor holder of Series A
Preferred Stock if, and to the extent, elected by such successor holder
concurrently with its acquisition of such Series A Preferred Stock, such
election to be promptly confirmed in writing to the Corporation (provided no
transfer or series of transfers to a successor holder or holders shall be used
by a holder to
<PAGE>
evade the limitations contained herein).
D. Required Conversion at Maturity. Subject to the limitations set forth in
Paragraph C(i) and C(ii) of this Article IV and provided all shares of Common
Stock issuable upon conversion of all outstanding shares of Series A Preferred
Stock are then (i) authorized and reserved for issuance, (ii) registered under
the Securities Act of 1933, as amended (the "Securities Act") for resale by the
holders of such shares of Series A Preferred Stock and (iii) eligible to be
traded on either the Nasdaq, the New York Stock Exchange or the American Stock
Exchange, each share of Series A Preferred Stock issued and outstanding on the
second anniversary of the Closing Date (the "Maturity Date") (and any accrued
and unpaid Conversion Default Payments), automatically shall be converted into
shares of Common Stock on such date in accordance with the conversion formulas
set forth in Paragraph A of this Article IV (the "Required Conversion at
Maturity"). If a Required Conversion at Maturity occurs, the Corporation and the
holders of Series A Preferred Stock shall follow the applicable conversion
procedures set forth in Paragraphs B and C of this Article IV; provided,
however, that the holders of Series A Preferred Stock are not required to
deliver a Notice of Conversion.
E. Limited Right to Deliver Cash in Lieu of Stock Upon Conversion. So long as no
Redemption Event shall have occurred and provided the Corporation is not in
violation of any of its obligations under the Securities Purchase Agreement or
the Registration Rights Agreement and provided that the Variable Conversion
Price is less than $4.00, the Corporation may deliver a notice to each holder of
the Series A Preferred Stock (a "Cash Conversion Payment Notice") stating that
it elects to pay all or a portion of the consideration to be delivered to a
holder of Series A Preferred Stock that elects to convert such shares in cash in
lieu of shares of Common Stock in accordance with the provisions of this
Paragraph E and stating the maximum amount per share of Series A Preferred Stock
(the "Maximum Per Share Cash Payment") and the maximum aggregate amount
("Aggregate Maximum") that the Corporation will pay as a result of satisfying
such conversions in cash. During the seven day period commencing on the date of
the delivery of a Cash Conversion Payment Notice (the "Required Cash Conversion
Period") to a holder, the Corporation shall have the right and obligation to
satisfy any Notice of Conversion by payment of the Cash Redemption Amount for
each share of Series A Preferred Stock being redeemed in cash within twenty-four
(24) hours after the delivery of any Notice of Conversion rather than by
delivery of Common Stock; provided, however, that the right and obligation to
pay cash in lieu of Common Stock shall only be effective in the event that the
cash payment per share of Series A Preferred Stock does not exceed the Maximum
Per Share Cash Payment and shall only be effective to the extent the total cash
payment required as a result of a Cash Conversion Payment Notice does not exceed
the Aggregate Maximum, with the Corporation's obligation to deliver shares of
Common Stock in response to a Notice of Conversion being unaffected to the
extent of any limitation on the Corporation's right and obligation to pay cash
set forth in this proviso. To the extent the Aggregate Maximum is exceeded,
holders of Series A Preferred Stock will receive cash in lieu of shares of
Common
<PAGE>
Stock in the order of the date of delivery of their Notices of Conversion, with
any holders delivering Notices of Conversion on the same day receiving cash pro
rata in accordance with the number of shares of Series A Preferred Stock
converted by them on such date. The "Cash Redemption Amount" with respect to a
share of Series A Preferred Stock shall be a cash amount equal to the number of
shares of Common Stock that would otherwise be received upon the exercise of the
Optional Conversion with respect to such share of Series A Preferred Stock
multiplied by the closing bid price of the Corporation's Common Stock on the
trading day immediately preceding the date that would otherwise be the
Conversion Date.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series A
Preferred Stock, Two Million Five Hundred Thousand (2,500,000) of the authorized
but unissued shares of Common Stock shall be reserved for issuance upon
conversion of the Series A Preferred Stock and thereafter the number of
authorized but unissued shares of Common Stock so reserved (the "Reserved
Amount") shall not be decreased until the Series A Preferred Stock has been
fully converted and shall at all times be sufficient to provide for the
conversion of the Series A Preferred Stock outstanding at the then current
Conversion Price. The Reserved Amount shall be allocated to the holders of
Series A Preferred Stock as provided in Article XIV.D.
B. Increases to Reserved Amount. If the Reserved Amount for any five (5)
consecutive trading days (the last of such five (5) trading days being the
"Authorization Trigger Date") shall be less than 150% of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock on such
trading days, the Corporation shall immediately notify the holders of Series A
Preferred Stock of such occurrence and shall immediately take all necessary
action (including, if necessary, shareholder approval to authorize the issuance
of additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series A Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within: (i) thirty (30) days after an Authorization
Trigger Date if shareholder approval is not required by applicable law for such
increase; or (ii) one hundred twenty (120) days after an Authorization Trigger
Date if shareholder approval is required by applicable law (provided, however,
that the Corporation must file preliminary proxy materials with the Securities
and Exchange Commission ("SEC") within thirty (30) days of an Authorization
Trigger Date), each holder of Series A Preferred Stock shall thereafter have the
option, exercisable in whole or in part (but only to the extent that it would
not cause the Corporation to be in "Monetary Default" (as herein defined)) at
any time and from time to time by delivery of a Redemption Notice (as defined in
Article VIII. C) to the Corporation, to require the Corporation, to purchase for
cash, at an amount per share equal to the Redemption Conversion Amount, up to a
portion of the holder's Series A Preferred Stock such that, after giving effect
to such purchase, the holder's allocated portion of the Reserved Amount exceeds
200% of the total number of Common Stock issuable to such holder upon
<PAGE>
conversion of its Series A Preferred Stock. If the Corporation fails to redeem
any of such shares within five (5) business days after its receipt of a
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII. C. For purposes hereof, "Monetary Default" shall mean the
existence of an event specified on Schedule 1 attached hereto.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares of
Series A Preferred Stock submits a Notice of Conversion and the original
certificates representing the Series A Preferred Stock and the stock powers
required by paragraph IV(B) and the Corporation fails for any reason (other than
because such issuance would exceed such holder's allocated portion of the
Reserved Amount or Cap Amount, for which failures the holders shall have the
remedies set forth in Articles V and VII) to deliver, on or prior to the second
business day following the expiration of the Delivery Period for such conversion
(said period of time being the "Extended Delivery Period"), such number of
freely tradeable shares of Common Stock to which such holder is entitled upon
such conversion, or (y) the Corporation provides notice (including by way of
public announcement) to any holder of Series A Preferred Stock at any time of
its intention not to issue freely tradeable shares of Common Stock upon exercise
by any holder of' its conversion rights in accordance with the terms of this
Certificate of Designation (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount) (each of (x)
and (y) being a "Conversion Default"), then the Corporation shall pay to the
affected holder, in the case of a Conversion Default described in clause (x)
above, and to all holders, in the case of a Conversion Default described in
clause (y) above, payments for the first ten (10) business days following the
expiration of the Extended Delivery Period, in the case of a Conversion Default
described in clause (x), and for the first ten (10) business days of a
Conversion Default described in clause (y), an amount equal to $1000 per day for
the first ten days. In the event any Conversion Default continues beyond such
ten (10) business day period, the Corporation shall pay to the holder an
additional amount per day equal to 1% of the Face Amount of the Series A
Preferred Stock with respect to which the Conversion Default exists.
The payments to which a holder shall be entitled pursuant to this Paragraph A
are referred to herein as "Conversion Default Payments." A holder may elect to
receive accrued Conversion Default Payments in cash or to convert all or any
portion of such accrued Conversion Default Payments, at any time, into Common
Stock at the lowest Conversion Price in effect during the period beginning on
the date of the Conversion Default through the Conversion Date for such
conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Article
XIV.F. In the event a holder elects to convert all or any portion of the
Conversion Default Payments, the holder shall indicate on a Notice of Conversion
such portion of the Conversion Default Payments which such holder elects to so
convert and
<PAGE>
such conversion shall otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not received certificates for
all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Extended Delivery Period with respect to a conversion of
Series A Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII), then the Fixed Conversion Price in respect of any shares of Series A
Preferred Stock held by such holder shall thereafter be the lesser of (i) the
Fixed Conversion Price on the Conversion Date specified in the Notice of
Conversion which resulted in the Conversion Default and (ii) the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the day such Conversion Default is cured.
If there shall occur a Conversion Default of the type described in clause (y) of
Article VI.A., then the Fixed Conversion Price with respect to any conversion
thereafter shall be the lowest Conversion Price in effect at any time during the
period beginning on, and including, the date of the occurrence of such
Conversion Default through and including the day such Conversion Default is
cured. The Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable holder in
writing that the Corporation is unable to honor conversions prior to the
delivery of a Notice of Conversion, if (i) the Corporation fails for any reason
to deliver during the Delivery Period shares of Common Stock to a holder upon a
conversion of shares of Series A Preferred Stock and (ii) after the applicable
Delivery Period with respect to such conversion, such holder purchases (in an
open market transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such holder of the shares of Common Stock (the "Sold
Shares") which such holder anticipated receiving upon such conversion (a
"Buy-In"), the Corporation shall pay such holder (in addition to any other
remedies available to the holder) the amount by which (x) such holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the net proceeds received by such holder
from the sale of the Sold Shares. For example, if a holder purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification indicating any amounts payable to such holder pursuant to
this Paragraph C. The Corporation shall make any payments required pursuant to
this Paragraph C in accordance with and subject to the provisions of Article
XIV.F.
D. Redemption Right. If the Corporation fails, and such failure continues
uncured for five (5) business days after the Corporation has been notified
thereof in writing by the holder, for any reason (other than because such
issuance would exceed such holders allocated portion of the Reserved Amount or
Cap Amount, for which failures the holders shall have the remedies set
<PAGE>
forth in Articles V and VII) to issue shares of Common Stock within ten (10)
business days after the expiration of the Extended Delivery Period with respect
to any conversion of Series A Preferred Stock, then the holder may elect at any
time and from time to time prior to the cure of such failure, by delivery of a
Redemption Notice (as defined in Article VIII.C) to the Corporation, to have all
or any portion of such holder's outstanding shares of Series A Preferred Stock
purchased by the Corporation for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B). If the Corporation fails to
redeem any of such shares within five (5) business days after its receipt of a
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C.
VII. INABILITY TO CONVERT SHARES OF SERIES A PREFERRED STOCK DUE
TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of any holder's
Cap Amount is less than 125% of the number of shares of Common Stock then
issuable upon conversion of such holder's shares of Series A Preferred Stock (a
"Trading Market Trigger Event"), the Corporation shall immediately notify the
holders of Series A Preferred Stock of such occurrence and shall immediately
take all necessary action (including, if necessary, approval of its shareholders
to authorize the issuance of the full number of shares of Common Stock which
would be issuable upon the conversion of Series A Preferred Stock but for the
Cap Amount provided, however, that (A) the Corporation must file preliminary
proxy materials with the SEC within thirty (30) days of the Trading Market
Trigger Event and (B) officers and directors of the Corporation shall promptly
upon the occasion of any such Trading Market Trigger Event enter into
irrevocable agreements to vote all of their shares in favor of eliminating such
prohibitions) to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock in
excess of the Cap Amount. In the event the Corporation fails to eliminate all
such prohibitions within one hundred twenty (120) days after the Trading Market
Trigger Event, each holder of Series A Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation, subject to the Corporation not being in
Monetary Default as a result of such exercise, to purchase for cash, at an
amount per share equal to the Redemption Conversion Amount, a portion of the
holder's Series A Preferred Stock such that, after giving effect to such
purchase, the holder's allocated portion of the Cap Amount exceeds 125% of the
total number of shares of Common Stock issuable to such holder upon conversion
of its Series A Preferred Stock on the date of such Redemption Notice. If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such holder shall be entitled to
the remedies provided in Article VIII.C.
B. Remedies. If the Corporation fails to eliminate the applicable
prohibitions within the one
<PAGE>
hundred twenty (120) day cure period referred to in Paragraph A of this Article
VII and thereafter the Corporation is prohibited, at any time, from issuing
shares of Common Stock upon conversion of Series A Preferred Stock to any holder
because such issuance would exceed such holder's allocated portion of the Cap
Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, any holder who is so
prohibited from converting its Series A Preferred Stock may:
(i) require, with the consent of holders of at least fifty percent (50%) of the
outstanding shares of Series A Preferred Stock (including any shares of Series A
Preferred Stock held by the requesting holder), the Corporation to terminate the
listing of its Common Stock and to cause its Common Stock to be eligible for
trading on the American Stock Exchange, the Nasdaq National Market System, the
Nasdaq Small Cap Market or on the over-the-counter electronic bulletin board, at
the option of the requesting holder; or
(ii) require the Corporation to issue shares of Common Stock in accordance with
such holder's Notice of Conversion at a conversion price equal to the Conversion
Price in effect on the date of the holder's written notice to the Corporation of
its election to receive shares of Common Stock pursuant to this subparagraph
(ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock) is suspended from trading on, or is
not listed (and authorized) for trading on, the New York Stock Exchange for an
aggregate of five trading days in any nine (9) month period,
(ii) the Corporation fails, and any such failure continues uncured for five (5)
business days after the Corporation has been notified thereof in writing by the
holder, to remove any restrictive legend on any certificate of any shares of
Common Stock issued to the holders of Series A Preferred Stock upon conversion
of the Series A Preferred Stock as and when required by this Certificate of
Designation, the Securities Purchase Agreement, or the Registration Rights
Agreement, dated as of July 21, 1997, by and among the Corporation and the other
signatories thereto (the "Registration Rights Agreement"),
(iii) the Corporation provides notice to any holder of Series A Preferred Stock,
including by way of public announcement, at any time, of its intention not to
issue shares of Common Stock
<PAGE>
to any holder of Series A Preferred Stock upon conversion in accordance with the
terms of this Certificate of Designation (other than due to the circumstances
contemplated by Articles V or VII for which the holders shall have the remedies
set forth in such Articles),
(iv) the Corporation breaches any material covenant or other material term or
condition of this Certificate of Designation; the Securities Purchase Agreement
or the Registration Rights Agreement and such breach continues for a period of
fifteen (15) business days after written notice thereof to the Corporation,
(v) any representation or warranty of the Corporation made in any agreement,
statement or certificate given in writing in connection with the issuance of the
Series A Preferred Stock (including, without limitation the Securities Purchase
Agreement and the Registration Rights Agreement), shall be false or misleading
in any material respect when made and the breach of which would have a material
adverse effect on the Corporation or the rights of the Corporation with respect
to any of the shares of Series A Preferred Stock or the shares of Common Stock
issuable upon conversion thereof, or
(vi) (x) the Registration Statement is not effective by October 18, 1997 or (y)
the Company fails to maintain an effective registration statement as required by
Section 2.1 and Section 3.1 of the Registration Rights Agreement and such
failure exists for a period of ninety (90) days in any twelve (12) month period;
provided, however, that it shall not constitute a Redemption Event if the
failure described in clause (x) exists for up to forty five (45) days after the
ninety day period set forth above if the Corporation is using its best efforts
to correct such failure and if such failure is caused by a stop action issued or
an enforcement action commenced or threatened in writing by the SEC.
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series A Preferred Stock shall thereafter have the option, exercisable in whole
or in part (but only to the extent that it would not cause the Corporation to be
in Monetary Default) at any time and from time to time by delivery of a
Redemption Notice (as defined in Paragraph C below) to the Corporation while
such Redemption Event continues, to require the Corporation to purchase for cash
any or all of the then outstanding shares of Series A Preferred Stock held by
such holder for an amount per share equal to the Redemption Amount (as defined
in Paragraph B below) in effect at the time of the redemption hereunder. For the
avoidance of doubt, the occurrence of any event described in clauses (i), (iii),
(v) or (vi)(x) above shall immediately constitute a Redemption Event and there
shall be no cure period.
B. Definition of Redemption Amount. The "Redemption Amount" with respect to
a share of Series A Preferred Stock means an amount equal to:
<PAGE>
1000 + Premium
( C P ) X M
where:
"CP" means the Conversion Price in effect on the date of the Redemption Notice;
and
"M" means the highest closing bid price of the Corporation's Common Stock during
the period beginning on the date of the Redemption Notice and ending on the date
of the redemption, as reported on the principal securities exchange or trading
market on which the Common Stock is traded.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount, the Cash Redemption Amount or the Redemption Conversion
Amount, as the case may be, with respect to any share of Series A Preferred
Stock within five (5) business days of its receipt of a notice requiring such
redemption (a "Redemption Notice"), then the holder of Series A Preferred Stock
delivering such Redemption Notice (i) shall be entitled to interest on the
Redemption Amount, the Cash Redemption Amount or Redemption Conversion Amount,
at a per annum rate equal to the lower of twenty-four percent (24%) and the
highest interest rate permitted by applicable law from the date of the
Redemption Notice until the date of redemption hereunder, and (ii) shall have
the right, at any time and from time to time, to require the Corporation, upon
written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of the Redemption Amount, the Cash
Redemption Amount or Redemption Conversion Amount, plus interest as aforesaid,
into shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Redemption Notice and ending on the
Conversion Date with respect to the conversion of such Redemption Amount. In the
event the Corporation is not able to redeem all of the shares of Series A
Preferred Stock subject to Redemption Notices, the Corporation shall redeem
shares of Series A Preferred Stock from each holder pro rata, based on the total
number of shares of Series A Preferred Stock included by such holder in the
Redemption Notice relative to the total number of shares of Series A Preferred
Stock in all of the Redemption Notices.
IX. RANK; PARTICIPATION
A. All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (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 A Preferred Stock
obtained in accordance with Article XIII hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
A 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
<PAGE>
of the holders of Series A Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, on parity with the Series A
Preferred Stock (the "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 A Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, senior to the Series A
Preferred Stock (the "Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
B. Subject to the rights of the holders (if any) of Pari Passu Securities and
Senior Securities, the holders of Series A Preferred Stock shall, as such
holders, be entitled to such dividends paid (other than those payable solely in
Common Stock) and distributions made to the holders of Common Stock to the same
extent as if such holders of Series A Preferred Stock had converted the same
into Common Stock and had been issued the same on the day before the record date
for said dividend or distribution. Payments under the preceding sentence shall
be made concurrently with the dividend or distribution to the holders of Common
Stock. Nonetheless, payments due under this paragraph B to the holders of Series
A Preferred Stock shall be reduced, but not below zero, by an amount equal to 7%
per annum of the Face Amount, calculated from the Closing Date to and including
the date of payment on the basis of a 365 day year.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S. Federal
bankruptcy laws or any other applicable 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 U.S. Federal bankruptcy laws or any other applicable
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, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), 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 A Preferred Stock shall have received the Liquidation
Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Series A Preferred
<PAGE>
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 A 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. The purchase or redemption by the Corporation of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series A Preferred
Stock means an amount equal to the Face Amount thereof plus the Premium with
respect thereto plus any other amounts that may be due from the Corporation with
respect thereto through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the Closing
Date, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, combination, reclassification or other similar event, the
Fixed Conversion Price shall be proportionately 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 increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. Certain Public Announcements. In the event that (i) the Corporation
makes a public announcement that it intends to consolidate or merge with any
other entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged and there is not
distribution thereof) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Common Stock (the date of the announcement referred to in clause (i) or (ii) of
this paragraph is hereinafter referred to as the "Announcement Date"), then the
Conversion Price shall, effective upon the Announcement Date
<PAGE>
and continuing through the consummation of the proposed tender offer or
transaction or the Abandonment Date (as defined below), be equal to the lesser
of (x) the Conversion Price calculated as provided in Article III.B and (y) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date. From and after the Abandonment Date, as the
case may be, the Conversion Price shall be determined as set for in Article
III.B. The "Abandonment Date" means with respect to any proposed transaction or
tender offer for which a public announcement as contemplated by this paragraph
has been made, the date which is sixteen (16) trading days after the date upon
which the Corporation (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer which causes this
paragraph to become operative.
C. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Closing Date, there shall be (a "Major Transaction") (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of the Corporation with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Corporation or (iv) any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, then the holders of Series A Preferred Stock shall thereafter have the
right to receive upon conversion, in lieu of the shares of Common Stock
immediately theretofore issuable (without regard to any conversion limitations
herein contained),the greater of (in such holder's sole discretion) (a) such
shares of stock, securities and/or other property as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore issuable upon conversion (without regard to any
conversion limitations herein contained) had such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event not
taken place, or (b) 125% of the Face Amount per share being so converted. In the
event of any Major Transaction, thus in any such case, appropriate provisions
shall be made with respect to the rights and interests of the holders of the
Series A 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 A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this Paragraph C unless (i) each holder of Series A Preferred Stock has
received written notice of such transaction at least thirty (30) days prior
thereto, but in no event later than ten (10) days prior to the record date for
the determination of shareholders entitled to vote with respect thereto;
provided, however, that the Corporation shall not be required to disclose any
material inside information to a holder of Series A Preferred Stock prior to the
public disclosure thereof, and (ii) the resulting successor or acquiring entity
(if not the
<PAGE>
Corporation) assumes by written instrument the obligations of this Paragraph C.
The above provisions shall apply regardless of whether or not there would have
been a sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series A Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
D. Adjustment Due to Distribution. If at any time after the Closing Date, the
Corporation 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 Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion had such
holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
Ei [Intentionally Deleted.]
Fi Purchase Rights. If at any time after the Closing Date, the Corporation
issues any Convertible Securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holders of Series A Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series A Preferred Stock immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Gi Special Adjustment. If the Corporation takes any actions (including under or
by virtue of this Article) which would have a dilutive effect on the holder or
which would materially and adversely affect the holder with respect to its
investment in the Series A Convertible Preferred Stock, and if the provisions of
this Article are not strictly applicable to such actions or, if applicable to
such actions, would not operate to equitably protect the holder against such
actions, then within ten business days, the Corporation shall appoint its
independent certified public accountants to determine as promptly as practicable
an appropriate adjustment to the terms hereof to so equitably protect such
holder and prevent any such dilution and any such material adverse effect, as
the case may be. Following such determination, the Corporation shall forthwith
make the adjustments described therein.
<PAGE>
Hi Notice of Adjustments. Upon the occurrence of each adjustment or readjustment
of the Conversion Price pursuant to this Article XI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment and prepare and
furnish to each holder of Series A 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 A Preferred Stock, furnish 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 A Preferred
Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power whatsoever,
except as otherwise provided by the Delaware General Corporation Law (the
"General Corporation Law"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of Series A
Preferred Stock with prior notification of any meeting of the shareholders (and
copies of proxy materials and all other information sent to shareholders). If
the Corporation takes a record of its shareholders for the purpose of
determining shareholders entitled to (a) 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 fight, or (b)
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 merger,
consolidation, 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 thirty (30) days prior to the
consummation of the transaction or event, whichever is earlier, but in no event
earlier than public announcement of such proposed transaction), of the date on
which any such record is to be taken for the purpose of such vote, dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such vote, dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the General Corporation Law the vote of the holders of
the Series A 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 A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the General
Corporation Law) shall
<PAGE>
constitute the approval of such action by the class. To the extent that under
the General Corporation Law holders of the Series A Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one class,
each share of Series A 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.
XIII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock;
(b) alter or change the rights, preferences or privileges of any capital
stock of the Corporation so as to affect adversely the Series A Preferred Stock;
(c) create any new class or series of capital stock having a preference over the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking pari passu with the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
IX hereof; "Pari Passu Securities");
(e) increase the authorized number of shares of Series A Preferred Stock;
(f) redeem, or declare or pay any cash dividend or distribution on, any
Junior Securities.
If holders of at least a majority of the then outstanding shares of Series A
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series A Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right, for a period of thirty (30) days, to convert pursuant to the
terms of this Certificate of Designation as they existed prior to such
alteration or change or to continue to hold their shares of Series A Preferred
Stock.
XIV. MISCELLANEOUS
<PAGE>
A. Cancellation of Series A Preferred Stock. If any shares of Series A Preferred
Stock are converted pursuant to Article IV, the shares so converted shall be
canceled, shall return to the status of authorized but unissued preferred stock
of no designated series, and shall not be issuable by the Corporation as Series
A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), 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 A
Preferred Stock.
C. [Intentionally Omitted]
D. Allocations of Cap Amount and Reserved Amount. The initial Cap Amount and
Reserved Amount shall be allocated to the holders of Series A Preferred Stock in
accordance with their holdings of shares of Series A Preferred Stock. Each
increase to the Cap Amount and Reserved Amount shall be allocated pro rata among
the holders of Series A Preferred Stock based on the number of shares of Series
A Preferred Stock held by each holder at the time of the increase in the Cap
Amount or Reserved Amount, as the case may be. In the event a holder shall sell
or otherwise transfer any of such holder's shares of Series A Preferred Stock,
each transferee shall be allocated a pro rata portion of such transferor's Cap
Amount and Reserved Amount. Any portion of the Cap Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares of Series
A Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such holders.
E. Statements of Available Shares. Upon request, the Corporation shall deliver
to each holder a written report notifying the holders of any occurrence which
prohibits the Corporation from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of Series A
Preferred Stock outstanding as of the date of the request, (ii) the total number
of shares of Common Stock issued upon all conversions of Series A Preferred
Stock through the date of the request, (iii) the total number of shares of
Common Stock which are reserved for issuance upon conversion of the Series A
Preferred Stock as of the date of the request, and (iv) the total number of
shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series A Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation shall provide, within
fifteen (15) days after delivery to the Corporation of a written request by any
holder, all of the information enumerated in clauses (i) - (iv) of this
Paragraph E.
<PAGE>
F. Payment of Cash; Defaults. Whenever the Corporation is required to make any
cash payment to a holder under this Certificate of Designation (as a Conversion
Default Payment, upon redemption or otherwise), such cash payment shall be made
to the holder within five (5) business days after delivery by such holder of a
notice specifying that the holder elects to receive such payment in cash and the
method (e.g., by check, wire transfer) in which such payment should be made. If
such payment is not delivered within such five (5) business day period, such
holder shall thereafter be entitled to interest on the unpaid amount at a per
annum rate equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law until such amount is paid in full to
the holder. To the extent that the holders have a remedy as a result of the
interest provided for in clause (i) of Article VIII.C, the payment of interest
that would otherwise be required pursuant to this Article XIV.F shall not be
required.
G. Status as Stockholder. Upon submission of a Notice of Conversion by a holder
of Series A Preferred Stock, the shares covered thereby shall be deemed
converted into shares of Common Stock and the holder's rights as a holder of
such converted shares of Series A Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Extended Delivery Period with
respect to a conversion of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock)
the holder shall regain the rights of a holder of Series A Preferred Stock with
respect to such unconverted shares of Series A Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares to the
holder. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion Default
Payments pursuant to Article VI.A to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Article VI.B) for the Corporation's failure to convert Series A
Preferred Stock.
H. Remedies, Other Obligations, Breaches and Injunctive Relief. The
remedies provided in this Certificate of Designation shall be cumulative and in
addition to all other remedies available under this Certificate of Designation,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provision giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation
<PAGE>
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of Series A Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Corporation therefore agrees,
in the event of any such breach or threatened breach, the holders of Series A
Preferred Stock shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned authorized officer has executed this
Certificate this 21st day of July, 1997.
William O. Hunt, Chief Executive Officer
and President of the Corporation
<PAGE>
Schedule 1
[list of Monetary Defaults will be added after discussion on Monday]
<PAGE>
EXHIBIT B TO SECURITIES PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 21, 1997 by
and among Intellicall, Inc., a Delaware corporation (the "Company"), with
headquarters located at Carrollton, Texas and the undersigned, (the "Initial
Purchasers" ).
RECITALS
A. In connection with the Securities Purchase Agreement dated of even date
herewith by and between the Company and the Initial Purchasers (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 Purchasers shares
of Series A Preferred Stock of the Company (the "Preferred Stock") that is
convertible into shares (the "Conversion Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designations,
Preferences and Rights with respect to such Preferred Stock (the "Certificate of
Designations").
B. To induce the Initial Purchasers 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
"Securities Act"), and applicable state securities laws.
AGREEMENTS
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 the Initial
Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Purchasers" means the Initial Purchasers and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
(b) "register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness
<PAGE>
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(c) "Registrable Securities" means the Conversion Shares (including any
Conversion Shares issuable with respect to conversion default payments under the
Certificate of Designation or with respect to any redemption of any Preferred
Stock) issued or issuable with respect to the Preferred Stock and any shares of
capital stock issued or issuable, from time to time (with any adjustments), on
or in exchange for or otherwise with respect to any of the foregoing.
(d) "Registration Statement" means a registration statement of the Company
under the Securities Act.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
2.1 Mandatory Registration. The Company shall prepare, and, on or prior to
forty-five (45) days after the date of the Closing (the "Filing Date"), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable Securities, subject to the consent of
the Initial Purchasers (as determined pursuant to Section 11.10 hereof))
covering the resale of all of the Registrable Securities, which Registration
Statement, to the extent allowable under the Securities 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 (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Stock in accordance with the terms thereof, or the number of shares of
Common Stock purchasable thereunder, in accordance with the terms thereof. The
Registrable Securities included in the Registration Statement shall be allocated
among the Purchasers as set forth in Section 11.11 hereof. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of the Initial Purchasers, which approval shall not be unreasonably
withheld or denied) the Initial Purchasers and their counsel prior to its filing
or other submission.
2.2 Underwritten Offering. If any offering pursuant to a Registration Statement
pursuant to Section 2.1 hereof involves an underwritten offering, the Purchasers
who hold a majority in interest of the Registrable Securities subject to such
underwritten offering, with the consent of the Initial Purchasers, shall have
the right to select a total of one legal counsel to represent the
<PAGE>
Purchasers 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.
2.3 Payments by the Company. The Company shall cause the registration
statement to become effective as soon as practicable, but in no event later than
the ninetieth (90th) day following the Closing Date (the "Registration
Deadline"). If (i) the registration statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2.1 hereof is
not declared effective by the SEC on or before the Registration Deadline, or
(ii) after the registration statement has been declared effective by the SEC,
sales of all the Registrable Securities (including any Registrable Securities
required to be registered pursuant to Section 3.2 hereof) cannot be made
pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Purchasers) (any event described in the preceding
clauses (i) and (ii) being described as a "Registration Failure Event"), then
the Company will make payments to the Purchasers in such amounts and at such
times as shall be determined pursuant to this Section 2.3 as partial relief for
the damages to the Purchasers by reason of any such delay in or reduction of
their ability to sell the Registrable Securities (which remedy shall not be
exclusive of any other remedies available at law or in equity). Promptly upon
the occurrence of such Registration Failure Event, the Company shall pay to each
Purchaser an amount equal to (i) (A) .005 (during the first 30 days after the
Registration Deadline), .01 (during the period beginning 31 days after the
Registration Deadline and ending 60 days after the Registration Deadline) and
.02 (thereafter) times (B) the aggregate purchase price of the Preferred Stock
held by such Purchaser (including, without limitation, Preferred Stock that have
been converted into Conversion Shares then held by such Purchaser) times (ii) an
amount equal to: (A) in the case of a Registration Failure Event described in
clause (i) of the second sentence of this Section 2.3, the number of months
(prorated per day for partial months) following the Registration Deadline prior
to the date the Registration Statement filed pursuant to Section 2.1 is declared
effective by the SEC, or (B) in the case of a Registration Failure Event
described in clause (ii) of the second sentence of this Section 2.3, the number
of months (prorated per day for partial months) following the Registration
Deadline but prior to the termination of the Registration Period that sales
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective. Such amounts shall be paid in cash or, at
each Purchaser's option, may be convertible into Common Stock at the "Conversion
Price" (as defined in the Certificate of Designation). Any shares of Common
Stock issued upon conversion of such amounts shall be Registrable Securities. If
the Purchaser desires to convert or exercise the amounts due hereunder into
Registrable Securities it shall so notify the Company in writing within two (2)
business days prior to the date on which such amounts are first payable in cash
and such amounts shall be so convertible (pursuant to the terms of the
Certificate of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period
<PAGE>
that gives rise to such obligation, provided that, if any such period extends
for more than thirty (30) days, interim payments shall be made for each such
thirty (30) day period.
2.4 Piggy-Back Registrations. If at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall file with the SEC
a Registration Statement relating to a firm commitment underwritten offering for
its own account or the account of others under the Securities 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), then the Company
shall send to each Purchaser who is entitled to registration rights under this
Section 2.4 written notice of such determination and, if within fifteen (15)
days after the date of such notice, such Purchaser shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Purchaser 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
Purchaser has requested inclusion hereunder as the underwriter shall permit. Any
exclusion of Registrable Securities shall be made pro rata among the Purchasers
seeking to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such Purchasers; 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, except as disclosed on Schedule 2.4, 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 2.4 shall be construed
to limit any registration required under Section 2.1 or 3.2 hereof. If an
offering in connection with which a Purchaser is entitled to registration under
this Section 2.4 is an underwritten offering, then each Purchaser 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.
2.5 Eligibility for Form S-3. The Company represents and warrants that it meets
the requirements for the use of Form S-3 for registration of the sale by the
Initial Purchasers and
<PAGE>
any other Purchaser of the Registrable Securities and the Company shall
file all reports required to be filed by the Company with the SEC in a timely
manner so as to maintain such eligibility for the use of Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the Company
shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the Registration
Statement required by Section 2.1, and cause such Registration Statement
relating to Registrable Securities to become effective as soon as practicable
after such filing, but in no event later than the Registration Deadline, 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 no further Registrable Securities may
be issued in the future) and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Initial Purchasers) may
be immediately sold to the public without registration, whether pursuant to Rule
144 or otherwise (the "Registration Period"). The Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein and all documents incorporated by reference 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.
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the termination of the Registration Period or, if earlier, 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, for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Registration Trigger Date"), insufficient to cover one hundred fifty percent
(150%) of the Registrable Securities issued or issuable upon conversion of the
Preferred Stock held by any Purchaser, the Company shall amend, if permissible,
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover two hundred
percent (200%) of the Registrable Securities issued or issuable to such
Purchaser, in each case, as soon as practicable, but in any event within fifteen
(15) days after the Registration Trigger Date (based
<PAGE>
on the market price of the Common Stock and other relevant factors on which
the Company reasonably elects to rely). The Company shall cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. In the event the Company fails to obtain the
effectiveness of any such Registration Statement within ninety (90) days after a
Registration Trigger Date, each Purchaser shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a written notice to the Company (a "Redemption Notice"), to require the Company
to purchase for cash, at an amount per share equal to the Redemption Conversion
Amount (as defined in the Certificate of Designation), up to a portion of the
Purchaser's Preferred Stock such that, after giving effect to such purchase, the
total number of Registerable Securities available under a Registration Statement
filed pursuant to this Agreement is sufficient to cover two hundred percent
(200%) of the Registrable Securities issued or issuable upon conversion of the
Preferred Stock held by such Purchaser. If the Company fails to redeem any of
such shares within five (5) business days after its receipt of a Redemption
Notice, then such Purchaser shall be entitled to the remedies provided in the
Certificate of Designation (it being understood that pursuant to the Certificate
of Designation certain of these remedies are subject to the Company not being in
Monetary Default (as defined in the Certificate of Designation)).
3.3 The Company shall furnish to each Purchaser whose Registrable Securities are
included in the Registration Statement and its legal counsel (a) 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 2.1, 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, if any, thereof which contains information for which the Company has
sought confidential treatment), and (b) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto
and such other documents as such Purchaser may reasonably request in order to
facilitate the disposition of the Registrable Securities owned (or to be owned)
by such Purchaser.
3.4 The Company shall use reasonable efforts to (a) register and qualify
the Registrable Securities covered by the Registration Statement under
securities laws of such jurisdictions in the United States as each Purchaser who
holds (or has the right to hold) Registrable Securities being offered reasonably
requests, (b) 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, (c) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (d) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided,
<PAGE>
however, that the Company shall not be required in connection therewith or
as a condition thereto to (i) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3.4, (ii)
subject itself to general taxation in any such jurisdiction, (iii) file a
general consent to service of process in any such jurisdiction, (iv) provide any
undertakings that cause the Company material expense or burden, or (v) make any
change in its charter or by-laws, 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.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
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.
3.6 As promptly as practicable after becoming aware of such event, the Company
shall notify each Purchaser 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 Purchaser as such Purchaser may reasonably
request.
3.7 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
practicable moment and to notify each Purchaser 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.
3.8 The Company shall permit a single firm of counsel designated by the Initial
Purchasers to review the Registration Statement and all amendments and
supplements thereto 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.
3.9 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 Securities 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.
<PAGE>
3.10 At the request of any Purchaser, the Company shall furnish, on the date of
effectiveness of the Registration Statement and thereafter from time to time on
such dates as a Purchaser may reasonably request (a) an opinion, dated as of
such applicable date, from counsel representing the Company addressed to the
Purchasers and in form, scope and substances as is customarily given in an
underwritten public offering and (b) in the case of an underwriting, a letter,
dated as of such applicable date, from the Company's independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and the Purchasers.
3.11 The Company shall make available for inspection by (i) any Purchaser, (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 Purchasers, and (iv) 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 a Purchaser) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3.11. Each Purchaser 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 a Purchaser's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
3.12 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company unless (a) disclosure
of such information is necessary to comply with federal or state securities
laws, (b) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (c) the release of such
information is ordered pursuant to a subpoena or other order from a court
<PAGE>
or governmental body of competent jurisdiction, (d) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement, or (e) such Purchaser consents to the
form and content of any such disclosure. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Purchaser is sought in
or by a court or governmental body of competent jurisdiction or self-regulatory
organization or through other means, give prompt notice to such Purchaser prior
to making such disclosure, and allow the Purchaser, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
3.13 The Company shall cause the listing and the continuation of listing of all
the Registrable Securities covered by the Registration Statement on the New York
Stock Exchange and cause the Registrable Securities to be quoted or listed on
each additional national securities exchange or quotation system upon which the
Common Stock is then listed or quoted.
3.14 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. 3.15 The Company shall cooperate with the
Purchasers 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 Purchasers may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchasers 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 cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
3.16 At the request of any Purchaser, the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Commission).
3.18 The Company shall take all such other actions as any Purchaser or the
underwriters, if
<PAGE>
any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities.
3.19 From and after the date of this Agreement, the Company shall not, and shall
not agree to, allow the holders of any securities of the Company to include any
of their securities in any Registration Statement or any amendment or supplement
thereto under Section 2.1 or 3.2 hereof without the consent of the holders of a
majority of the Registrable Securities; provided, however, that the foregoing
restriction shall not apply to the securities subject to the agreements
disclosed in Schedule 3.19 as long as such securities do not reduce or affect
the amount of any Registrable Securities included in such Registration
Statement.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 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 Purchaser that such Purchaser 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 five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Purchaser of the information the
Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser'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 Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall use its reasonably
best efforts to comply with the applicable prospectus delivery requirements of
the Securities Act in connection with any such sale.
4.4 Each Purchaser agrees to notify the Company promptly, but in any event
within 72 hours after the date on which all Registrable Securities owned by such
Purchaser have been sold by
<PAGE>
such Purchaser, if such date is prior to the expiration of the Registration
Period, so that the Company may comply with its obligation to terminate the
Registration Statement in accordance with Item 512 of Regulation S-K or
Regulation S-B, as the case may be.
4.5 In the event Purchasers holding a majority in interest of the Registrable
Securities being offered determine to engage the services of an underwriter,
each Purchaser agrees to enter into and perform such Purchaser'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 Purchaser has notified the Company in
writing of such Purchaser's election to exclude all of such Purchaser's
Registrable Securities from the Registration Statement.
4.6 Each Purchaser agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.6 or 3.7, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 or 3.7 and, if so directed by the
Company, such Purchaser 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 Purchaser's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
4.7 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof, no
Purchaser may participate in any underwritten distribution hereunder unless such
Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis provided in any underwriting arrangements in usual and customary form
entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
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 Article
V.
<PAGE>
ARTICLE V
EXPENSES OF REGISTRATION
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Articles II and III, including, without limitation, all registration, listing
and qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Purchasers pursuant to Section 2.2 hereof shall be borne
by the Company; provided, however, that the reimbursable expenses of the counsel
selected by the Purchasers pursuant to Section 2.2 hereof shall not exceed
Twenty Thousand Dollars ($20,000).
ARTICLE VI
INDEMNIFICATION
In the event any Registrable Securities are included in a Registration Statement
under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold harmless
and defend (a) each Purchaser who holds such Registrable Securities, and (b) the
directors, officers, partners, members, employees, agents and persons who
control any Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), if any, (each, an "Indemnified Person"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively, together with
actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof, "Claims") to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6.3 with respect to the number of legal
counsel, the Company shall reimburse the Purchasers and each such underwriter or
controlling person, promptly as such expenses are
<PAGE>
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 6.1: (x) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) 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 (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3.3 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 Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser is
participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and persons, if any, who control the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, 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 Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
subject to Section 6.3 such Purchaser 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 6.2
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Purchaser, which consent
shall not be unreasonably withheld; provided, further, however, that a Purchaser
shall be liable under this Agreement (including this Section 6.2 and Article
VII) for only that amount as does not exceed the net proceeds actually received
by such Purchaser as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall
<PAGE>
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 Purchasers pursuant to Article IX. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6.2 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, and the
Indemnified Party failed to utilize such corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party under
this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Article VI, 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 such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. 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
Purchasers 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 Purchasers if they hold Registrable Securities included in such
Registration Statement), if the Purchasers are entitled to indemnification
hereunder, or by 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 Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI 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.
<PAGE>
ARTICLE VII
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 Article
VI 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 Article
VI, (ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person 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.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to the Purchasers the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available all reports
and other documents required of the Company under the Securities Act and the
Exchange 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 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds Preferred Stock or
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange 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 Purchasers to sell such securities pursuant to Rule 144 without
registration.
<PAGE>
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Purchasers hereunder, including the right to have the Company
register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Purchaser to any transferee of all or any
portion of the Preferred Stock or the Registrable Securities if: (a) the
Purchaser 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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee, and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (d) 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 for the benefit of the Company to be
bound by all of the provisions contained herein, and (e) such transfer shall
have been made in accordance with the applicable requirements of the Securities
Purchase Agreement.
ARTICLE X
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 Purchasers
(but not an Initial Purchaser who no longer owns any Preferred Stock or
Registrable Securities) and Purchasers who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Article X shall be binding upon each Purchaser and the Company.
ARTICLE XI
MISCELLANEOUS
11.1 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.
11.2 Any notices herein required or permitted to be given shall be in writing
and may be personally served or delivered by courier or by confirmed telecopy,
and shall be deemed delivered at the time and date of receipt (which shall
include telephone line facsimile transmission). The addresses for such
communications shall be:
<PAGE>
If to the Company:
Intellicall, Inc.
2155 Chenault, Suite 410
Carollton, Texas 75006
Telecopy: (972) 416-9454
Attention: William O. Hunt
with a copy to:
Kane, Russell, Coleman & Logan, P.C.
3700 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75205-7207
Telecopy: (214) 777-4200
Attention: Patrick Stark
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, Illinois 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 715-4800
Attention: Peter H. Lieberman
<PAGE>
and if to any other Purchaser, at such address as such Purchaser, 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 11.2.
11.3 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.
11.4 This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
in the State of Delaware. The parties hereto irrevocably consent to the
jurisdiction of the courts of the State of Delaware located in the County of New
Castle in the State of Delaware in any suit or proceeding based on or arising
under this Agreement and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The parties hereto further agree that service of process upon the
parties hereto mailed by certified mail return receipt requested shall be deemed
in every respect effective service of process upon each such party in any such
suit or proceeding. Nothing herein shall affect either party's right to serve
process in any other manner permitted by law. The parties hereto agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
11.5 This Agreement, the Preferred Stock, the Certificate of Designation and the
Securities Purchase Agreement (including all schedules and exhibits thereto and
all certificates and opinions required thereby) 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, the Preferred
Stock and the Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
11.7 The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
11.8 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.
<PAGE>
11.9 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.
11.10 All consents and other determinations to be made by the Purchasers or the
Initial Purchasers pursuant to this Agreement shall be made by the Purchasers or
the Initial Purchasers holding a majority of the Registrable Securities
(determined as if all Preferred Stock then outstanding had been converted into
or exercised for Registrable Securities) held by all Purchasers or Initial
Purchasers, as the case may be.
11.11 The initial number of Registrable Securities included on any Registration
Statement and each increase to the number of Registrable Securities included
thereon shall be allocated pro rata among the Purchasers based on the number of
Registrable Securities held by each Purchaser at the time of such establishment
or increase, as the case may be. In the event a Purchaser shall sell or
otherwise transfer any of such holder's Registrable Securities, each transferee
shall be allocated a pro rata portion of the number of Registrable Securities
included on a Registration Statement for such transferor. Any shares of Common
Stock included on a Registration Statement and which remain allocated to any
person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable Securities then held by such Purchasers. Without implication that
the contrary would otherwise be true, for purposes of this paragraph, all
Preferred Stock then outstanding shall be assumed converted into or exercised
for Registrable Securities.
11.12 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.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above written.
INTELLICALL, INC.
John M. Carradine, Vice President of Finance
Initial Purchasers:
PURCHASER:
CANADIAN IMPERIAL HOLDINGS, INC.
By:
Its:
PURCHASER:
THE MATTHEW FUND, N.V.
By:
Its:
PURCHASER:
CC INVESTMENTS, LDC
By:
Its:
<PAGE>
PURCHASER:
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.
By:
Its:
PURCHASER:
SWARTZ INVESTMENTS, LLC
By:
Its:
<PAGE>
EXHIBIT 1
to Registration
Rights Agreement
[Date]
[Name and address
of transfer agent]
RE: INTELLICALL, INC.
Ladies and Gentlemen:
We are counsel to INTELLICALL, INC., a Delaware corporation (the "Company"), and
we understand that [Name of Purchaser] (the "Holder") has purchased from the
Company Series A Convertible Preferred Stock of the Company (the "Preferred
Stock"), convertible into shares of the Company's common stock, par value $.10
per share (the "Common Stock"). The Preferred Stock was purchased by the Holder
pursuant to a Securities Purchase Agreement, dated as of June ___, 1997, by and
among the Company and the signatories thereto (the "Agreement"). Pursuant to a
Registration Rights Agreement, dated as of June __, 1997, by and among the
Company and the signatories thereto (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 _____ __, 1997, 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 and which registration statement was
declared effective by the SEC on ____________.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable Securities
have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of Purchaser]
<PAGE>
EXHIBIT C TO THE SECURITIES PURCHASE AGREEMENT
[COMPANY LETTERHEAD]
July 21, 1997
Company:
Address:
Attn: Stock Transfer Dept.
Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the "Purchase
Agreement"), a copy of which is enclosed, dated as of even date herewith, by and
between Intellicall, Inc., a Delaware corporation (the "Company"), CC
Investments, LDC, Canadian Imperial Holdings, Inc., Proprietary Convertible
Investment Group, Inc. And The Matthew Fund, N.V. (the "Holders"), pursuant to
which the Company is issuing to the Holders shares of Series A Convertible
Preferred Stock, which are convertible into shares of common stock ("Common
Stock"), $.01 par value per share, of the Company (such shares of Common Stock,
the "Subject Shares"). This letter shall serve as our irrevocable authorization
and direction to you with respect to the issuance of Subject Shares.
Certificates for the Subject Shares shall not bear any legend restricting their
transfer and shall not be subject to any stop-transfer restriction other than as
permitted in Article V of the Purchase Agreement; provided, however, if the
Subject Shares are not registered for resale under the Securities Act of 1933,
as amended, then, subject to Article V of the Purchase Agreement, the
certificates for the Subject Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXCEPTION TO
<PAGE>
OR EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Purchase Agreement and, accordingly, it is agreed that Holders
are third party beneficiaries of these instructions. Moreover, the Company
cannot revoke or modify these instructions without the prior written consent of
the Holders. Please execute this letter in the space indicated to acknowledge
your agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at (972) 416-0022.
Very truly yours,
INTELLICALL, INC.
By
Its:
Agreed and Acknowledged as of ________________:
- ----------------------------
By:
Name:
Title:
Enclosures
cc: CC Investments, LDC
Canadian Imperial Holdings, Inc.
Proprietary Convertible Investment Group, Inc.
The Matthew Fund, N.V.
<PAGE>
EXHIBIT D TO SECURITIES PURCHASE AGREEMENT
July 21, 1997
CC Investments, LDC
Canadian Imperial Holdings, Inc.
Proprietary Convertible Investment Group, Inc.
The Matthew Fund, N.V.
c/o Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, Illinois 60605
Attention: John D. Ziegelman
Dear Gentlemen:
The undersigned understands that you are entering into a Securities Purchase
Agreement (the "Purchase Agreement") dated as of the date hereof, with
Intellicall, Inc., a Delaware corporation, (the "Company"), providing for the
purchase by you of shares of Series A Convertible Preferred Stock (the
"Preferred Stock") which are convertible into shares of Common Stock, $.01 par
value per share (the "Common Stock"), of the Company and that you may reoffer
your shares of such Common Stock to the public.
In consideration of your execution of the Purchase Agreement, and for other good
and valuable consideration, during the term hereof, the undersigned hereby
irrevocably agrees that without your prior written consent, the undersigned will
not, directly or indirectly, offer, sell, transfer, assign, pledge, sell short,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock (other than the cashless exercise of options by the
undersigned of up to twenty-five percent (25%) of the options held by the
undersigned as of the date hereof), or any securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase or
acquire beneficially owned by the undersigned on the date hereof, except for
shares of Common Stock representing no more than 20% of the outstanding Common
Stock beneficially owned by the undersigned on the date hereof (which number of
shares is__________). Notwithstanding anything to the contrary, the foregoing
restriction shall not apply to shares of Common Stock acquired from any person
listed in Schedule 7.1(ix) to the Purchase Agreement as a result of such
person's death or retirement from employment with the Company.
The term of this undertaking shall begin on the date hereof and terminate
on the earliest to occur of (i) the day following the fifteen (15) month
anniversary of the date hereof, (ii) the earliest date on which the Purchasers
(as defined in the Purchase Agreement) (other than The Matthew Fund, N.V.) each
own less than twenty-five percent (25%) of the number of shares of Preferred
Stock originally purchased by each respective Purchaser, or (iii) the death or
retirement of the undersigned from employment with the Company.
<PAGE>
The undersigned agrees that the provisions of this undertaking shall be binding
upon the successors, assigns, heirs and personal representatives of the
undersigned.
Very truly yours,
Name:
DOCUMENT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 21, 1997 by
and among Intellicall, Inc., a Delaware corporation (the "Company"), with
headquarters located at Carrollton, Texas and the undersigned, (the "Initial
Purchasers" ).
RECITALS
A. In connection with the Securities Purchase Agreement dated of even date
herewith by and between the Company and the Initial Purchasers (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 Purchasers shares
of Series A Preferred Stock of the Company (the "Preferred Stock") that is
convertible into shares (the "Conversion Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designations,
Preferences and Rights with respect to such Preferred Stock (the "Certificate of
Designations").
B. To induce the Initial Purchasers 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
"Securities Act"), and applicable state securities laws.
AGREEMENTS
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 the Initial
Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Purchasers" means the Initial Purchasers and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
(b) "register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness
<PAGE>
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(c) "Registrable Securities" means the Conversion Shares (including any
Conversion Shares issuable with respect to conversion default payments under the
Certificate of Designation or with respect to any redemption of any Preferred
Stock) issued or issuable with respect to the Preferred Stock and any shares of
capital stock issued or issuable, from time to time (with any adjustments), on
or in exchange for or otherwise with respect to any of the foregoing.
(d) "Registration Statement" means a registration statement of the Company
under the Securities Act.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
2.1 Mandatory Registration. The Company shall prepare, and, on or prior to
forty-five (45) days after the date of the Closing (the "Filing Date"), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable Securities, subject to the consent of
the Initial Purchasers (as determined pursuant to Section 11.10 hereof))
covering the resale of all of the Registrable Securities, which Registration
Statement, to the extent allowable under the Securities 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 (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Stock in accordance with the terms thereof, or the number of shares of
Common Stock purchasable thereunder, in accordance with the terms thereof. The
Registrable Securities included in the Registration Statement shall be allocated
among the Purchasers as set forth in Section 11.11 hereof. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of the Initial Purchasers, which approval shall not be unreasonably
withheld or denied) the Initial Purchasers and their counsel prior to its filing
or other submission.
2.2 Underwritten Offering. If any offering pursuant to a Registration Statement
pursuant to Section 2.1 hereof involves an underwritten offering, the Purchasers
who hold a majority in interest of the Registrable Securities subject to such
underwritten offering, with the consent of the Initial Purchasers, shall have
the right to select a total of one legal counsel to represent the
<PAGE>
Purchasers 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.
2.3 Payments by the Company. The Company shall cause the registration statement
to become effective as soon as practicable, but in no event later than the
ninetieth (90th) day following the Closing Date (the "Registration Deadline").
If (i) the registration statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2.1 hereof is not
declared effective by the SEC on or before the Registration Deadline, or (ii)
after the registration statement has been declared effective by the SEC, sales
of all the Registrable Securities (including any Registrable Securities required
to be registered pursuant to Section 3.2 hereof) cannot be made pursuant to the
registration statement (by reason of a stop order or the Company's failure to
update the registration statement or any other reason outside the control of the
Purchasers) (any event described in the preceding clauses (i) and (ii) being
described as a "Registration Failure Event"), then the Company will make
payments to the Purchasers in such amounts and at such times as shall be
determined pursuant to this Section 2.3 as partial relief for the damages to the
Purchasers by reason of any such delay in or reduction of their ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). Promptly upon the occurrence of such
Registration Failure Event, the Company shall pay to each Purchaser an amount
equal to (i) (A) .005 (during the first 30 days after the Registration
Deadline), .01 (during the period beginning 31 days after the Registration
Deadline and ending 60 days after the Registration Deadline) and .02
(thereafter) times (B) the aggregate purchase price of the Preferred Stock held
by such Purchaser (including, without limitation, Preferred Stock that have been
converted into Conversion Shares then held by such Purchaser) times (ii) an
amount equal to: (A) in the case of a Registration Failure Event described in
clause (i) of the second sentence of this Section 2.3, the number of months
(prorated per day for partial months) following the Registration Deadline prior
to the date the Registration Statement filed pursuant to Section 2.1 is declared
effective by the SEC, or (B) in the case of a Registration Failure Event
described in clause (ii) of the second sentence of this Section 2.3, the number
of months (prorated per day for partial months) following the Registration
Deadline but prior to the termination of the Registration Period that sales
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective. Such amounts shall be paid in cash or, at
each Purchaser's option, may be convertible into Common Stock at the "Conversion
Price" (as defined in the Certificate of Designation). Any shares of Common
Stock issued upon conversion of such amounts shall be Registrable Securities. If
the Purchaser desires to convert or exercise the amounts due hereunder into
Registrable Securities it shall so notify the Company in writing within two (2)
business days prior to the date on which such amounts are first payable in cash
and such amounts shall be so convertible (pursuant to the terms of the
Certificate of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period
<PAGE>
that gives rise to such obligation, provided that, if any such period extends
for more than thirty (30) days, interim payments shall be made for each such
thirty (30) day period.
2.4 Piggy-Back Registrations. If at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall file with the SEC
a Registration Statement relating to a firm commitment underwritten offering for
its own account or the account of others under the Securities 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), then the Company
shall send to each Purchaser who is entitled to registration rights under this
Section 2.4 written notice of such determination and, if within fifteen (15)
days after the date of such notice, such Purchaser shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Purchaser 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
Purchaser has requested inclusion hereunder as the underwriter shall permit. Any
exclusion of Registrable Securities shall be made pro rata among the Purchasers
seeking to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such Purchasers; 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, except as disclosed on Schedule 2.4, 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 2.4 shall be construed
to limit any registration required under Section 2.1 or 3.2 hereof. If an
offering in connection with which a Purchaser is entitled to registration under
this Section 2.4 is an underwritten offering, then each Purchaser 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.
2.5 Eligibility for Form S-3. The Company represents and warrants that it
meets the requirements for the use of Form S-3 for registration of the sale by
the Initial Purchasers and
<PAGE>
any other Purchaser of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the Company
shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the Registration
Statement required by Section 2.1, and cause such Registration Statement
relating to Registrable Securities to become effective as soon as practicable
after such filing, but in no event later than the Registration Deadline, 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 no further Registrable Securities may
be issued in the future) and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Initial Purchasers) may
be immediately sold to the public without registration, whether pursuant to Rule
144 or otherwise (the "Registration Period"). The Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein and all documents incorporated by reference 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.
3.2 The Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until the termination of the
Registration Period or, if earlier, 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, for any three (3) consecutive
trading days (the last of such three (3) trading days being the "Registration
Trigger Date"), insufficient to cover one hundred fifty percent (150%) of the
Registrable Securities issued or issuable upon conversion of the Preferred Stock
held by any Purchaser, the Company shall amend, if permissible, the Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover two hundred percent (200%) of
the Registrable Securities issued or issuable to such Purchaser, in each case,
as soon as practicable, but in any event within fifteen (15) days after the
Registration Trigger Date (based
<PAGE>
on the market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. In the event the Company fails to obtain the
effectiveness of any such Registration Statement within ninety (90) days after a
Registration Trigger Date, each Purchaser shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a written notice to the Company (a "Redemption Notice"), to require the Company
to purchase for cash, at an amount per share equal to the Redemption Conversion
Amount (as defined in the Certificate of Designation), up to a portion of the
Purchaser's Preferred Stock such that, after giving effect to such purchase, the
total number of Registerable Securities available under a Registration Statement
filed pursuant to this Agreement is sufficient to cover two hundred percent
(200%) of the Registrable Securities issued or issuable upon conversion of the
Preferred Stock held by such Purchaser. If the Company fails to redeem any of
such shares within five (5) business days after its receipt of a Redemption
Notice, then such Purchaser shall be entitled to the remedies provided in the
Certificate of Designation (it being understood that pursuant to the Certificate
of Designation certain of these remedies are subject to the Company not being in
Monetary Default (as defined in the Certificate of Designation)).
3.3 The Company shall furnish to each Purchaser whose Registrable Securities are
included in the Registration Statement and its legal counsel (a) 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 2.1, 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, if any, thereof which contains information for which the Company has
sought confidential treatment), and (b) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto
and such other documents as such Purchaser may reasonably request in order to
facilitate the disposition of the Registrable Securities owned (or to be owned)
by such Purchaser.
3.4 The Company shall use reasonable efforts to (a) register and qualify the
Registrable Securities covered by the Registration Statement under securities
laws of such jurisdictions in the United States as each Purchaser who holds (or
has the right to hold) Registrable Securities being offered reasonably requests,
(b) 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, (c) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (d) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided,
<PAGE>
however, that the Company shall not be required in connection therewith or as a
condition thereto to (i) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3.4, (ii)
subject itself to general taxation in any such jurisdiction, (iii) file a
general consent to service of process in any such jurisdiction, (iv) provide any
undertakings that cause the Company material expense or burden, or (v) make any
change in its charter or by-laws, 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.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
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.
3.6 As promptly as practicable after becoming aware of such event, the Company
shall notify each Purchaser 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 Purchaser as such Purchaser may reasonably
request.
3.7 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
practicable moment and to notify each Purchaser 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.
3.8 The Company shall permit a single firm of counsel designated by the Initial
Purchasers to review the Registration Statement and all amendments and
supplements thereto 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.
3.9 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 Securities 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.
<PAGE>
3.10 At the request of any Purchaser, the Company shall furnish, on the date of
effectiveness of the Registration Statement and thereafter from time to time on
such dates as a Purchaser may reasonably request (a) an opinion, dated as of
such applicable date, from counsel representing the Company addressed to the
Purchasers and in form, scope and substances as is customarily given in an
underwritten public offering and (b) in the case of an underwriting, a letter,
dated as of such applicable date, from the Company's independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and the Purchasers.
3.11 The Company shall make available for inspection by (i) any Purchaser, (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 Purchasers, and (iv) 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 a Purchaser) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3.11. Each Purchaser 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 a Purchaser's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
3.12 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company unless (a) disclosure
of such information is necessary to comply with federal or state securities
laws, (b) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (c) the release of such
information is ordered pursuant to a subpoena or other order from a court
<PAGE>
or governmental body of competent jurisdiction, (d) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement, or (e) such Purchaser consents to the form and
content of any such disclosure. The Company agrees that it shall, upon learning
that disclosure of such information concerning a Purchaser is sought in or by a
court or governmental body of competent jurisdiction or self-regulatory
organization or through other means, give prompt notice to such Purchaser prior
to making such disclosure, and allow the Purchaser, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
3.13 The Company shall cause the listing and the continuation of listing of all
the Registrable Securities covered by the Registration Statement on the New York
Stock Exchange and cause the Registrable Securities to be quoted or listed on
each additional national securities exchange or quotation system upon which the
Common Stock is then listed or quoted.
3.14 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. 3.15 The Company shall cooperate with the
Purchasers 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 Purchasers may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchasers 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 cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
3.16 At the request of any Purchaser, the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a Registration
Statement and offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection therewith (including,
without limitation, the Securities Act and the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated by the Commission).
3.18 The Company shall take all such other actions as any Purchaser or the
underwriters, if
<PAGE>
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities.
3.19 From and after the date of this Agreement, the Company shall not, and shall
not agree to, allow the holders of any securities of the Company to include any
of their securities in any Registration Statement or any amendment or supplement
thereto under Section 2.1 or 3.2 hereof without the consent of the holders of a
majority of the Registrable Securities; provided, however, that the foregoing
restriction shall not apply to the securities subject to the agreements
disclosed in Schedule 3.19 as long as such securities do not reduce or affect
the amount of any Registrable Securities included in such Registration
Statement.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 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 Purchaser that such Purchaser 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 five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Purchaser of the information the
Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser'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 Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a Registration
Statement understands that the Securities Act may require delivery of a
prospectus relating thereto in connection with any sale thereof pursuant to such
Registration Statement, and each such Purchaser shall use its reasonably best
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4 Each Purchaser agrees to notify the Company promptly, but in any event
within 72 hours after the date on which all Registrable Securities owned by such
Purchaser have been sold by
<PAGE>
such Purchaser, if such date is prior to the expiration of the Registration
Period, so that the Company may comply with its obligation to terminate the
Registration Statement in accordance with Item 512 of Regulation S-K or
Regulation S-B, as the case may be.
4.5 In the event Purchasers holding a majority in interest of the Registrable
Securities being offered determine to engage the services of an underwriter,
each Purchaser agrees to enter into and perform such Purchaser'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 Purchaser has notified the Company in
writing of such Purchaser's election to exclude all of such Purchaser's
Registrable Securities from the Registration Statement.
4.6 Each Purchaser agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.6 or 3.7, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 or 3.7 and, if so directed by the
Company, such Purchaser 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 Purchaser's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
4.7 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof, no
Purchaser may participate in any underwritten distribution hereunder unless such
Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis provided in any underwriting arrangements in usual and customary form
entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
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 Article
V.
<PAGE>
ARTICLE V
EXPENSES OF REGISTRATION
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Articles II and III, including, without limitation, all registration, listing
and qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Purchasers pursuant to Section 2.2 hereof shall be borne
by the Company; provided, however, that the reimbursable expenses of the counsel
selected by the Purchasers pursuant to Section 2.2 hereof shall not exceed
Twenty Thousand Dollars ($20,000).
ARTICLE VI
INDEMNIFICATION
In the event any Registrable Securities are included in a Registration Statement
under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold harmless
and defend (a) each Purchaser who holds such Registrable Securities, and (b) the
directors, officers, partners, members, employees, agents and persons who
control any Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), if any, (each, an "Indemnified Person"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively, together with
actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof, "Claims") to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6.3 with respect to the number of legal
counsel, the Company shall reimburse the Purchasers and each such underwriter or
controlling person, promptly as such expenses are
<PAGE>
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 6.1: (x) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) 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 (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3.3 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 Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser is
participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and persons, if any, who control the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, 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 Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
subject to Section 6.3 such Purchaser 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 6.2
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Purchaser, which consent
shall not be unreasonably withheld; provided, further, however, that a Purchaser
shall be liable under this Agreement (including this Section 6.2 and Article
VII) for only that amount as does not exceed the net proceeds actually received
by such Purchaser as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall
<PAGE>
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 Purchasers pursuant to Article IX. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6.2 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, and the
Indemnified Party failed to utilize such corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party under
this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Article VI, 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 such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. 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
Purchasers 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 Purchasers if they hold Registrable Securities included in such
Registration Statement), if the Purchasers are entitled to indemnification
hereunder, or by 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 Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI 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.
<PAGE>
ARTICLE VII
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 Article
VI 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 Article
VI, (ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person 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.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to the Purchasers the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available all reports
and other documents required of the Company under the Securities Act and the
Exchange 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 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds Preferred Stock or
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange 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 Purchasers to sell such securities pursuant to Rule 144 without
registration.
<PAGE>
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Purchasers hereunder, including the right to have the Company
register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Purchaser to any transferee of all or any
portion of the Preferred Stock or the Registrable Securities if: (a) the
Purchaser 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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee, and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (d) 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 for the benefit of the Company to be
bound by all of the provisions contained herein, and (e) such transfer shall
have been made in accordance with the applicable requirements of the Securities
Purchase Agreement.
ARTICLE X
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 Purchasers
(but not an Initial Purchaser who no longer owns any Preferred Stock or
Registrable Securities) and Purchasers who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Article X shall be binding upon each Purchaser and the Company.
ARTICLE XI
MISCELLANEOUS
11.1 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.
11.2 Any notices herein required or permitted to be given shall be in writing
and may be personally served or delivered by courier or by confirmed telecopy,
and shall be deemed delivered at the time and date of receipt (which shall
include telephone line facsimile transmission). The addresses for such
communications shall be:
<PAGE>
If to the Company:
Intellicall, Inc.
2155 Chenault, Suite 410
Carollton, Texas 75006
Telecopy: (972) 416-9454
Attention: William O. Hunt
with a copy to:
Kane, Russell, Coleman & Logan, P.C.
3700 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75205-7207
Telecopy: (214) 777-4200
Attention: Patrick Stark
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, Illinois 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 715-4800
Attention: Peter H. Lieberman
<PAGE>
and if to any other Purchaser, at such address as such Purchaser, 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 11.2.
11.3 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.
11.4 This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
in the State of Delaware. The parties hereto irrevocably consent to the
jurisdiction of the courts of the State of Delaware located in the County of New
Castle in the State of Delaware in any suit or proceeding based on or arising
under this Agreement and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The parties hereto further agree that service of process upon the
parties hereto mailed by certified mail return receipt requested shall be deemed
in every respect effective service of process upon each such party in any such
suit or proceeding. Nothing herein shall affect either party's right to serve
process in any other manner permitted by law. The parties hereto agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
11.5 This Agreement, the Preferred Stock, the Certificate of Designation and the
Securities Purchase Agreement (including all schedules and exhibits thereto and
all certificates and opinions required thereby) 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, the Preferred
Stock and the Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
11.7 The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
11.8 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.
<PAGE>
11.9 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.
11.10 All consents and other determinations to be made by the Purchasers or the
Initial Purchasers pursuant to this Agreement shall be made by the Purchasers or
the Initial Purchasers holding a majority of the Registrable Securities
(determined as if all Preferred Stock then outstanding had been converted into
or exercised for Registrable Securities) held by all Purchasers or Initial
Purchasers, as the case may be.
11.11 The initial number of Registrable Securities included on any Registration
Statement and each increase to the number of Registrable Securities included
thereon shall be allocated pro rata among the Purchasers based on the number of
Registrable Securities held by each Purchaser at the time of such establishment
or increase, as the case may be. In the event a Purchaser shall sell or
otherwise transfer any of such holder's Registrable Securities, each transferee
shall be allocated a pro rata portion of the number of Registrable Securities
included on a Registration Statement for such transferor. Any shares of Common
Stock included on a Registration Statement and which remain allocated to any
person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable Securities then held by such Purchasers. Without implication that
the contrary would otherwise be true, for purposes of this paragraph, all
Preferred Stock then outstanding shall be assumed converted into or exercised
for Registrable Securities.
11.12 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.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above written.
INTELLICALL, INC.
John M. Carradine, Vice President of Finance
Initial Purchasers:
PURCHASER:
CANADIAN IMPERIAL HOLDINGS, INC.
By:
Its:
PURCHASER:
THE MATTHEW FUND, N.V.
By:
Its:
PURCHASER:
CC INVESTMENTS, LDC
By:
Its:
<PAGE>
PURCHASER:
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.
By:
Its:
PURCHASER:
SWARTZ INVESTMENTS, LLC
By:
Its:
<PAGE>
EXHIBIT 1
to Registration
Rights Agreement
[Date]
[Name and address
of transfer agent]
RE: INTELLICALL, INC.
Ladies and Gentlemen:
We are counsel to INTELLICALL, INC., a Delaware corporation (the "Company"), and
we understand that [Name of Purchaser] (the "Holder") has purchased from the
Company Series A Convertible Preferred Stock of the Company (the "Preferred
Stock"), convertible into shares of the Company's common stock, par value $.10
per share (the "Common Stock"). The Preferred Stock was purchased by the Holder
pursuant to a Securities Purchase Agreement, dated as of June ___, 1997, by and
among the Company and the signatories thereto (the "Agreement"). Pursuant to a
Registration Rights Agreement, dated as of June __, 1997, by and among the
Company and the signatories thereto (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 _____ __, 1997, 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 and which registration statement was
declared effective by the SEC on ____________.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable Securities
have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of Purchaser]
<PAGE>
Schedule 2.4 - Registration Rights Agreements
The Company has entered into the following agreements which contain registration
rights obligations, copies of which have been provided to the Initial Purchasers
and their counsel: Registration Rights Agreement dated Feburuary 14, 1994 with
T.J. Berthel Investments, L.P.; Conversion Agency Agreement dated December 29,
1995 with Banca del Gottardo; Conversion Agency Agreement dated November 22,
1996 with Banca del Gottardo; SF-W-1 Warrant to purchase 200,000 shares; SF-W-2
Warrant to purchase 150,000 shares.
Such agreements contain rights of the parties thereto to include Common Stock of
the Company in a registration statement filed for the Initial Purchasersall on
the terms and conditions therein specified.
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement ("Second
Amendment") dated as of the 21st day of July, 1997 is by and between
INTELLICALL, INC., a Delaware corporation ("Borrower") and FINOVA CAPITAL
CORPORATION ("FINOVA")
BACKGROUND
A. On November 13, 1996, Borrower and FINOVA entered into a certain Loan and
Security Agreement ("Loan Agreement") and certain related agreements and
instruments (collectively with the Loan Agreement, the "Loan Documents") to
reflect certain loan arrangements among the parties.
B. On April 16, 1997, Borrowers and FINOVA entered into a certain First
Amendment to Loan and Security Agreement (the "First Amendment") to reflect
certain amendments of the Loan Documents.
C Borrower has requested that FINOVA agree to certain further amendments of the
Loan Documents to reflect certain changes.
NOW THEREFORE, with the foregoing Background hereinafter deemed
incorporated by reference herein and made a part hereof, the parties hereto,
intending to be legally bound, hereby promise and agree as follows:
1. Preferred Stock Redemption. Section 14.3 of the Loan
Agreement is deleted and replaced in its entirety as follows:
14.3 Dividends. Declare or pay cash dividends upon any of its
stock or distribute any of its property or redeem, retire, purchase or acquire
directly or indirectly any of its stock or make any other distributions;
provided, however the limitation set forth in the preceding clause shall not
apply to the redemption or repurchase by Borrower of shares of its Series A
Preferred Stock outstanding from time to time which are required or permitted to
be made by Borrower pursuant to the terms of the Designations, Preferences and
Rights of Series A Convertible Preferred Stock of Intellicall, Inc. (the
"Designation") relating to the Series A Preferred Stock, a copy of which
Designation is attached hereto as Exhibit 14.3, if (i) following and after
giving effect to such redemption or repurchase, Borrower shall have (A) excess
borrowing availability under the Borrowing Base of not less than $500,000 and
(B)less than $500,000 of the aggregate of all book overdrafts and trade accounts
payable outstanding beyond their due date which are not being contested in good
faith by Borrower and (ii) at the time of such repurchase or redemption no Event
of Monetary Default and no event which, with notice or passage of time or both,
would constitute an Event of Monetary Default has occurred and is continuing, or
would result from such repurchase or redemption. For purposes of this Second
<PAGE>
Amendment, the term "Event of Monetary Default" shall mean Event of Default as
contemplated in Section 17.1 (a) of the Loan Agreement or as contemplated in
Section 17.1 (b) as to the failure of Borrower to comply with Section 13.14 of
the Loan Agreement.
2. Amendment to Financial Covenants. Finova agrees that it will not
modify any of Financial Covenants for periods ending on or prior to December 31,
1997 (other than as set forth in paragraph 3 of this Second Amendment) which are
set forth on Pages S-5 and S-6 of the Schedule to Loan and Security Agreement
without the consent of the Purchasers (other than The Matthew Fund, N.V.) of the
Series A Convertible Preferred Stock to be issued pursuant to the Designation,
if such modification would make the Borrower's compliance with the modified
Financial Covenants more difficult than compliance with Financial Covenants, as
modified herein, as of the date of this Second Amendment.
3. Schedule to Loan and Security Agreement. The Schedule to Loan and
Security Agreement is hereby amended so that the Total Debt Service Coverage
Ratio of 0.50 to 1.0 set forth on Page S-6 thereto shall apply through the 4th
quarter 1997 and the Total Debt Service Coverage Ratio of 1.00 to 1.00 set forth
on Page S-6 thereto shall apply to 1st Quarter 1998 and at all times thereafter.
4. Reaffirmation of Agreement. Except as expressly modified herein,
Borrower hereby affirms all representations and warranties set forth in the Loan
Agreement again as of this date and warrants and represents that all such
representations and warranties are true, accurate and complete in all respects
as of this date and that such warranties and representations are hereby deemed
applicable to this Second Amendment and that no Event of Default exists under
the Loan Agreement or would exist with the passage of time, giving of notice or
both.
5. Conditions Precedent. This Second Amendment shall not be
effective until the following conditions have been met to the sole satisfaction
of FINOVA:
(a) Borrower shall have executed and delivered to FINOVA this Second
Amendment; and
(b) Borrower shall deliver to FINOVA any other documents, instruments or
agreements required hereunder or requested by FINOVA.
6. Amendment Fee. Borrower shall, as a condition to the
effectiveness of this Second Amendment, pay to FINOVA a non-refundable Amendment
Fee of $5,000. Such fee shall be due and payable at the closing of this Second
Amendment.
7. Miscellaneous:
(a) Capitalized Terms. All capitalized terms not otherwise defined herein
shall have the meanings as set forth in the Loan Documents.
(b) Third Party Rights. No rights are intended to be created hereunder for
the benefit of any third party donee, creditor, or incidental beneficiary.
<PAGE>
(c) Headings. The headings of any paragraph of this Second Amendment are
for convenience only and shall not be used to interpret any provisions hereof.
(d) Other Instruments. Borrower agrees to execute any other documents,
instruments and writings, in form satisfactory to FINOVA, as FINOVA may
reasonably request, to carry out the intentions of the parties hereunder.
(e) Modifications. No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed on behalf of
the party against whom enforcement is sought.
(f) Governing Law. The terms and conditions of this Second Amendment shall
be governed by the laws of the State of Arizona.
IN WITNESS WHEREOF, the undersigned parties have executed this Second
Amendment to Loan and Security Agreement the day and year first above written.
INTELLICALL, INC.
By:___________________________
Title: Vice President
By: ___________________________
Title: Secretary
FINOVA CAPITAL CORPORATION
By: ____________________________
Title: ___________________________
