SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 19, 1997
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C-PHONE CORPORATION
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(Exact name of registrant as specified in its charter)
NEW YORK 0-24424 06-1170506
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(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
6714 NETHERLANDS DRIVE, WILMINGTON, NORTH CAROLINA 28405
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 395-6100
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
DECEMBER 1997 PRIVATE PLACEMENT
On December 19, 1997, C-Phone Corporation (the "Company") completed a
private placement (the "December Placement") pursuant to which the Company
issued to several investors an aggregate of (a) 4,500 shares (the "Preferred
Shares") of the Company's newly created Series A Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock") with an initial stated
value of $1,000 per share (which increases at the rate of 5% per annum) (such
amount, as increased from time to time, the "Stated Value"), (b) warrants (the
"One-Year Warrants") to acquire up to an aggregate of 315,000 shares of common
stock, par value $.01 per share, of the Company ("Common Stock"), and (c)
warrants (the "Three-Year Warrants" and with the One-Year Warrants,
collectively, the "Warrants") to acquire up to an aggregate of 135,000 shares of
Common Stock, for an aggregate purchase price of $4,500,000, before payment of
fees and expenses.
Each Preferred Share is convertible, from time to time in whole or in
part at the option of the holder, into such number of shares of Common Stock as
is determined by dividing the Stated Value by the lesser of (a) $7.3575, and (b)
85% of the average of the closing bid price during such three consecutive
trading day period as may be selected by the holder during the 25 trading day
period preceding the date of conversion. The Preferred Shares cease to be
convertible (the "19.99% Limitation") if, at any time the aggregate number of
shares of Common Stock then issued upon conversion of the Preferred Shares would
equal 1,068,500 shares of Common Stock (the remaining shares of Common Stock
then issuable upon conversion of the Preferred Shares being the "Excess
Shares"), unless, in accordance with the rules of The Nasdaq Stock Market, Inc.
("Nasdaq") (on which the Common Stock is traded), the Company has obtained
approval for the issuance of the Excess Shares by a majority of the total votes
cast on such proposal by the holders of the then outstanding Common Stock (not
including any shares of Common Stock held by present or former holders of the
Preferred Shares that were issued upon conversion of the Preferred Shares), or
it has otherwise obtained permission from Nasdaq to allow such issuances. Any
outstanding Preferred Shares on December 19, 1999 automatically will be
converted into Common Stock at the conversion price then in effect.
The Company has agreed that, without the consent of the holders of 2/3
of the then outstanding Preferred Shares, it will not (a) issue any other class
or series of preferred stock that would rank senior to the Series A Preferred
Stock, and (b) on or before December 19, 1998, issue any other class or series
of preferred stock that would rank pari passu with the Series A Preferred Stock,
in either case, as to distribution of assets
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upon liquidation.
The One-Year Warrants expire on December 19, 1998 and have an exercise
price of $8.05 per share (115% of the closing price of the Common Stock on the
Nasdaq National Market (the "NNM") on the trading day immediately preceding the
closing date of the December Placement), subject to adjustment under certain
circumstances, including upon the issuance of shares of Common Stock (or
securities convertible or exchangeable into shares of Common Stock) at less than
80% of the then market price on the NNM for the Common Stock. The One-Year
Warrants are redeemable at the option of the Company at a price of $.01 per
warrant if the closing price of the Common Stock on the NNM is greater than 130%
of the exercise price of the One-Year Warrants then in effect for 10 consecutive
trading days. The Three-Year Warrants expire on December 19, 2000 and have an
exercise price of $9.10 per share (130% of the closing price of the Common Stock
on the NNM on the trading day immediately preceding the closing date of the
December Placement), subject to adjustment under certain circumstances,
including upon the issuance of shares of Common Stock (or securities convertible
or exchangeable into shares of Common Stock) at less than 80% of the then market
price on the NNM for the Common Stock. The Three-Year Warrants are not
redeemable.
The Company has agreed, at its expense, (a) to prepare and deliver to
the holders of the Preferred Shares on or before January 18, 1998, a draft
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933 (the "1933 Act") with respect to the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and exercise of
the Warrants (collectively, the "Registrable Securities"), (b) to file the
Registration Statement within 10 days after receipt of comments from the holders
of the Preferred Shares and thereafter use its best efforts to have the
Registration Statement declared effective by the Securities and Exchange
Commission, and (c) use its best efforts to maintain the effectiveness of the
Registration Statement until the earlier of (i) December 19, 2001, or (ii) the
time that all the Registerable Securities have been sold pursuant to the
Registration Statement or may be sold under 1933 Act Rule 144 without regard to
the volume limitations thereof.
The Preferred Shares are subject to redemption at the option of a
holder if, among other things, (a) the Company fails to obtain effectiveness of
the Registration Statement by June 17, 1998 or if, after the Registration
Statement becomes effective, such effectiveness lapses for more than 30
consecutive days or more than 60 days in any 12 month period, (b) the Company
fails to maintain the listing of the Common Stock on the NNM or another
principal securities exchange or automated quotation system and such failure
continues for more that 30 days, or (c) the
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Preferred Shares cease to be convertible as a result of the 19.99% Limitation
and the Company has not, prior thereto, or within 75 days after notice from
holders of 2/3 of the Preferred Shares, obtained approval to issue additional
shares of Common Stock.
Other than as required by the New York Business Corporation Law, the
holders of the Preferred Shares do not have any voting rights except that,
without the consent of the holders of 2/3 of the Preferred Shares, the Company
may not take any action to adversely effect the rights of such holders.
The Company has agreed to pay certain penalties to the holders of the
Preferred Shares in the event that the Company (a) fails to cause timely
delivery of the Common Stock issuable upon conversion of the Preferred Shares,
(b) is unable to convert Preferred Shares into Common Stock because the Company
does not have a sufficient number of authorized but unissued shares available
for issuance therefor, (c) fails to obtain effectiveness of the Registration
Statement within 90 days of the filing thereof with the SEC or if, after the
Registration Statement becomes effective, such effectiveness lapses for more
than 15 consecutive days or more than 30 days in any 12 month period, or (d)
fails to maintain the listing of the Common Stock on the NNM or other principal
securities exchange or automated quotation system on which the Common Stock is
then trading, and such failure continues for more than 10 days.
In connection with the December Placement, the Company paid a finders
fee of $295,000 and issued to an affiliate of the finder One-Year Warrants to
acquire an aggregate of 180,000 shares of Common Stock. The shares of Common
Stock issuable upon exercise of such One-Year Warrants will be included in the
Registration Statement.
Each participant in the December Placement was responsible for its own
costs and expenses.
The securities in the December Placement were offered for sale, and
were sold, without registration thereof under the 1933 Act, pursuant to the
exemption from registration provided by Regulation D under the 1933 Act.
The foregoing summaries of agreements are necessarily incomplete and
selective, and are qualified in their entirety by reference to the agreements
summarized, each of which is attached hereto as an exhibit.
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AGREEMENT WITH SPRINT
On December 16, 1997, the Company announced that it had signed an
agreement with Sprint Corp. to supply C-Phone consumer video technology. A copy
of such announcement is attached hereto as an exhibit.
* * * * * *
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
1. Form of Securities Purchase Agreement, dated as of December 17,
1997, between C-Phone Corporation and each purchaser party thereto.
2. Certificate of Amendment of the Certificate Of Incorporation of
C-Phone Corporation, as filed with the Department of State of the State of New
York on December 18, 1997.
3. Form of Registration Rights Agreement, dated December 19, 1997,
between C-Phone Corporation and each purchaser party thereto.
4. Form of One-Year Warrant, dated December 19, 1997, of C-Phone
Corporation.
5. Form of Three-Year Warrant, dated December 19, 1997, of C-Phone
Corporation.
6. Press Release, dated December 16, 1997, of C-Phone 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 thereunto duly authorized.
C-PHONE CORPORATION
By: /s/ DANIEL P. FLOHR
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Daniel P. Flohr
President and Chief
Executive Officer
Date: December 31, 1997
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Exhibit 1
FORM OF SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December
17, 1997, by and among C-Phone Corporation, a new York corporation (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended, (the "1933 ACT"), and
Rule 506 under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act;
B. The Company has authorized a new series of preferred stock,
designated as its Series A Convertible Preferred Stock (the "PREFERRED STOCK"),
having number, designation, relative rights, preferences and limitations set
forth in the Certificate of Amendment to the Company's Certificate of
Incorporation attached hereto as Exhibit "A" (the "CERTIFICATE OF AMENDMENT");
C. The Preferred Stock is convertible into shares of Common Stock, par
value $.01 per share, of the Company (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Amendment;
D. The Company has authorized the issuance to the Buyers of 315,000
one-year warrants, in the form attached hereto as Exhibit "B-1" (the "ONE-YEAR
WARRANTS"), and 135,000 three-year warrants, in the form attached hereto as
Exhibit "B-2" (the "THREE-YEAR WARRANTS" and with the One-Year Warrants,
collectively, the "WARRANTS")
E. The Buyers desire to purchase from the Company and the Company
desires to issue and sell to the Buyers, upon the terms and conditions and in
reliance on the representations and warranties set forth in this Agreement, (i)
an aggregate of 4,500 shares of Preferred Stock, and (ii) Warrants to purchase
an aggregate of 450,000 shares of Common Stock, for an aggregate purchase price
of $4,500,000;
F. Each Buyer wishes to purchase from the Company, upon the terms and
conditions stated in this Agreement, the number of shares of Preferred Stock and
Warrants set forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a
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Registration Rights Agreement, in the form attached hereto as Exhibit "C" (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to
provide to the Buyers certain registration rights under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws;
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES AND WARRANTS. The Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company such number of shares of Preferred Stock (together with any
Preferred Stock issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"PREFERRED SHARES") and Warrants, at the aggregate purchase price thereof (the
"PURCHASE PRICE") as is set forth immediately below such Buyer's name on the
signature pages hereto. The issuance, sale and purchase of the Preferred Shares
and the Warrants shall take place at the closing (the "CLOSING"). Subject to the
satisfaction (or waiver) of the conditions thereto set forth in Section 6 and
Section 7 below, at the Closing, the Company shall issue and sell to each Buyer,
and each Buyer shall purchase from the Company, the aggregate number of
Preferred Shares and Warrants which such Buyer is purchasing hereunder for the
Purchase Price. The aggregate number of Preferred Shares to be issued at the
Closing shall be 4,500 and the aggregate number of One-Year Warrants and
Year-Three Warrants to be issued at the Closing shall be 315,000 and 135,000,
respectively, for an aggregate purchase price of $4,500,000.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the Purchase Price for the Preferred Shares and
Warrants to be issued and sold to it at the Closing by wire transfer of
immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of a duly executed certificate(s)
representing such number of Preferred Shares and Warrants which such Buyer is
purchasing, and (ii) the Company shall deliver such certificate(s) and Warrants
against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares and Warrants pursuant to
this Agreement shall be 12:00 noon Eastern Standard Time on December 19, 1997 or
such other mutually agreed upon date or time (the "CLOSING DATE"). The Closing
shall occur on the Closing Date at the
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offices of Warshaw Burstein Cohen Schlesinger & Kuh, LLP.
2. BUYERS' REPRESENTATIONS AND WARRANTIES.
Each Buyer severally (and not jointly) represents and warrants
to, and agrees with, the Company solely as to such Buyer that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion thereof (the "CONVERSION SHARES") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "WARRANTS SHARES", and
collectively with the Preferred Shares, Conversion Shares and Warrants, the
"SECURITIES") for its own account or, if indicated on the signature page hereto,
as agent or nominee, for investment only and not with a present view towards the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer, or if the Buyer is
purchasing as nominee or agent, the purchaser thereof, is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D and has
provided to the Company reasonable evidence of such, including, if requested by
the Company, a "Prospective Investor Questionnaire". The Buyer has such business
and financial experience as is required to give it the capacity to protect its
own interests in connection with the purchase of the Securities.
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The
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Buyer has such knowledge and experience in financial and business matters so as
to be capable of evaluating the merits and risks of, and bearing the economic
consequences entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. The Buyer understands that its
investment in the Securities involves a high degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RESALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the Securities have not been
and will not be registered under the 1933 Act or any applicable state securities
laws and consequently the Buyer may have to bear the risk of owning the
Securities for an indefinite period of time, and the Securities may not be
transferred unless (a) subsequently included in an effective registration
statement thereunder, (b) the Buyer shall have delivered to the Company an
opinion of counsel (which opinion shall be reasonably acceptable to the Company)
to the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration, (c) sold pursuant
to Rule 144 promulgated under the 1933 Act (or a successor rule) or (d) sold or
transferred to an affiliate (as defined in Rule 144) of the Buyer; (ii) any sale
of such Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
g. LEGENDS. The Buyer understands that the certificates
representing the Preferred Shares, Warrants and, until such time as the
Conversion Shares and Warrants Shares have been registered under the 1933 Act,
as contemplated by the Registration Rights Agreement, the Conversion Shares and
Warrant Shares, will bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"1933 Act") or qualified under applicable state securities
laws. These securities may not be offered, sold, pledged,
hypothecated, transferred or otherwise disposed of except
pursuant to (I) an effective registration statement and
qualification in effect with respect thereto under the 1933
Act and under any applicable state securities law, (ii) to the
extent applicable, Rule 144 under the 1933 Act, or (ii) an
opinion of counsel reasonably acceptable to C-Phone
Corporation that such registration and qualification is not
required under applicable federal and state securities laws."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any certificate
upon which it is stamped, if, unless otherwise required by applicable state
securities laws, (i) the Securities represented by such certificate are being
sold pursuant to an effective registration statement filed under the 1933 Act,
or (ii) such holder provides the Company with an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company, to the effect that a
public sale or transfer of such Securities may be made without registration
under the 1933 Act or (iii) such holder provides the Company with reasonable
assurances that such Securities can be sold pursuant to Rule 144 under the 1933
Act (or a successor rule thereto) without any restriction as to the number of
Securities acquired as of a particular date that can then be immediately sold.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any, and its covenant under
Section 4(d) of the Registration Rights Agreement, or otherwise in compliance
with the requirements for an exemption from registration under the 1933 Act.
h. AUTHORIZATION; ENFORCEMENT. If the Buyer is a natural
person, the Buyer is a resident of the jurisdiction set forth immediately below
such Buyer's name on the signature pages hereto. If the Buyer is not a natural
person, (i) the Buyer is duly incorporated or organized and validly existing in
the state or country of its incorporation or organization set forth immediately
below such Buyer's name on the signature pages hereto and has all requisite
power and authority to purchase and hold the Securities, (ii) the decision to
invest and the execution and delivery of this Agreement and the Registration
Rights Agreement by the Buyer, the performance by the Buyer of its obligations
hereunder and thereunder and the consummation by the Buyer of the transactions
contemplated hereby have been duly authorized and requires no other proceedings
on the part of the Buyer, and (iii)
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the Buyer's signatory has all right, power and authority to execute and deliver
this Agreement and the Registration Rights Agreement on behalf of the Buyer.
This Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of the Buyer and are valid and
binding agreements of the Buyer enforceable in accordance with their terms
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
or moratorium or similar laws affecting the rights of creditors generally and
the application of general principles of equity.
i. NO GENERAL SOLICITATION. Neither the Buyer nor any person
acting on the Buyer's behalf (if any) has conducted any "general solicitation,"
as such term is defined in Regulation D, with respect to any of the Securities
being offered hereby.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company is duly
organized, validly existing and in good standing under the laws of the State of
New York, with full power and authority (corporate and other) to own, lease, use
and operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. The Company is duly qualified to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on the
business, operations, assets or financial condition of the Company, as a whole,
or on the transactions contemplated hereby or by the agreements or instruments
to be entered into in connection herewith. The Company has no subsidiaries.
b. AUTHORIZATION; ENFORCEMENT. Subject to the filing of the
Certificate of Amendment and any approvals or permissions required by Article
V.B. or Article V.F. of the Certificate of Amendment, (i) the Company has all
requisite corporate power and authority to file and perform its obligations
under the Certificate of Amendment and to enter into, and to perform its
obligations under, this Agreement, the Registration Rights Agreement and the
Warrants and to consummate the transactions contemplated hereby and thereby and
to issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Registration Rights Agreement
and the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the filing of the
Certificate of Amendment, the issuance of the Preferred Shares and the Warrants
and the
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issuance and reservation for issuance of the Conversion Shares and Warrant
Shares issuable upon conversion of the Preferred Shares or exercise of the
Warrants, respectively) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board or
Directors or its stockholders is required, (iii) this Agreement has been duly
executed and delivered and the Certificate of Amendment has been duly executed
by the Company, and (iv) upon execution and filing by the Company of the
Certificate of Amendment and upon execution and delivery by the Company of this
Agreement, the Registration Rights Agreement and the Warrants, each such
agreement will constitute a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, insolvency, reorganization, or moratorium
or similar laws affecting the rights of creditors generally and the application
of general principles of equity.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 20,000,0000 shares of Common Stock
of which 5,342,568 shares are issued and outstanding, 479,995 shares are
reserved for issuance pursuant to the Company's stock option plan, 16,432 shares
are reserved for issuance pursuant to the Company's outstanding "contingent
value rights," 350,000 shares are reserved for issuance upon exercise of
outstanding common stock purchase warrants, and 2,408,945 shares are reserved
for issuance upon conversion of the Preferred Shares and exercise of the
Warrants (subject to adjustment pursuant to the Company's covenant set forth in
Section 4(g) below and including the Warrants to be issued referenced in Section
3(q)), and (ii) 1,000,0000 shares of preferred stock, par value $.01 per share,
none of which are issued and outstanding or have designated to be issued in any
series other than 5,000 shares which will be designated as Series A Convertible
Preferred Stock upon filing of the Certificate of Amendment. All outstanding
shares of capital stock are duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as set forth on Schedule 3(c) and except for the
transactions contemplated hereby, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into, exercisable for, or exchangeable for any shares of
capital stock of the Company or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company, and
(ii) there are no agreements or arrangements under which the Company is
obligated to register the
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sale of any of its securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Securities. The Company has furnished to the Buyer true and correct copies of
the Company's Restated Certificate of Incorporation, as amended, as in effect on
the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as
amended, as in effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed by the
Company's Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Preferred Shares (upon filing of
the Certificate of Amendment), Conversion Shares and Warrant Shares have been
duly authorized and, upon issuance in accordance with the terms of this
Agreement (including the issuance of the Conversion Shares upon conversion of
the Preferred Shares in accordance with the Certificate of Amendment and the
issuance of the Warrant Shares upon exercise of the Warrants in accordance with
the terms thereof) will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims, encumbrances, and charges with respect to
the issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company. The term Conversion Shares and Warrant
Shares includes such additional shares, if any, as are issuable as a result of
the events described in Section 2(b) of the Registration Rights Agreement. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of the Conversion Shares and Warrant Shares upon
conversion or exercise of the Preferred Shares or Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement, the Certificate of Amendment and the Warrants is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
e. PREFERRED SHARES. The number, designation, relative rights,
preferences and limitations of the Preferred Stock are as stated in the
Certificate of Incorporation, the Bylaws, and Certificate of Amendment.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the
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Company of the transactions contemplated hereby and thereby (including, without
limitation, the filing of the Certificate of Amendment and the issuance and
reservation for issuance of the Preferred Shares, Warrants, Conversion Shares
and Warrant Shares) will not (i) subject to the filing of the Certificate of
Amendment, conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment (including without
limitation, the triggering of any anti-dilution provision), acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and, subject to the
requirements of Rule 4460(i) of The Nasdaq Stock Market, Inc. ("Nasdaq"),
regulations and regulations of any self-regulatory organizations to which the
Company or its securities are subject) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). The Company is not in violation of its
Certificate of Incorporation, By-laws or other organizational documents and the
Company is not in default (and no event has occurred which with notice or lapse
of time or both could put the Company) under, and the Company has not taken any
action or failed to take any action that (and no event has occurred which,
without notice or lapse of time or both) would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party or by which any property
or assets of the Company is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company is not being conducted, and shall not be conducted so
long as any Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity, the failure to comply with which
would, individually or in the aggregate, have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws or any listing agreement with any
securities exchange or automated quotation system, 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, the Registration Rights Agreement or the
Warrants or to perform its obligations under the Certificate of Amendment in
each case in accordance with the terms hereof or thereof. Except as set forth on
Schedule 3(f),
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all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. Upon consummation of the
transactions contemplated hereby, the Company will not be in violation of the
listing requirements of the Nasdaq National Market ("NNM"). The Company is
unaware of any facts or circumstances which might give rise to any breach of any
of the representations or warranties contained in this Section 3(f).
g. SEC DOCUMENTS, FINANCIAL STATEMENTS. Since March 1, 1995,
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 "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered, or otherwise made
available, to each Buyer true and complete copies of the SEC Documents, except
for exhibits and other documents incorporated by reference into the SEC
Documents but not otherwise filed with such SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in the financial statements of the Company included in the SEC Documents or as
set forth on Schedule 3(g), the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to August 31, 1997 and (ii) obligations under
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contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
h. ABSENCE OF CERTAIN CHANGES. Since August 31, 1997, except
as contemplated by the Company's Quarterly Report on Form 10-QSB for the quarter
ended August 31, 1997, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, or results of operations of the Company.
i. ABSENCE OF LITIGATION. To the knowledge of the Company,
there is no action, suit, claim, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or threatened against or affecting the Company that could,
individually or in the aggregate, have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or threatened
proceeding against or affecting the Company of which the Company has knowledge
that would have a Material Adverse Effect.
j. PATENTS, COPYRIGHTS, ETC. The Company owns or possesses the
requisite licenses or rights to use all patents, patent rights, inventions,
know-how, trade secrets, trademarks, service marks, service names, trade names
and copyrights ("INTELLECTUAL PROPERTY") necessary, in all material respects, to
enable it to conduct its business as now operated. Except as disclosed in the
SEC Documents or set forth on Schedule 3(j), there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company's actual
knowledge threatened which challenges the right of the Company with respect to
any Intellectual Property necessary, in all material respects, to enable it to
conduct its business as now operated. To the Company's actual knowledge, the
Company's products, services and processes do not infringe on any Intellectual
Property or other rights held by any person and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing that could,
individually or in the aggregate, have a Material Adverse Effect. The Company
has taken reasonable security measures to protect the secrecy, confidentiality
and value of its Intellectual Property.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. The Company is not
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
executive officers has had a Material Adverse Effect. The Company is not a party
to any contract or agreement which in the judgment of the Company's executive
officers has had a Material Adverse Effect.
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l. TAX STATUS. Except as set forth on Schedule 3(l), the
Company has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the executive
officers of the Company know of no basis for any such claim.
m. CERTAIN TRANSACTIONS. Except as disclosed in the SEC
Documents or set forth on Schedule 3(m) and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms which it reasonably believes to be no less favorable than those the
Company could obtain from third parties and other than the grant of stock
options issued pursuant to the Company's 1994 Stock Option Plan, none of the
officers, directors, or employees of the Company is presently a party to any
material transaction with the Company (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
n. DISCLOSURE. All information relating to or concerning the
Company set forth in this Agreement and provided to the Buyers pursuant to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or its business, properties,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed (assuming for this purpose that
the Company's reports filed under the 1934 Act are being incorporated into an
effective registration statement filed by the Company under the 1933 Act).
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o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers' purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers on the Closing Date.
Except as disclosed in the SEC Documents or set forth on Schedule 3(c), the
Company has not issued any of its securities in a private placement since
January 1, 1997 through the date hereof.
q. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, other than a fee of $295,000 payable to Perpetual Growth Advisors, Inc.
and the issuance to Share Management, Inc. of One-Year Warrants to purchase
185,000 shares of Common Stock.
r. PERMITS; COMPLIANCE. Except as disclosed in the SEC
Documents, the Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted except
those the failure of which to possess would not, individually or in the
aggregate, have a Material Adverse Effect (collectively, the "COMPANY PERMITS"),
and, to the actual knowledge of the Company, there is no action pending or,
threatened regarding suspension or cancellation of any of the Company Permits.
The Company is not in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Since August 31, 1997, the Company has not received any
notification with respect to possible conflicts, defaults or violations of
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applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in Schedule 3(s), and except with
regard to such violations that would not individually or in the aggregate have a
Material Adverse Effect, to the Company's actual knowledge, there has occurred
no past or present violations of Environmental Laws (as defined below) with
respect to the Company, releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and the
Company has not received any written notice with respect to any of the
foregoing, nor, to the Company's actual knowledge, is any action pending or
threatened in connection with any of the foregoing. The term "ENVIRONMENTAL
LAWS" means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than Hazardous Materials that are or were stored,
used or disposed of in compliance with applicable law, to the Company's actual
knowledge, no Hazardous Materials are contained on any real property currently
owned, leased or used by the Company, and no Hazardous Materials were released
on any real property previously owned, leased or used by the Company during the
period the property was owned, leased or used by the Company, except in the
normal course of the Company's business and materially in compliance with law.
(iii) Except as set forth in Schedule 3(s), to the Company's
actual knowledge, there are no underground storage tanks on or under any real
property owned, leased or used by the Company that are not in compliance with
applicable law.
t. TITLE TO PROPERTY. The Company has good title to
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all personal property owned by it which is material to the business of the
Company, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(t) or such as would not have a
Material Adverse Effect. Any real property and facilities held under lease by
the Company are held by them under valid, subsisting and enforceable leases with
such exceptions as would not have a Material Adverse Effect. The Company does
not own any real property.
u. INSURANCE. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the business
in which the Company is engaged. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
v. INTERNAL ACCOUNTING CONTROLS. The Company maintains a
system of internal accounting controls sufficient, in the judgment of the
Company's Board of Directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
w. EMPLOYMENT MATTERS. The Company is in compliance with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. There are no pending investigations involving the Company by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or threatened against or involving the
Company. Except as set forth in Schedule 3(w), no representation question exists
respecting the employees of the Company, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No material labor dispute with
the employees of the Company exists
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or, to the knowledge of the Company, is imminent.
x. ERISA MATTERS. The Company has no employee benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended.
y. INVESTMENT COMPANY STATUS. The Company is not and upon
consummation of the sale of the Securities will not be an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
z. FOREIGN CORRUPT PRACTICES. Neither the Company nor any
director, officer, agent, employee or other person acting on behalf of the
Company 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; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
aa. NO GENERAL SOLICITATION. Neither the Company nor
any person acting for the Company has conducted any "general
solicitation," as such term is defined in Regulation D, with
respect to any of the Securities being offered hereby.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their commercially
reasonably efforts to satisfy timely each of their respective conditions
contained in Section 6 and 7 of this Agreement.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D within 15 days
after the Closing Date and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers pursuant to this Agreement under applicable securities or "blue sky" laws
of the states of the United States (or to obtain an exemption from such
qualification), and shall, upon request of a Buyer, provide evidence of any such
action so taken to such Buyer; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise
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be required to qualify but for this Section 3(d), (b) subject itself to general
taxation in any such jurisdiction, (c) file a general consent to service of
process in any such jurisdiction, (d) provide any undertakings that cause the
Company undue expense or burden, or (e) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company determines to
be contrary to the best interests of the Company and its stockholders.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The Common
Stock is registered under Section 12(g) of the 1934 Act. So long as any Buyer
beneficially owns any Preferred Shares, the Company shall use its best efforts
to timely file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company currently
meets, and, so long as any Buyer beneficially owns any Preferred Shares, the
Company will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Preferred Shares and Warrants for general working capital
purposes and shall not otherwise, directly or indirectly, use such proceeds for
any loan to or investment in any other corporation, partnership, enterprise or
other person.
e. ADDITIONAL EQUITY CAPITAL. Subject to the exceptions
described below, the Company will not, without the prior written consent of
two-thirds in interest of the Buyers, contract with any party to obtain
additional equity financing (including debt financing with an equity component)
that (i) involves (A) the issuance of Common Stock at a discount to the market
price of the Common Stock on the date of issuance or (B) the issuance of
convertible securities that are convertible (x) into an indeterminate number of
shares of Common Stock or (y) into shares of Common Stock at a discount to the
market price of the Common Stock on either the date of issuance or the date of
conversion, and (ii) provides for the registration under the 1933 Act of public
resales of the Common Stock referred to in clause (i) above, unless (A) the
Registration Statement (as defined in the Registration Rights Agreement) has
been effective for at least 45 days and (B) any registration statement covering
the shares of Common Stock to be issued in such additional equity financing will
not be declared effective for at least 60 days after the closing of such
additional equity financing. The foregoing limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering
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pursuant to Rule 415 under the 1933 Act), (ii) issuances of securities as
consideration for a merger, consolidation or sale of assets, or in connection
with any strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or in connection with the disposition or
acquisition of a business, product or license by the Company, or (iii) issuance
of securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or to the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan approved by a majority
of the Company's disinterested directors.
f. FINANCIAL INFORMATION. So long as any Buyer beneficially
owns any Preferred Shares, the Company agrees to use its best efforts to file
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.
The financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present in all material respects the financial position of the Company and
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). For so
long as a Buyer holds any Preferred Shares, the Company agrees to send to such
Buyer the following: (i) within ten days after the filing with the SEC, a copy
of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB and
any Current Reports on Form 8-K; (ii) promptly after release, copies of all
press releases issued by the Company; and (iii) contemporaneously with the
making available or giving to the stockholders of the Company, copies of any
notices or other information the Company makes available or gives to such
stockholders.
g. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
(based on the conversion price of the Preferred Shares in effect from time to
time) and the full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based upon the exercise price of the Warrants in
effect from time to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of the Preferred Shares or
exercise of the Warrants without the consent of each Buyer, which consent will
not be unreasonably withheld. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for issuance
at no less than the sum of (x) two times the number of shares of Common Stock
that is then actually issuable upon full conversion of the Preferred Shares
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(based on the conversion price of the Preferred Shares in effect from time to
time) and (y) the number of shares of Common Stock that is then actually
issuable upon full exercise of the Warrants. If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number of
Conversion Shares and Warrant Shares issued and issuable upon conversion of the
Preferred Shares and exercise of the Warrants (based on the conversion price of
the Preferred Shares and exercise price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders.
h. LISTING. The Company shall timely secure the listing of the
Conversion Shares and Warrant Shares upon NNM or such national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing of all Conversion Shares and Warrant Shares from time to
time issuable upon conversion or exercise of the Preferred Shares and the
Warrants. The Company will obtain and maintain the listing and trading of its
Common Stock on the NNM or the Nasdaq SmallCap Market, the New York Stock
Exchange, or the American Stock Exchange (such exchange or quotation system on
which the Common Stock is then listed or traded, the "PRINCIPAL MARKET") and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") or such exchange, as applicable. The Company shall
promptly provide to each Buyer copies of any notices it receives regarding the
continued eligibility of the Common Stock for listing on NNM or such other
Principal Market on which the Common Stock is then listed or traded.
i. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence in good standing under the laws of the jurisdiction in which it is
incorporated and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where (a) the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a corporation whose common stock is traded on a Principal Market or on a
comparable foreign stock exchange or (b) the consideration paid for the
outstanding securities of the Company is solely in the form of cash.
j. COMPLIANCE WITH LAW. The Company will conduct its business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting
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business (including, without limitation, all applicable local, state and federal
environmental laws and regulations), except where the failure to comply with
such laws, rules or regulations would not have a Material Adverse Effect.
k. INSURANCE. The Company shall maintain liability, casualty
and other insurance (subject to customary deductions and retentions) with
responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
l. NO INTEGRATION. The Company will not conduct any future
offering that will be integrated with the issuance of the Securities solely for
purposes of Nasdaq Rule 4460(i).
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS") to issue
certificates, registered in the name of each Buyer or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as specified from time to
time by each Buyer to the Company upon proper conversion or exercise of the
Preferred Shares and the Warrants and receipt of appropriate representations
from the Buyer as to compliance with the prospectus delivery requirements of the
1933 Act and opinions from counsel to the Company. All such certificates shall
bear the restrictive legend as and when specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares or Warrant Shares, prior to registration of the Conversion
Shares or Warrant Shares under the 1933 Act or in the event that the
registration statement covering the Conversion Shares or the Warrant Shares is
required to be suspended or withdrawn) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement and, if applicable, subject to
such opinions of counsel of the Company as the Company's transfer agent may
request. Nothing in this Section shall affect in any way the Buyer's obligations
and agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements under the 1933 Act, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope, that
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares or Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in
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such name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, 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 Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and the Warrants to a Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date 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:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company and the
purchase price from all the Buyers shall aggregate at least $4,500,000.
b. The applicable Buyer shall have delivered the Purchase
Price in accordance with Section 1(b) above.
c. The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York and a file-stamped copy thereof
certified by such Secretary of State shall have been returned to the Company.
d. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in 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.
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7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Preferred Shares and the Warrants at the Closing is subject to the satisfaction,
at or before the Closing Date of each of the following conditions, provided that
these conditions are for such Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York, and a file-stamped copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
c. The Company shall have delivered to such Buyer duly
executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and the Warrants being so purchased in
accordance with Section 1(b) above.
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific 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 Date. The Buyer shall
have received a certificate or certificates, executed by the Chief Executive
Officer, Chief Operating Officer or the Chief Financial Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer including, but not limited
to certificates with respect to the Certificate of Incorporation, By-laws, Board
of Directors' resolutions relating to the transactions contemplated hereby and
the incumbency and signatures of each of the officers of the Company who shall
execute on behalf of the Company any document delivered on the Closing Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in 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.
f. Trading in the Common Stock on NNM shall not have
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been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(d) above, dated as of the Closing Date.
i. The Irrevocable Transfer Agent Instructions, in
substantially the form of Exhibit "E" attached hereto, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of New York
without regard to the principles of conflicts of law. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal and state
courts located in New York, New York with respect to any dispute arising under
this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in two or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other parties hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the parties so
delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
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such matters. No provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five business days after being placed in the mail, if mailed by regular U.S.
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
C-Phone Corporation
6714 Netherlands Drive
Wilmington, North Carolina 28405
Attn: President
Facsimile: (910) 395-6108
With copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attn: Arthur A. Katz, Esq.
Facsimile: (212) 972-9150
If to a Buyer:
To the address set forth immediately below such Buyer's name
on the signature pages hereto.
Each party shall provide notice to the other party of any change in address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Buyer may assign its rights hereunder, to any
person that purchases at least $500,000 of Preferred Shares in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is
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<PAGE>
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. SURVIVAL. The representations and warranties of the
Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, or relevant portions of any SEC, Nasdaq or NASD 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 each of the Buyers, to make any press release or SEC, Nasdaq or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the Company in
connection with any such press release prior to its release if time permits and
shall be provided with a copy thereof and be given a reasonable opportunity to
comment thereon).
k. 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.
l. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. EQUITABLE RELIEF. The Company recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief to the
Buyers. The Company therefore agrees that the Buyers shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
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C-PHONE CORPORATION
By:_________________________________
Daniel P. Flohr
President and Chief
Executive Officer
NAME OF INVESTOR
By:_________________________________
Name:
Title:
RESIDENCE/JURISDICTION OF INCORPORATION:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of Series A
Convertible Preferred Stock:
Number of Warrants:
Aggregate Purchase Price:
26
Exhibit 2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
C-PHONE CORPORATION
Under Section 805 of the Business Corporation Law
---------------------------
It is hereby certified that:
FIRST: The name of the Corporation is C-Phone Corporation. The name
under which the Corporation was formed is Target Tuning, Inc.
SECOND: The certificate of incorporation of the Corporation was filed
by the Department of State of the State of New York on March 28, 1986.
THIRD: The amendment of the certificate of incorporation of the
Corporation effected by this certificate of amendment is as follows:
To add a provision stating the number, designation, relative
rights, preferences and limitations of the shares of Series A Preferred Stock as
fixed by the Board of Directors of the Corporation pursuant to the authorization
contained in the certificate of incorporation of the Corporation.
FOURTH: To accomplish the foregoing amendment, the following new
Article EIGHTH is added to the certificate of incorporation of the Corporation
as follows:
"EIGHTH: Series A Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 5,000 shares of
Preferred Stock, is Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value"), with a par value of $.01 per share.
II. Rank
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 on or
prior to December 19,
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1998 (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
A Preferred Stock) (together with the Common Stock, "Junior Securities"); (iii)
pari passu with any class or series of capital stock of the Corporation
hereafter created either (i) after December 19, 1998 or (ii) on or prior to
December 19, 1998 with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof, and in either case specifically
ranking, by its terms, on parity with the Series A Preferred Stock ("Pari Passu
Securities"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Article IX hereof) specifically
ranking, by its terms, senior to the Series A Preferred Stock ("Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
III. Dividends
The Series A Preferred Stock shall not bear any dividends. In no event,
so long as any Series A Preferred Stock shall remain outstanding, shall any
dividend whatsoever be declared or paid upon, nor shall any distribution be made
upon, any Junior Securities, nor shall any shares of Junior Securities be
purchased or redeemed by the Corporation nor shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption of any Junior
Securities, without, in each such case, the vote of the holders of two-thirds
(2/3) of the outstanding shares of Series A Preferred Stock, voting together as
a class.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or
2
<PAGE>
liquidation of its affairs, and any such decree or order shall be unstayed and
in effect for a period of forty-five (45) consecutive days and, on account of
any such event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (each such event
being considered a "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, subject to Article VI, shall
have received the Liquidation Preference (as defined in Article IV.C) with
respect to each share. If upon the occurrence of a Liquidation Event, the assets
and funds available for distribution among the holders of the Series 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 securities in proportion to the ratio that the Liquidation
Preference payable on each such securities bears to the aggregate liquidation
preference payable on all such securities.
B. At the option of any holder of Series A Preferred Stock, the sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation in a single transaction or series of related transactions, the
effectuation by the Corporation of a transaction or series of related
transactions (other than an underwritten public offering) in which more than 50%
of the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other
Person (as defined below) or Persons when the Corporation is not the survivor
shall either: (i) be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute upon consummation of such transaction an amount equal to 118% of the
Liquidation Preference with respect to each outstanding share of Series A
Preferred Stock in accordance with and subject to the terms of this Article IV
or (ii) be treated pursuant to Article VI.C(c) hereof. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization. Such option shall be exercised by a
holder not later than thirty (30) days after consummation of the transaction
giving rise to such option.
C. For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series A Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to five percent (5%) per
annum of such Stated Value for the period beginning on the date of issuance of
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<PAGE>
such share and ending on the date of final distribution to the holder thereof
(pro rated for any portion of such period).
V. Redemption
A. If any of the following events (each, a "Mandatory Redemption
Event") shall occur:
(i) The Corporation (a) fails to issue shares of Common Stock
to any holder of Series A Preferred Stock upon exercise by such holder of its
conversion rights in accordance with the terms of the certificate of designation
of this Certificate of Amendment (the "Certificate of Designation") (for a
period of at least sixty (60) days if such failure is solely as a result of the
circumstances governed by the second paragraph of Article VI.F below and the
Corporation is using all commercially reasonable efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), (b) fails
to transfer or to cause its transfer agent for the Common Stock to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to any holder upon conversion of the Series A Preferred Stock as
and when required by this Certificate of Designation or the Registration Rights
Agreement, dated as of December 16, 1997, by and among the Corporation and the
other signatories thereto (the "Registration Rights Agreement"), (c) fails to
remove any restrictive legend (or fails to withdraw any stop transfer
instructions in respect thereof) on any certificate or any shares of Common
Stock issued to any holder 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 dated as of December 16, 1997, by
and between the Corporation and the other signatories thereto (the "Purchase
Agreement") or the Registration Rights Agreement, or (d) fails to fulfill its
obligations pursuant to Sections 4(c),4(g), 4(h), 4(i) or 5 of the Purchase
Agreement (or makes any announcement or otherwise provides notice to any holder
that it does not intend to honor the obligations described in this paragraph),
and any such failure shall continue uncured (or any announcement or statement
not to honor its obligations shall not be rescinded) for ten (10) business days
after receipt of notice of such breach;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") of the Registration Statement (as
defined in the Registration Rights Agreement) prior to June 17, 1998 or such
Registration Statement lapses in effect (or sales otherwise cannot be made
thereunder, whether by reason of the Corporation's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement or otherwise) for more than thirty (30) consecutive days or
sixty (60) days in any twelve (12) month period after such Registration
Statement becomes effective,
4
<PAGE>
except in the event of an "Allowed Delay" as defined in the Registration Rights
Agreement;
(iii) The Corporation shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for all or substantially all of its property or business; or
such a receiver or trustee shall otherwise be appointed and such appointment
shall not have been rescinded within a period of forty-five (45) days;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation and shall be unstayed for a period of
forty-five (45) days;
(v) The Corporation shall fail to maintain the listing of the
Common Stock on the Nasdaq National Market ("NNM") or other national securities
exchange or automated quotation system and such failure shall remain uncured for
at least thirty (30) days;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
one or more holders of then outstanding shares of Series A Preferred Stock by
written notice (the "Mandatory Redemption Notice") to the Corporation of such
Mandatory Redemption Event, or upon the occurrence of any Mandatory Redemption
Event specified in subparagraphs (iii) or (iv), the Corporation shall purchase
such holders' shares of Series A Preferred Stock for an amount per share (the
"Mandatory Redemption Amount") equal to the greater of (1) 118% multiplied by
the sum of (a) the Stated Value of the shares to be redeemed, plus (b) an amount
equal to five percent (5%) per annum of such Stated Value for the period
beginning on the date of issuance of such shares and ending on the date of
payment of the Mandatory Redemption Amount (as defined below) (the "Mandatory
Redemption Date") and (2) the "Parity Value" of the shares to be redeemed, where
Parity Value means the product of (a) the number of shares of Common Stock
issuable upon conversion of such shares in accordance with Article VI below
(treating the Trading Day (as defined in Article VI.B below) immediately
preceding the Mandatory Redemption Date as the Conversion Date (as hereinafter
defined) unless the Mandatory Redemption Event arises as a result of a breach in
respect of a specific Conversion Date in which case such Conversion Date shall
be the Conversion Date, and deeming the three (3) consecutive Trading Days in
the Pricing Period (as hereinafter defined) preceding the Mandatory Redemption
Date that maximize the number of shares of Common Stock issuable for purposes of
this proviso as the Market Price Days (as hereinafter defined), multiplied by
(b) the Closing
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<PAGE>
Price (as hereinafter defined) for the Common Stock on such Conversion Date (the
greater of such amounts being referred to as the "Mandatory Redemption Amount").
Notwithstanding the foregoing, any holder of Series A Preferred who does not
sign the Mandatory Redemption Notice shall retain such holder's shares of Series
A Preferred Stock, the rights of which shall continue to be governed by the
terms of this Certificate of Designation. The Corporation shall notify all
holders promptly of the receipt by the Corporation of a Mandatory Redemption
Notice from any holder.
In the case of a Mandatory Redemption Event, if the Corporation fails
to pay the Mandatory Redemption Amount for each share within seven (7) business
days of written notice that such amount is due and payable, then (assuming there
are sufficient authorized shares) in addition to all other available remedies,
each holder of Series A Preferred Stock shall have the right at any time, so
long as the Mandatory Redemption Event continues, to require the Corporation,
upon written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series A Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. If the Series A Preferred Stock ceases to be convertible as a result
of the limitations described in Article VI.A(ii) below (a "19.99% Redemption
Event"), and the Corporation has not prior to such time, or within seventy five
(75) days after the Corporation has received a notice from the holders of
two-thirds (2/3) of the outstanding shares of Series A Preferred Stock, which
notice may not be delivered prior to January 5, 1997, either (i) obtained
approval of the issuance of the additional shares of Common Stock by the
requisite vote of the holders of the then outstanding Common Stock ("Shareholder
Approval") (not including any shares of Common Stock held by present or former
holders of Series A Preferred Stock that were issued upon conversion of Series A
Preferred Stock) or (ii) received other permission from The Nasdaq Stock Market,
Inc. ("Nasdaq"), whether pursuant to Nasdaq Requirement 4460(i) or otherwise,
allowing the Corporation to resume issuances of shares of Common Stock upon
conversion of Series A Preferred Stock, then the Corporation shall be obligated
to redeem all of the then outstanding Series A Preferred Stock, in accordance
with this Article V.B. If required pursuant to the terms of this Article V.B.,
an irrevocable Redemption Notice shall be delivered promptly to the holders of
Series A Preferred Stock at their registered address appearing on the records of
the Corporation and shall state (1) that 19.99% of the Outstanding Common Amount
(as defined in Article VI.A below) has been issued upon exercise of the Series A
Preferred Stock, (2) that the Corporation is obligated to redeem all of the
outstanding Series A Preferred
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<PAGE>
Stock and (3) the Mandatory Redemption Date, which shall be a date within seven
(7) business days of the date of the Redemption Notice. On the Mandatory
Redemption Date, the Corporation shall make payment of the Mandatory Redemption
Amount in cash.
VI. Conversion at the Option of the Holder
A. (i) Each holder of shares of Series A Preferred Stock may, at its
option in accordance with the terms hereof, upon surrender of the certificates
therefor, convert any or all of its shares of Series A Preferred Stock into
Common Stock as follows (an "Optional Conversion"). Each share of Series A
Preferred Stock shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (1) the sum of
(a) the Stated Value thereof, plus (b) the Premium Amount (as defined below) by
(2) the then effective Conversion Price (as defined below); provided, however,
that, unless the holder delivers a waiver in accordance with the immediately
following sentence, in no event shall a holder of shares of Series A Preferred
Stock be entitled to convert any such shares in excess of that number of shares
upon conversion of which the sum of (x) the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series A Preferred Stock or unexercised
portion of warrants or any other securities containing analogous limitations)
and (y) the number of shares of Common Stock issuable upon the conversion of the
shares of Series A Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by a holder and
such holder's affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence, (i)
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation
13D through 13G thereunder, except as otherwise provided in the parenthetical
contained in clause (x) of such proviso and (ii) a holder may waive the
limitations set forth therein by written notice to the Corporation upon not less
than sixty-one (61) days prior written notice (with such waiver taking effect
only upon the expiration of such sixty-one (61) day notice period). The "Premium
Amount" means the product of the Stated Value, multiplied by .05, multiplied by
(N/365), where "N" equals the number of days elapsed from the date of issuance
of the Series A Preferred Stock to and including the Conversion Date (as defined
in Article VI.B.
below).
(ii) Notwithstanding anything to the contrary contained
herein, if, at any time, the aggregate number of shares of Common Stock then
issued upon conversion of the Series A Preferred Stock equals 19.99% of the
"Outstanding Common Amount" (as hereinafter
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<PAGE>
defined), the Series A Preferred Stock shall, from that time forward, cease to
be convertible into Common Stock in accordance with the terms of this Article VI
and Article VII below, unless the Corporation (i) has obtained approval of the
issuance of the Series A Preferred Stock by a majority of the total votes cast
on such proposal, in person or by proxy, by the holders of the then outstanding
Common Stock (not including any shares of Common Stock held by present or former
holders of Series A Preferred Stock that were issued upon conversion of Series A
Preferred Stock), or (ii) shall have otherwise obtained permission to allow such
issuances from Nasdaq in accordance with Nasdaq Requirement 4460(i), or
otherwise. For purposes of this paragraph, "Outstanding Common Amount" shall be
determined in accordance with Nasdaq Requirement 4460 or a successor rule, as
may be in effect from time to time. The maximum number of shares of Common Stock
issuable as a result of the 19.99% limitation set forth herein is hereinafter
referred to as the "Maximum Share Amount." With respect to each holder of Series
A Preferred Stock, the Maximum Share Amount shall refer to such holder's pro
rata share thereof determined in accordance with Article X below. In the event
that the Corporation obtains Shareholder Approval, the approval of Nasdaq or
otherwise concludes that it is able to increase the number of shares to be
issued above the Maximum Share Amount (such increased number being the "New
Maximum Share Amount"), the references to Maximum Share Amount, above, shall be
deemed to be instead, references to the greater New Maximum Share Amount. In the
event that Shareholder Approval is not obtained and there are insufficient
reserved or authorized shares of Common Stock or a registration statement
covering the additional reserved or authorized shares of Common Stock which
constitute the New Maximum Share Amount is not effective prior to the Maximum
Share Amount being issued (if such registration statement is necessary to allow
for the public resale of such securities), the Maximum Share Amount shall remain
unchanged; provided, however, that the holder may grant an extension to obtain a
sufficient reserved or authorized amount of shares of Common Stock or of the
period for obtaining effectiveness of such registration statement.
B. (a) Subject to subparagraph (b) and (c) and Article VI.C below, the
"Conversion Price" shall be the lesser of (i) 85% of the Market Price (as
defined herein) (the "Variable Conversion Price") or (ii) $7.3575 (the "Fixed
Conversion Price"). "Market Price" shall mean the average of the closing bid
prices of the Common Stock on the NNM or on the principal securities exchange or
other market on which the Common Stock is then being traded (in each case, as
reported by Bloomberg), for any three (3) consecutive Trading Days (as defined
herein) (the "Market Price Days") in the 25 Trading Day period (the "Pricing
Period") ending one (1) Trading Day prior to the date (the "Conversion Date")
the Notice of Conversion (as defined in Section VI.E) is sent by a holder to the
Corporation and received by the Corporation by via
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facsimile or other means. "Trading Day" shall mean any day on which the Common
Stock is traded for any period on the NNM or on the other Principal Market on
which the Common Stock is then being traded. The Pricing Period for any shares
of Series A Preferred Stock shall not include any Trading Days prior to the date
of original issuance of such Series A Preferred Stock. The converting holder
shall designate the "Market Price Days" on the Conversion Date, from the Trading
Days comprising the Pricing Period and such selection shall be indicated in the
Notice of Conversion.
(b) Notwithstanding anything contained in subparagraph (a) of
this Paragraph B to the contrary, in the event that the Corporation (i) makes a
public announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Corporation is the surviving or
continuing corporation and its capital stock is unchanged and the shareholders
of the Corporation prior to the date of such consolidation or merger continue to
own at least 51% of the surviving or continuing corporation) or 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
(as such term is used in the Exchange Act) to purchase 50% or more of the
Corporation's Common Stock (the date of the announcement referred to in clause
(i) or (ii) is hereinafter referred to as the "Announcement Date"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for an Optional Conversion occurring on the Announcement Date and (y) the
Conversion Price that would otherwise be in effect. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in subparagraph (a) of this Article VI.B. For purposes hereof,
"Adjusted Conversion Price Termination Date" shall mean, with respect to any
proposed transaction or tender offer for which a public announcement as
contemplated by this subparagraph (b) has been made, six (6) 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
caused this subparagraph (b) to become operative, or the date on which the
proposed transaction or tender offer has been consummated.
(c) In the event that (1) the Corporation fails to obtain
effectiveness with the SEC of the Registration Statement prior to 90 days
following the filing thereof or (2) such Registration Statement lapses in
effect, or sales otherwise cannot be made thereunder, whether by reason of the
Corporation's failure or inability to amend or supplement the prospectus (the
"Prospectus") included therein in accordance with the time
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requirements set forth in the Registration Rights Agreement or otherwise, after
such Registration Statement becomes effective, then the Pricing Period (until
such time as the Registration Statement is declared effective or sales may again
be made thereunder) shall be comprised of, (i) in the case of an event described
in clause (1), the twenty five (25) Trading Days preceding the 90th day
following the filing of the Registration Statement plus all Trading Days through
and including the third Trading Day following the date of effectiveness of the
Registration Statement; and (ii) in the case of an event described in clause
(2), the twenty five (25) Trading Days preceding the date on which the holders
are first notified or otherwise first reasonably determine based on the
information available that sales may not be made under the Prospectus, plus all
Trading Days through and including the third Trading Day following the date on
which the holders of Series A Preferred Stock are notified or otherwise first
reasonably determine based on the information available that such sales may
again be made under the Prospectus.
C. The Conversion Price shall be subject to adjustment from time to
time as follows:
(a) If at any time when the Series A Preferred Stock is issued
and outstanding, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, combination, reclassification, below-Market
Price rights offering to all holders of Common Stock 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 transfer agent and the conversion agent for the
Series A Preferred Stock, which may be the Corporation or its outside corporate
counsel (the "Transfer Agent"), of such change on or before the effective date
thereof.
(b) If at any time when Series A Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, combination, reclassification,
below-Market Price rights offering to all holders of Common Stock or other
similar event, which event shall have taken place during the reference period
for determination of the Conversion Price for any Optional Conversion or
Automatic Conversion of the Series A Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
the entire Pricing Period immediately preceding the Conversion Date. In such
event, the Corporation shall notify the Transfer Agent of such change on or
before the effective date thereof.
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Notwithstanding the foregoing, solely in the case of a below-Market Price rights
offering, the Variable Conversion Price for a share of Series A Preferred Stock
shall be adjusted only if the holder of such share waives in writing his rights
to acquire the purchase rights associated with such rights offering pursuant to
Article VI.C(e).
(c) If, at any time when Series A Preferred Stock is issued
and outstanding and prior to the conversion of all Series A Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Corporation shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Corporation or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Corporation other than in connection with a plan of
complete liquidation of the Corporation, then the holders of Series A Preferred
Stock shall thereafter have the right to receive upon conversion of the Series A
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which the holders of
Series A Preferred Stock would have been entitled to receive in such transaction
had the Series A Preferred Stock been converted in full (without regard to any
limitations on conversion contained herein) immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the holders of Series 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 securities or
assets thereafter deliverable upon the conversion of Series A Preferred Stock.
The Corporation shall not effect any transaction described in this subsection
(b) unless (a) it first gives, to the extent practical, thirty (30) days' prior
written notice (but in any event at least fifteen (15) business days prior
written notice) of such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets
(during which time the holders of Series A Preferred Stock shall be entitled to
convert the Series A Preferred Stock) and (b) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this subsection (b). The above provisions shall similarly apply
to successive consolidations, mergers, sales, transfers or share exchanges.
(d) Subject to Article III, if the Corporation shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a dividend,
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stock repurchase, 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.
(e) Subject to Article III, if at any time when any Series A
Preferred Stock is issued and outstanding, 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 (without regard to any limitations on
conversion contained herein) 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.
(f) Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Article VI.C. the Corporation, at its
expense, shall make available to the holders of the Series A Preferred Stock the
information necessary to determine such adjustment or readjustment. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish to such holder a certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect
(deeming the three (3) consecutive Trading Days in the Pricing Period
immediately preceding the date of such request that maximize the number of
shares of Common Stock issuable for purposes of this proviso as the Market Price
Days), (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.
D. For purposes of Article VI.C(a) and (b), "Market Price," which shall
be measured as of the record date in respect of a rights offering means (i) the
average of the last reported sale prices for the shares of Common Stock as
reported by the
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NNM, as applicable, for the twenty (20) Trading Days immediately preceding such
date, or (ii) if the NNM is not the principal trading market for the shares of
Common Stock, the average of the last reported sale prices on the Principal
Market (or such other principal market on which the Common Stock is then listed
or quoted) for the Common Stock during the same period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined in good faith by
(a) the Board of Directors of the Corporation, or (b) at the option of
two-thirds (2/3) of the holders of the Series A Preferred Stock, with the
expense divided between such holder and the Corporation equally, of the
outstanding Series A Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation (the "Appraiser") mutually agreeable to the
Corporation and the holders of a majority of the Series A Preferred Stock (or,
if such parties are unable to agree, the Corporation and the holders of a
majority of the Series A Preferred Stock shall each select an Appraiser who in
turn select a third Appraiser who shall make the determination of the Market
Price required by sub-clause (ii) of this Article VI.D.).
E. In order to convert Series A Preferred Stock into full shares of
Common Stock, a holder of Series A Preferred Stock shall: (i) submit a copy of
the fully executed notice of conversion in the form attached to the certificates
representing the Series A Preferred Stock ("Notice of Conversion") to the
Corporation by facsimile dispatched on the Conversion Date (or by other means
resulting in notice to the Corporation on the Conversion Date) at the office of
the Corporation or the Transfer Agent that the holder elects to convert the
same, which notice shall specify the number of shares of Series A Preferred
Stock to be converted, the applicable Conversion Price, the Market Price Days,
and a calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted) prior to 12:00 Midnight, New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original certificates representing the Series A Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along
with a copy of the Notice of Conversion to the office of the Corporation or the
Transfer Agent as soon as practicable thereafter. The Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion, unless either the Preferred Stock Certificates are
delivered to the Corporation or its Transfer Agent within five (5) business days
of delivery of the Notice of Conversion as provided above, or the holder
notifies the Corporation or its Transfer Agent that such certificates have been
lost, stolen or destroyed (subject to the requirements of subparagraph (a)
below). In the case of a dispute as to the
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calculation of the Conversion Price, the Corporation shall promptly issue such
number of shares of Common Stock that are not disputed in accordance with
subparagraph (b) below. 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 audit the calculations and
notify the Corporation and the holder of the results no later than 96 hours from
the time it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the
surrender of certificates as described above together with a Notice of
Conversion and any other notices or other documents required to be delivered by
the holder to the Corporation or the Transfer Agent, the Corporation shall issue
and, within three (3) business days after such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of agreement and
indemnification pursuant to subparagraph (a) above) (the "Delivery Period"), (i)
deliver (or cause the transfer agent for the Common Stock to so issue and
deliver) to the order of the holder that number of shares of Common Stock for
the portion of the shares of Series A Preferred Stock converted as shall be
determined in accordance herewith and (ii) deliver a certificate representing
the balance of the shares of Series A Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and equitable relief, the Corporation shall pay to a holder of Series A
Preferred Stock an amount in cash equal to the product of (i) $500 and (ii) the
number of days that the Corporation failed to deliver the shares of Common Stock
issuable upon surrender of shares of Series A Preferred Stock with a Notice of
Conversion commencing on the fourth (4th) day following the end of the Delivery
Period and ending on the day that the Corporation has delivered all such shares
of Common Stock. Such amount shall be paid to such holder in cash on or before
the fifth day of the month following the month in which it has accrued or, at
the option of the Corporation (by written notice to the holders of the Series A
Preferred Stock on or before the first day of the month following the month in
which it has accrued), in shares of Common Stock valued at the Market Price with
the Pricing Period being the period ending on the date that is five (5) business
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days prior to the day that the shares shall be required to issued. If the
Corporation desires to pay the amounts due hereunder in shares of Common Stock,
such shares shall be issued beginning on the last day upon which the cash amount
would otherwise be due in accordance with the preceding sentence.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided that the transfer agent for the
Common Stock is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the holder and
its compliance with the provisions contained in Article VI.A. and in this
Article VI.E., the Corporation shall use its commercially reasonable efforts to
cause the transfer agent for the Common Stock to electronically transmit the
Common Stock issuable upon conversion to the holder by crediting the account of
the holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system. The time periods for delivery and penalties
described in the immediately preceding paragraph shall apply to the electronic
transmittals described herein.
(c) No Fractional Shares. If any conversion of Series A
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
of the Series A Preferred Stock shall be the rounded to the nearest whole
number.
(d) Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in notice) to the
Corporation before 12:00 Midnight, New York City time, on the Conversion Date.
Subject to Article VI.H., the person or persons entitled to receive the shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such securities as of the Conversion Date and
all rights with respect to the shares of Series A Preferred Stock surrendered
shall forthwith terminate except the right to receive the shares of Common Stock
or other securities or property issuable on such conversion and except that the
holders preferential rights as a holder of Series A Preferred Stock shall
survive to the extent the corporation fails to deliver such securities.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series A Preferred Stock, 1,971,050
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the
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Series A Preferred Stock (the "Reserved Amount"). The Reserved Amount shall be
increased from time to time in accordance with the Corporation's obligations
pursuant to Section 4(g) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Preferred Stock shall be convertible at the then
current Conversion Price, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion, in accordance with the provisions of this Article VI (a "Conversion
Default"), the Corporation shall issue to the holder (or holders, if more than
one holder submits a Notice of Conversion in respect of the same Conversion
Date), the number of shares of Common Stock which are available to effect such
conversion up to such holder's pro rata share of the Reserved Amount, as
determined in accordance with Article X. The number of shares of Series A
Preferred Stock included in the Notice of Conversion which exceeds the amount
which is then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the holder's option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized number of shares of Common Stock as soon as possible following a
Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) (N/365), multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series A Preferred Stock through the Authorization Date (as
defined below), multiplied by (c) the Excess Amount on the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date"), multiplied by (d) .24, where (i) N = the number of
days from the Conversion Default Date to the date (the "Authorization Date")
that the Corporation authorizes a sufficient number of shares of Common Stock to
effect conversion of the full number of shares of Series A Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and
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the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock, at the Corporation's option, as follows:
(a) In the event the Corporation elects to make such payment
in cash, cash payment shall be made to holder by the fifth (5th) day of the
month following the month in which it has accrued; and
(b) In the event the Corporation elects to make such payment
in Common Stock, the Common Stock shall be valued at the Market Price with the
Pricing Period being the period ending on the date that is five (5) business
days prior to the day that the shares shall be required to issued and such
shares shall be issued on the fifth (5) day of the month following the month in
which it has accrued in accordance with the terms of this Article VI (so long as
there is then a sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance or injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article VI, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series 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 or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect (deeming the three (3) consecutive
Trading Days in the Pricing Period immediately preceding the date of such
request that maximize the number of shares of Common Stock issuable for purposes
of this proviso as the Market Price Days) 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.
H. Upon submission of a Notice of Conversion by a holder of Series A
Preferred Stock, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of
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Common Stock and (ii) 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 Delivery Period with respect to a
conversion of shares of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares 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 of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, the right to receive Conversion Default Payments
pursuant to Article VI.F. to the extent required thereby for such Conversion
Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is effective and there is not
then a continuing Mandatory Redemption Event, and so long as the Common Stock is
listed for trading on the NNM or another Principal Market, each share of Series
A Preferred Stock issued and outstanding on December 19, 1999, shall be
automatically converted into shares of Common Stock in accordance with the terms
hereof (the "Automatic Conversion Date"). The Automatic Conversion Date shall be
delayed by one (1) Trading Day for each Trading Day occurring prior thereto and
prior to the full conversion of the Series A Preferred Stock that sales cannot
be made pursuant to the Registration Statement, whether by reason of the
Corporation's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of the Registration Rights Agreement or
otherwise. The Automatic Conversion Date shall be the Conversion Date for
purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder.
VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the New York Business Corporation
Law (the "NYBCL") and in this Article VIII
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and in Article IX 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 other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
merger, consolidation, liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder, at least ten
(10) days prior to the record date specified therein (or thirty (30) days prior
to the consummation of the transaction or event, whichever is earlier), of the
date on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.
To the extent that under the NYBCL 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 two-thirds (2/3) of the shares of the
Series A Preferred Stock (except as otherwise may be required under the NYBCL)
shall constitute the approval of such action by the class. To the extent that
under the NYBCL 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 and deeming the three (3) consecutive Trading
Days immediately preceding the record date for purposes of this proviso as the
Market Price Days. Holders of the Series A Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the NYBCL.
IX. Protective Provisions
So long as shares of Series A Preferred Stock are
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outstanding, the Corporation shall not, without first obtaining the approval (by
vote or consent, as provided by the NYBCL) of the holders of at least two-thirds
(2/3) 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 or any other securities of the Corporation so as to affect
adversely the Series A Preferred Stock;
(b) subject to the provisions of Article II, 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 II hereof, "Senior Securities");
(c) subject to the provisions of Article II, 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 II hereof, "Pari Passu
Securities");
(d) subject to the provisions of Article II, increase the authorized
number of shares of Series A Preferred Stock or Senior Securities or Pari Passu
Securities; or
(e) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least two-thirds (2/3) 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, so as to affect the Series A
Preferred Stock, then the Corporation will 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 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 exist prior to such alteration or
change or continue to hold their shares of Series A Preferred Stock.
The Corporation shall not offer any inducement to any holder of Series
A Preferred Stock to alter or change the rights, preferences or privileges of
any shares of the Series A Preferred Stock without offering such inducement pro
rata to all holders of
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Series A Preferred Stock then outstanding.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount shall be allocated by
the Corporation pro rata among the holders of the Series A Preferred Stock (and
their respective transferees) based on the number of shares of Series A
Preferred Stock purchased by each holder of the Series A Preferred Stock from
the Corporation relative to the total aggregate number of shares of Series A
Preferred Stock purchased by all holders from the Corporation. Increases to the
Maximum Share Amount and the Reserved Amount shall be allocated pro rata among
holders of the Series A Preferred Stock based on the number of shares of Series
A Preferred Stock then outstanding. Each transferee of record of Series A
Preferred Stock will succeed to the pro rata allocations associated with the
shares of Series A Preferred Stock acquired by such transferee.
FIFTH: The foregoing amendment of the certificate of
incorporation was authorized by the Board of Directors of the Corporation
pursuant to the authority vested in said Board under the provisions of the
certificate of incorporation of the Corporation and of Section 502 of the
Business Corporation Law.
IN WITNESS WHEREOF, we have subscribed this document on the
date set forth below and do hereby affirm, under the penalties of perjury, that
the statements contained herein have been examined by us and are true and
correct.
Dated: December 17, 1997
/s/ DANIEL P. FLOHR
-----------------------------
Daniel P. Flohr
President and Chief
Executive Officer
TINA L. JACOBS
-----------------------------
Tina L. Jacobs
Secretary
21
Exhibit 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of December
__, 1997, by and among C-Phone Corporation, a New York corporation (the
"COMPANY"), and each of the undersigned (the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) 4,500 shares of its
Series A Convertible Preferred Stock (the "PREFERRED STOCK") that are
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 Amendment of the
Certificate of Incorporation of the Company setting forth the number,
designation, relative rights, preferences and limitations with respect to such
Preferred Stock (the "CERTIFICATE OF AMENDMENT") and (ii) warrants (the
"WARRANTS") to acquire an aggregate of 450,000 shares of Common Stock (the
"WARRANT SHARES"), upon the terms and subject to the limitations and conditions
set forth in the Warrants dated of even date herewith, among the Company and the
Initial Investors; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investors and
any transferee or assignee who agrees to become bound by, and meets the
qualifications of, the provisions of this Agreement in accordance with Section 9
hereof.
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(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion
Shares and the Warrant Shares (including any shares of Common Stock issued in
lieu of cash payments under the Certificate of Amendment or any Warrant) issued
or issuable with respect to the Warrants and the Preferred Stock and any shares
of capital stock issued or issuable, from time to time (with any adjustments),
as a distribution on or in exchange for or otherwise with respect to any of the
foregoing. As to any particular securities, such securities shall cease to be
Registrable Securities when they have been sold pursuant to an effective
registration statement or in compliance with Rule 144 or are eligible to be sold
pursuant to Rule 144(k), under the 1933 Act (or any similar rule then in force).
(iv) "Registration Statement" means a registration
statement on Form S-3 of the Company under the 1933 Act registering the
Registerable Securities (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).
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement or the Certificate of Amendment.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall (i) prepare and,
on or prior to the date which is thirty (30) days after the date of issuance of
the Preferred Stock pursuant to the Securities Purchase Agreement (the "Closing
Date"), deliver to each Investor a draft of the Registration Statement covering
the resale of the Registrable Securities, accompanied or preceded by a
questionnaire (a "SELLING SHAREHOLDER QUESTIONNAIRE") of the type commonly used
for offerings of this kind, so as to permit a public offering and sale of the
Registrable Securities under the 1933 Act and (ii) within ten (10) days after
the Company has received comments, if any, and a properly completed Selling
Shareholder Questionnaire from each Investor, file the Registration Statement
with the SEC. The number of shares of Common Stock initially included in such
Registration Statement shall equal the sum of (i) 30% of the
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number of shares of Common Stock issued and outstanding as of the close of
business on third business day immediately preceding the date of filing of the
Registration Statement and (ii) the number of Warrant Shares that are then
issuable upon exercise of the Warrants (without regard to any limitation on the
Investor's ability to convert the Preferred Stock or exercise the Warrants). The
Company shall use its best efforts to obtain effectiveness of the Registration
Statement as soon as reasonably practicable.
(b) PAYMENTS BY THE COMPANY. If (i) the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not declared effective by the SEC within ninety (90)
days after the date (the "FILING DATE") the Registration Statement is filed with
the SEC, (ii) after the Registration Statement has been declared effective by
the SEC, the Registration Statement is withdrawn or suspended or if sales
otherwise cannot be made pursuant to the Registration Statement for a period of
at least fifteen (15) consecutive trading days or thirty (30) days in any twelve
(12) month period, or (iii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market
("NSM"), the New York Stock Exchange (the "NYSE") or the American Stock Exchange
(the "AMEX") for a period of at least ten (10) consecutive days, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(b) as partial relief for the
damages to the Investors 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). The Company shall pay to
each holder of the Preferred Stock or Registrable Securities an amount equal to
the aggregate Purchase Price (as defined below) of the Preferred Stock
("AGGREGATE SHARE PRICE") multiplied by the Payment Percentage (as defined
below) times (x) the number of months (prorated for partial months) after the
end of the 90-day period referenced in clause (i) above and prior to the date
the Registration Statement is declared effective by the SEC, provided, however,
that there shall be excluded from such period any delays which are solely
attributable to changes either required by the Investors in the Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution, or to the failure of
the Investors to conduct their review of the Registration Statement pursuant to
Section 3(g) below in a reasonably prompt manner or changes reasonably requested
by the Company as a result of changes in such information; (y) the number of
months (prorated for partial months) after the end of the 15-day or 30-day
period referenced in clause (ii) above that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend
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the prospectus included therein in accordance with the terms of this Agreement
or when such prospectus otherwise contains a material misstatement or omission);
or (z) the number of months (prorated for partial months) after the end of the
30-day period referenced in clause (iii) above that the Common Stock is not
listed or included for quotation on the NNM, NSM, NYSE or AMEX or that trading
thereon is halted after the Registration Statement has been declared effective.
The Payment Percentage shall be two percent (2%) per each thirty (30) day period
(or $20,000 per each 30-day for each $1,000,000 of Purchase Price). Such amounts
shall be paid in cash or, at the Company's option, may be pay in shares Common
Stock valued at the Market Price (as defined in Certificate of Amendment) with
the Pricing Period being the period ending on the date that is five (5) business
days prior to the day that the shares shall be required to issued. Any such
shares of Common Stock shall be Registrable Securities. If the Company desires
to pay the amounts due hereunder in shares of Common Stock, it shall so notify
the Investors in writing within two (2) business days of the date on which such
amounts are first payable in cash and such amounts shall be issued 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 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. The
term "PURCHASE PRICE" means the purchase price paid by the Investors for the
Preferred Stock. Notwithstanding the foregoing, the Company shall not be
required to make such payments during any "ALLOWED DELAY" as defined in Section
3(e) below.
(c) PIGGY-BACK REGISTRATIONS. Subject to the last sentence of
this Section 2(c), if at any time prior to the expiration of the Registration
Period (as defined in Section 3(a)), the Company shall file with the SEC a
registration statement under the 1933 Act relating to an offering for its own
account or the account of others 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, stock purchase or
other employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(c) written notice of such
determination and, if within fifteen (15) days after the effective date of such
notice, such Investor shall so request in writing, the Company shall include in
such registration statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter thereof shall impose a limitation on the number of shares of
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<PAGE>
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 (including achieving pricing
acceptable to the Company), then the Company shall be obligated to include in
such registration statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities
in proportion to the number of Registrable Securities sought to be included by
such Investors in the aggregate; provided, however, that the Company shall not
exclude any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to inclusion of
such securities in such registration statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the registration statement other
than holders of securities entitled to inclusion of their securities in such
registration statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(c) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering, including
customary indemnification. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section 2(c)
shall only be available in the event the Company fails to timely file, obtain
effectiveness or maintain effectiveness of the Registration Statement to be
filed pursuant to Section 2(a) in accordance with the terms of this Agreement,
and shall not apply during periods in which there is an effective Registration
Statement.
(d) ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that currently it meets the registrant eligibility and transaction
requirements for the use of Form S-3 for registration of the sale by the Initial
Investors and any other Investors of the Registrable Securities. The Company
agrees that it 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 to the extent that such
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<PAGE>
eligibility is based upon such timely filing.
(e) RULE 416. The Company and the Investors each acknowledge
that an indeterminate number of Registrable Securities shall be registered
pursuant to Rule 416 under the 1933 Act ("RULE 416") so as to include in such
Registration Statement any and all Registrable Securities which may become
issuable pursuant to the Securities Purchase Agreement or the Certificate of
Amendment (i) to prevent dilution resulting from stock splits, stock dividends
or similar transactions and (ii) by reason of reductions in the Conversion Price
of the Preferred Stock in accordance with the terms thereof, including, but not
limited to, the terms which cause the Variable Conversion Price to decrease to
the extent the closing bid price of the Common Stock decreases (collectively,
the "RULE 416 SECURITIES"). In this regard, the Company agrees to take all steps
necessary to ensure that all Registrable Securities are registered pursuant to
Rule 416 in the Registration Statement and, absent guidance from the SEC or
other definitive authority to the contrary, the Company shall affirmatively
support and not take any action adverse to the position that the Registration
Statements filed hereunder cover all of the Rule 416 Securities. If the Company
determines that the Registration Statements filed hereunder do not cover all of
the Rule 416 Securities, the Company shall immediately provide to each Investor
written notice (a "RULE 416 NOTICE") setting forth the basis for the Company's
position and the authority therefor.
To the extent that Rule 416 is determined by the SEC not to
permit the registration of an indeterminate number of Registrable Securities,
the initial number of Registrable Securities included on any Registration
Statement and each increase (if any) to the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities prior to
the effectiveness of the Registration Statement, each transferee shall be
allocated a pro rata portion of the number of Registrable Securities to be
included in a Registration Statement. Any shares of Common Stock included in 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
Investors, pro rata based on the number of shares of Registrable Securities then
held by such Investors. For the avoidance of doubt, the number of Registrable
Securities held by any Investor shall be determined as if all shares of
Preferred Stock and Warrants then outstanding were converted into or exercised
for Registrable Securities.
(f) TERM. This Agreement and the Company's
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obligations hereunder shall terminate on the fourth anniversary
of the date of this Agreement.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
(a) Subject to any Allowed Delay, the Company shall (i)
prepare and deliver to each Investor a draft of the Registration Statement
accompanied or preceded by a Selling Shareholder Questionnaire and (ii) file the
Registration Statement with the SEC, in each case, in accordance with the
provisions of Section 2(a) hereof with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as practicable after such filing, and, subject to any Allowed
Delay, keep the Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors or of legal
counsel to the Company) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof including under Rule
144(k)) without registration under the 1933 Act (the "REGISTRATION PERIOD"),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
(b) Subject to any Allowed Delay, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to keep the Registration
Statement effective at all times during the Registration Period, and, during the
Registration Period, comply with the provisions of the 1933 Act applicable to
the Company with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement. In the event that Rule 416 is determined by the SEC not
to permit the registration of an indeterminate number of shares, and the number
of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities issued or
issuable upon conversion of the Preferred Stock or exercise of the Warrants, the
Company shall
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<PAGE>
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover all of
the Registrable Securities, in each case, as soon as reasonably practicable, but
in any event within twenty (20) business days after the necessity therefor
arises (based on the market price of the Common Stock and other relevant factors
on which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as reasonably practicable following the filing thereof. The
provisions of Section 2(c) above shall be applicable with respect to such
obligation, with the one hundred twenty (120) days running from the day after
the date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor.
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each prospectus and each amendment or supplement
thereto, and, in the case of the Registration Statement referred to in Section
2(a), each letter written by or on behalf of the Company to the SEC or the staff
of the SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than any
portion of any thereof which contains information for which the Company has
sought confidential treatment), and (ii) such number of copies of a prospectus
and all amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor. The Company will promptly notify
each Investor by facsimile of the effectiveness of the Registration Statement or
any post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as reasonably practicable and shall promptly file an acceleration request as
soon as reasonably practicable following the resolution or clearance of all SEC
comments or, if applicable, following notification by the SEC that the
Registration Statement or any amendment thereto will not be subject to review.
(d) The Company shall use commercially reasonable efforts to
(i) register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including
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post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
(e) As promptly as practicable after becoming aware of any
event as a result of which the prospectus included in the Registration
Statement, as then in effect, would then include an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the Company shall
notify each Investor of the happening of such event, and use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request. Notwithstanding the provisions of the preceding sentence, for not more
than fifteen (15) consecutive trading days (or a total of not more than thirty
(30) trading days in any twelve (12) month period), the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Registration Statement updating) the disclosure of which at the
time is not, in the good faith opinion of the Company in the best interests of
the Company (an "ALLOWED DELAY"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of (but in no event, without
the prior written consent of an Investor, shall the Company disclose to such
investor any of the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay and (ii) advise the Investors in
writing to cease all sales under the Registration Statement until the end of the
Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be
bound by the first sentence of this Section 3(e) with respect to the information
giving rise thereto.
(f) 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
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is issued, to obtain the withdrawal of such order at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof.
(g) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
(h) The Company shall make generally available to its
securities holders as soon as practical, but not later than ninety (90) days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(i) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (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
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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. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor's ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
(j) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
(k) The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on the NNM or, if not then eligible for the NNM on the NSM and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD") as such with respect to such Registrable Securities.
(l) 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
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Statement.
(m) The Company shall cooperate with the Investors who hold
Registrable Securities being offered 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 Investors may reasonably request and registered in such names as the
Investors may request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, to the transfer agent for the Registrable Securities
(with copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction substantially in the form attached hereto
as Exhibit 1 and a letter from the Company, which letter has been acknowledged
by the Company's transfer agent as sufficient to permit the issuance of
unlegended Conversion Shares and Warrant Shares which are not subject to a stop
transfer notation substantially in the form attached hereto as Exhibit 2.
(n) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such
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<PAGE>
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement.
(c) Each Investor shall sell all Registrable Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if any,
and in compliance with the succeeding paragraph, or otherwise in compliance with
the requirements for an exemption from registration under the 1933 Act.
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities at the time of receipt of such notice.
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
Each party shall be responsible for its own fees and expenses,
including legal fees and expenses, except that the Company shall be responsible
for all registration, listing and qualification fees, printers and Company
accounting fees.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any
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Investor within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 ACT"), if any, (iii) any underwriter (as defined in
the 1933 Act) for the Investors, and (iv) the directors, officers, partners,
employees and each person who controls any such underwriter within the meaning
of the 1933 Act or the 1934 Act, if any (each, an "INDEMNIFIED PERSON"), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "CLAIMS") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact 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 1933 Act, the 1934 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(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim 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 any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company; and
(iii) 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, such corrected prospectus was
timely made available by the Company pursuant to
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Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, 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 Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor; provided, further, however,
that the Investor shall be liable under this Agreement (including this Section
6(b) and Section 7) for only that amount as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
15
<PAGE>
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel of its choice subject to the consent
of the Indemnified Party or Indemnified Person which consent shall not be
unreasonably withheld; 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 differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable
16
<PAGE>
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (iii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees, for
as long as there shall be any Series A Preferred Stock, Warrants, or Registrable
Securities held by an Investor, to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investor to any transferee of one-third (1/3) or more of such Investor's
Preferred Shares, Warrants or Registrable Securities if: (i) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with
17
<PAGE>
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws, (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein, (v) such transfer
shall have been made in accordance with the applicable requirements of the
Securities Purchase Agreement, and (vi) such transferee shall be an Accredited
Investor as that term defined in Rule 501 of Regulation D promulgated under the
1933 Act and shall have made appropriate representations to that effect to the
Company.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five (5)
business days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or one (1) business day after transmission, if sent
by facsimile, in each case addressed to a party. Each party shall provide notice
to the other party of any change in address. The addresses for such
communications shall be:
18
<PAGE>
If to the Company:
C-Phone Corporation
6714 Netherlands Drive
Wilmington, NC 28405
Attn: Daniel P. Flohr, President
Fax: (910) 395-6108;
with a copy to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attn: Arthur A. Katz, Esq.
Fax: (212) 972-9150;
If to an Investor:
To the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase
Agreement.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of State of New York applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal Courts and
state courts located in New York, New York with respect to any dispute arising
under this Agreement or the transactions contemplated hereby.
(e) This Agreement, the Securities Purchase Agreement
(including all schedules and exhibits thereto), and the Warrants 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 Securities Purchase Agreement and the Warrants supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and
19
<PAGE>
thereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(j) Except as otherwise provided herein, all consents and
other determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable Securities,
determined as if the all of the shares of Preferred Stock and Warrants then
outstanding have been converted into or exercised for Registrable Securities.
(k) The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
20
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
C-PHONE CORPORATION
By:____________________________
Daniel P. Flohr
President and Chief
Executive Officer
21
<PAGE>
[NAME OF INVESTOR]
By:____________________________
Name:
Title:
Address:
22
<PAGE>
Exhibit 1 to Registration
Rights Agreement
[Company Letterhead]
[Date]
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10006
Attention: Compliance Department
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you (1) to transfer or re-register (or at the holders request to reissue to
the holder thereof without any restrictive legend) the certificates for the
shares of Common Stock, par value $.01 per share (the "Common Stock"), of
C-Phone Corporation, a New York corporation (the "Company"), represented by
certificate numbers _____ for an aggregate of _____ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of Investor]
(the "Investor") (which shares were previously issued upon conversion of the
Preferred Shares (as hereinafter defined) or exercise of the Warrants (as
hereinafter defined)), upon surrender of such certificates to you,
notwithstanding the legend appearing on such certificates, (2) to issue shares
(the "Conversion Shares") of Common Stock to or upon the order of the registered
holder from time to time of shares of Series A Convertible Preferred Stock of
the Company (the "Preferred Shares") upon surrender to you of a properly
completed and duly executed Notice of Conversion (notwithstanding the legend
appearing on such certificates) and upon receipt from the Company or its legal
counsel that it has received the Preferred Shares and any other required
documents, (3) to issue shares (the "Warrant Shares") of Common Stock to or upon
the order of the registered holder from time to time of the One-Year Warrants
and Three-Year Warrants of the Company (collectively, the "Warrants") upon
surrender to you of a properly completed and duly executed Notice of Exercise
(notwithstanding the legend appearing on such Warrants) and upon receipt from
the Company or its legal counsel that it has received the Warrants and any other
required documents. The transfer or re-registration of the certificates for the
Outstanding Shares by you should be made at such time as you are requested to do
so by the record holder of the Outstanding Shares. The certificate issued upon
such transfer or re-registration should be registered in such name as requested
by the holder of record of the certificate surrendered to you and should not
bear any legend which would restrict the transfer of the shares represented
thereby. In addition, you are hereby directed to remove any stop-transfer
instruction relating to the
23
<PAGE>
Outstanding Shares. Subject to the foregoing, certificates for the Conversion
Shares and Warrant Shares should not bear any restrictive legend and should not
be subject to any stop-transfer restriction.
Notwithstanding the foregoing, pursuant to applicable securities laws
or certain agreements between the Company and the Investor, the Investor may be
prohibited during certain limited periods of time from selling its Outstanding
Shares or other shares of Common Stock issuable upon conversion of the Preferred
Shares and exercise of the Warrant Shares under the Registration Statement;
PROVIDED, HOWEVER, that such Investor may continue to sell such securities
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "1933 Act"). The Company may, during such periods, deliver a notice
to you advising you to refrain from transferring any Outstanding Shares pursuant
to such Registration Statement, provided that such notice shall not prohibit the
transfer of such shares pursuant to an exemption from registration under the
1933 Act during such periods.
Contemporaneous with the delivery of this letter, the Company is
delivering to you a letter of Warshaw Burstein Cohen Schlesinger & Kuh, LLP,
counsel to the Company, as to registration of the Outstanding Shares and the
Conversion Shares under the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
C-PHONE CORPORATION
---------------------------
By:
Title:
Enclosures:
cc: [Name of Investor]
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<PAGE>
Exhibit 2 to Registration
Rights Agreement
[Letterhead of Company Counsel]
[Date]
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10006
Attention: Compliance Department
Re: C-PHONE CORPORATION
Ladies and Gentlemen:
We are counsel to C-Phone Corporation, a New York corporation (the
"Company"), and we understand that [Name of Investor] (the "Holder") has
purchased from the Company shares of the Company's Series A Convertible
Preferred Stock (the "Preferred Stock") and one-year warrants and three-year
warrants (collectively, the "Warrants") that are convertible or exercisable into
the Company's Common Stock, par value $.01 per share (the "Common Stock"). The
Preferred Stock and Warrants were purchased by the Holder pursuant to a
Securities Purchase Agreement, dated as of December __, 1997, between the Holder
and the Company (the "Agreement"). Pursuant to a Registration Rights Agreement,
dated as of December __, 1997, between the Company and the Holder (the
"Registration Rights Agreement"), the Company agreed with the Holder, among
other things, to register the Registrable Securities (as that term is defined in
the Registration Rights Agreement) under the Securities Act of 1933, as amended
(the "Securities Act"), upon the terms provided in the Registration Rights
Agreement. In connection with the Company's obligations under the Registration
Rights Agreement, on __________, 199_, the Company filed a Registration
Statement on Form S-3 (File No. 333- _____________) (the "Registration
Statement") with the Securities and Exchange Commission relating to the
Registrable Securities, which names the Holder as a selling stockholder
thereunder and which Registration Statement was declared effective on _______,
1998.
[Other introductory language]
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 investor]
25
Exhibit 4
[FORM OF ONE-YEAR WARRANT]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT") OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
AND QUALIFICATION IN EFFECT WITH RESPECT THERETO UNDER THE 1933 ACT AND UNDER
ANY APPLICABLE STATE SECURITIES LAW, (ii TO THE EXTENT APPLICABLE, RULE 144
UNDER THE 1933 ACT, OR (iii) AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
C-PHONE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
No. WA-_______ _________ Warrants
COMMON STOCK PURCHASE WARRANT
C-Phone Corporation, a New York corporation (the "COMPANY"), hereby
certifies that for $10.00 and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, ___________________ (the
"BUYER") is entitled, on the terms and conditions set forth below, to purchase
from the Company up to ________ fully paid and nonassessable shares of Common
Stock, par value $.01 per share, of the Company (the "COMMON STOCK") at the
price per share set forth in Section 6, subject to adjustment.
1. DEFINITIONS. All capitalized terms used herein but not otherwise
defined herein shall have the meanings assigned to them in the Securities
Purchase Agreement, dated as of December 17, 1997, among the Company and certain
purchasers, including the Buyer (collectively, the "BUYERS"), of the Company's
Series A Convertible Preferred Stock.
2. EXPIRATION DATE. The Buyer and its registered assigned (the
"HOLDER") is hereby granted the right to purchase, at any time from and after
the date hereof until 5:00 P.M., New York time, on the earlier of (a) December
19, 1998 and (b) and the business day preceding the Redemption Date (as defined
in Section 9(d)) (the "EXPIRATION DATE").
3. EXERCISE OF WARRANT. This Warrant initially is exercisable at an
exercise price (subject to adjustment as provided in Section 8 hereof) per share
of Common Stock set forth in Section 6 hereof payable by certified or official
bank check in New York Clearing House funds. Upon surrender of this Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal offices presently
located at 6714
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<PAGE>
Netherlands Drive, Wilmington, North Carolina 28405 the Holder shall be entitled
to receive a certificate or certificates for the shares of Common Stock so
purchased. This Warrant is exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
this Warrant). In the case of the purchase of less than all the shares of Common
Stock purchasable under this Warrant, the Company shall cancel this Warrant upon
the surrender thereof and shall execute and deliver a new Warrant of like tenor
for the balance of the shares of Common Stock purchasable hereunder.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series A Preferred Stock and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, (a) beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D through 13G thereunder, except as otherwise
provided in clause (i) hereof and (b) the holder of this Warrant may waive the
limitations set forth therein by written notice to the Company upon not less
than sixty-one (61) days prior notice (with such waiver taking effect only upon
the expiration of such 61-day notice period).
4. ISSUANCE OF CERTIFICATES. Upon the exercise of this Warrant, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying this Warrant shall be made forthwith (and in any
event within three (3) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder hereof (consistent with the terms and conditions of this
Warrant); provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
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This Warrant Certificates and the certificates representing the Common
Stock (and/or other securities, property or rights issuable upon the exercise of
this Warrant) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. This Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant, by
its acceptance thereof, covenants and agrees that this Warrant is being acquired
as an investment and not with a view to the distribution thereof.
6. EXERCISE PRICE.
a. INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in Section 8 hereof, the initial exercise price of this Warrant shall
be $8.05 per share of Common Stock. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
b. EXERCISE PRICE. The term "EXERCISE PRICE" herein
shall mean the initial exercise price or the adjusted exercise
price, depending upon the context.
7. REGISTRATION RIGHTS.
The shares of Common Stock issuable upon exercise of this
Warrant (the "WARRANT SHARES") shall be included in the registration statement
(the "REGISTRATION STATEMENT") to be prepared and filed by the Company with the
Securities and Exchange Commission ("SEC") pursuant to the terms of the
Registration Rights Agreement.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
a. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Section 8(c), 8(d) and
8(f) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Section 8(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than 80%
of the Market Price (as hereinafter defined) (or in the case of Section
(8(b)(i), 100% of the Market Price) on the date of issuance (a "DILUTIVE
ISSUANCE"), then immediately upon the Dilutive Issuance, the Exercise Price will
be reduced to a price
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determined by multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal
to the sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set forth in Section 8(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.
b. EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 8(a) hereof, the following
will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than 80% of the Market Price on the
date of
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issuance, then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
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paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
c. SUBDIVISION AND COMBINATION. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
d. STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, in respect of the
Common Stock. the Exercise Price shall forthwith be proportionately decreased.
An adjustment made pursuant to this Section 8(b) shall be made as of the record
date for the subject stock dividend or distribution.
e. ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Securities issuable upon the exercise at the adjusted exercise price of this
Warrant shall be adjusted to the nearest non-fractional amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of this
Warrant immediately prior to such adjustment and
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dividing the product so obtained by the adjusted Exercise Price.
f. MERGER OR CONSOLIDATION. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder an amended warrant providing that the holder of this Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of this Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such amended
Warrant shall provide for adjustments which shall be identical to the
adjustments provided in Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers. The Company will not
effect any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Section 8 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.
g. DISTRIBUTION OF ASSETS. In case the Company shall declare
or make any distribution of its assets (including cash but excluding any Common
Stock held in treasury) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of
record for determining stockholders entitled to such distribution, but prior to
the date of distribution, the holder of this Warrant shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of Common
Stock subject hereto, to receive the amount of such assets which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of stockholders entitled to such
distribution.
h. CERTAIN DEFINITIONS.
i. The term "COMMON STOCK" shall mean (x) the
class of stock designated as Common Stock in the Certificate of Incorporation of
the Company as may be amended as of the date hereof, or (y) any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value.
ii. The term "COMMON STOCK DEEMED OUTSTANDING"
shall mean the number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the
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treasury of the Company), plus (x) pursuant to Section 8(b)(i) hereof, the
maximum total number of shares of Common Stock issuable upon the exercise of
Options, as of the date of such issuance or grant of such Options, if any, and
(y) pursuant to Section 8(b)(ii) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of Convertible Securities, as
of the date of issuance of such Convertible Securities, if any.
iii. The term "MARKET PRICE," as of any date, (x)
means the average of the last reported sale prices for the shares of Common
Stock on the Nasdaq National Market ("Nasdaq") for the five (5) trading days
immediately preceding such date as reported by Bloomberg, L.P. ("BLOOMBERG"), or
(y) if Nasdaq is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the Principal Market for
the Common Stock during the same period as reported by Bloomberg, or (iii) if
market value cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation (as set forth in the
Certificate of Amendment). The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
i. NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
i. Upon the issuance or sale of this Warrant or
the shares of Common Stock issuable upon the exercise of this
Warrant; or
ii. If the amount of said adjustment shall be
less than two cents (2(cent)) per Warrant Share, provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2(cent)) per Warrant Share.
9. REDEMPTION OF WARRANTS.
a. REDEMPTION PRICE AND REDEMPTION ACCELERATION PRICE. The
Company may, at its option, redeem all or any portion of the this Warrant at a
redemption price of $.01 a Warrant (such price is hereinafter referred to as the
"REDEMPTION PRICE") if (a) the Closing Price per share of Common Stock, as
determined pursuant to Section 9(c), shall have been greater than 130% of the
then exercise price (such price, as the same may from time to time be adjusted,
is hereinafter referred to as the "REDEMPTION
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ACCELERATION PRICE") for any 10 consecutive trading days ending not more than 20
trading days prior to the date that notice of such redemption shall have been
given to the Holder by the Company pursuant to Section 9(d), and (b) the
Registration Statement covering the Warrant Shares is then effective.
b. PAYMENT OF REDEMPTION PRICE. On or prior to the opening of
business on the Redemption Date (as defined in Section 9(d)), the Company will
set aside the funds sufficient to purchase such portion of this Warrant which
are to be redeemed. Payment of the Redemption Price will be made by the Company
upon presentation and surrender of this Warrant Certificates to the Company at
its principal office.
c. DETERMINATION OF CLOSING PRICE. For the purposes of Section
9(a), the Closing Price for each day shall be the last reported sale price of
the Common Stock on the Nasdaq National Market or such other national securities
exchange on which the Common Stock is listed.
d. NOTICE OF REDEMPTION. Notice of redemption shall be given
to the Holder by the Company not less than 15 days and not more than 45 days
prior to the date established for such redemption (the "REDEMPTION DATE"). Each
such notice of redemption will specify the Redemption Date and the Redemption
Price. The notice will state that payment of the Redemption Price will be made
by the Company upon presentation and surrender of this Warrant Certificates
representing such Warrants to the Company at its principal office, and will also
state that the right to exercise this Warrant will terminate at 5:00 P.M., New
York City time, on the business day immediately preceding the Redemption Date.
10. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be reasonably designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
11. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of
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fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of shares of Common Stock or other securities, properties or rights.
12. CERTAIN AGREEMENTS OF THE COMPANY
a. RESERVATION AND LISTING OF SECURITIES. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of this Warrant,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of this Warrant and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as this Warrant shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of this Warrant to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on The Nasdaq Stock Market, Inc.
b. CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
c. SUCCESSORS AND ASSIGNS. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
13. CASHLESS EXERCISE. Notwithstanding the provisions of Section 3, if
the resale of the Warrant Shares by the holder is not then registered pursuant
to an effective registration statement under the 1933 Act as a result of a
breach by the Company of its obligations under the Registration Rights
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Agreement and as a result of which a Mandatory Redemption Event has occurred as
set forth in Article V.A(ii) of the Certificate of Amendment, this Warrant may
be exercised by presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder's intention to
effect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms hereof
(a "CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the numerator of
which (which shall not be less than zero) shall be the then current Market Price
per share of the Common Stock less the Exercise Price, and the denominator of
which shall be the then current Market Price per share of Common Stock.
14. NOTICES TO WARRANT HOLDER. Nothing contained in this Warrant shall
be construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of this Warrant and its exercise, any of the following events
shall occur:
a. the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
b. the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
c. there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
d. a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days (or as many days as is practicable, if
such record date is not fixed at
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least fifteen (15) days in advance) prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
15. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or three (3) business days after mailing, if mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holder.
16. AMENDMENTS. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company
and the holder hereof.
17. SUCCESSORS. All the covenants and provisions of this Warrant shall
be binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
18. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Warrant Certificate
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State without giving effect to its rules governing the conflicts of laws.
The Company and the Holder hereby agree that any action, proceeding or
claim against it arising out of or relating in any way to, this Warrant shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submit
to such jurisdiction, which jurisdiction shall be exclusive. The Company and the
Holder hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon the Company or
the Holder (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
referred to in Section 14 hereof.
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Such mailing shall be deemed personal service and shall be legal and binding
upon the party so served in any action, proceeding or claim. The Company and the
Holder agree that the prevailing party or parties in any such action or
proceeding shall be entitled to recover from the other party or parties all of
its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
19. ENTIRE AGREEMENT: MODIFICATION. This Warrant contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
20. SEVERABILITY. If any provision of this Warrant shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Warrant.
21. CAPTIONS. The caption headings of the Sections of this Warrant are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Warrant and shall be given no substantive effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder of the Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Warrant; and this Warrant shall be for the
sole and exclusive benefit of the Company and the Holder of this Warrant
Certificates or Warrant Shares.
23. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of December 19, 1997
C-PHONE CORPORATION
[SEAL] By:_____________________
Daniel P. Flohr
President and Chief
Executive Officer
Attest:
- ---------------------------
Tina L. Jacobs
Secretary
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
C-Phone Corporation in the amount of $________ , all in accordance with the
terms of Section 3 of this Warrant. The undersigned requests that a certificate
for such securities be registered in the name of ____________ whose address is
_____________________ and that such Certificate be delivered to _______________
whose address is ________________
Dated: ____________________
Signature____________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
____________________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
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[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED) __________________________ hereby sells, assigns and
transfers unto ____________________________________.
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ____________________
Signature: ____________________________________________________
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate.)
____________________________________________________
(Insert Social Security or Other Identifying Number of
Assignee)
16
Exhibit 5
[FORM OF THREE-YEAR WARRANT]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT") OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
AND QUALIFICATION IN EFFECT WITH RESPECT THERETO UNDER THE 1933 ACT AND UNDER
ANY APPLICABLE STATE SECURITIES LAW, (ii TO THE EXTENT APPLICABLE, RULE 144
UNDER THE 1933 ACT, OR (iii) AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
C-PHONE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
No. WB-_______ _________ Warrants
COMMON STOCK PURCHASE WARRANT
C-Phone Corporation, a New York corporation (the "COMPANY"),
hereby certifies that for $10.00 and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, ___________________
(the "BUYER") is entitled, on the terms and conditions set forth below, to
purchase from the Company up to ________ fully paid and nonassessable shares of
Common Stock, par value $.01 per share, of the Company (the "COMMON STOCK") at
the price per share set forth in Section 6, subject to adjustment.
1. DEFINITIONS. All capitalized terms used herein but not
otherwise defined herein shall have the meanings assigned to them in the
Securities Purchase Agreement, dated as of December 17, 1997, among the Company
and certain purchasers, including the Buyer (collectively, the "BUYERS"), of the
Company's Series A Convertible Preferred Stock.
2. EXPIRATION DATE. The Buyer and its registered assigned (the
"HOLDER") is hereby granted the right to purchase, at any time from and after
the date hereof until 5:00 P.M., New York time, on the December 19, 2000 (the
"EXPIRATION DATE").
3. EXERCISE OF WARRANT. This Warrant initially is exercisable
at an exercise price (subject to adjustment as provided in Section 8 hereof) per
share of Common Stock set forth in Section 6 hereof payable by certified or
official bank check in New York Clearing House funds. Upon surrender of this
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal offices presently
located at 6714 Netherlands Drive, Wilmington, North Carolina 28405 the Holder
shall be entitled to receive a certificate or certificates for
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the shares of Common Stock so purchased. This Warrant is exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock underlying this Warrant). In the case of the purchase
of less than all the shares of Common Stock purchasable under this Warrant, the
Company shall cancel this Warrant upon the surrender thereof and shall execute
and deliver a new Warrant of like tenor for the balance of the shares of Common
Stock purchasable hereunder.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series A Preferred Stock and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, (a) beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D through 13G thereunder, except as otherwise
provided in clause (i) hereof and (b) the holder of this Warrant may waive the
limitations set forth therein by written notice to the Company upon not less
than sixty-one (61) days prior notice (with such waiver taking effect only upon
the expiration of such 61-day notice period).
4. ISSUANCE OF CERTIFICATES. Upon the exercise of this Warrant, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying this Warrant shall be made forthwith (and in any
event within three (3) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder hereof (consistent with the terms and conditions of this
Warrant); provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
This Warrant Certificates and the certificates representing the Common
Stock (and/or other securities, property or rights
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issuable upon the exercise of this Warrant) shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. This Warrant Certificates shall be dated the date of execution by
the Company upon initial issuance, division, exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant, by
its acceptance thereof, covenants and agrees that this Warrant is being acquired
as an investment and not with a view to the distribution thereof.
6. EXERCISE PRICE.
a. INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in Section 8 hereof, the initial exercise price of this Warrant shall
be $9.10 per share of Common Stock. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
b. EXERCISE PRICE. The term "EXERCISE PRICE" herein
shall mean the initial exercise price or the adjusted exercise
price, depending upon the context.
7. REGISTRATION RIGHTS.
The shares of Common Stock issuable upon exercise of this
Warrant (the "WARRANT SHARES") shall be included in the registration statement
(the "REGISTRATION STATEMENT") to be prepared and filed by the Company with the
Securities and Exchange Commission ("SEC") pursuant to the terms of the
Registration Rights Agreement.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
a. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Section 8(c), 8(d) and
8(f) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Section 8(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than 80%
of the Market Price (as hereinafter defined) (or in the case of Section
(8(b)(i), 100% of the Market Price) on the date of issuance (a "DILUTIVE
ISSUANCE"), then immediately upon the Dilutive Issuance, the Exercise Price will
be reduced to a price determined by multiplying the Exercise Price in effect
immediately prior to the Dilutive Issuance by a fraction, (i) the
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numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Section 8(b) hereof, received by the Company upon such Dilutive Issuance divided
by the Market Price in effect immediately prior to the Dilutive Issuance, and
(ii) the denominator of which is the total number of shares of Common Stock
Deemed Outstanding (as defined below) immediately after the Dilutive Issuance.
b. EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 8(a) hereof, the following
will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than 80% of the Market Price on the
date of issuance, then the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible
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<PAGE>
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE.
If there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible
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Securities are issued or sold for a consideration part or all of which shall be
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
in connection with any acquisition, merger or consolidation in which the Company
is the surviving corporation, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined in good faith by
the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
c. SUBDIVISION AND COMBINATION. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
d. STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, in respect of the
Common Stock. the Exercise Price shall forthwith be proportionately decreased.
An adjustment made pursuant to this Section 8(b) shall be made as of the record
date for the subject stock dividend or distribution.
e. ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Securities issuable upon the exercise at the adjusted exercise price of this
Warrant shall be adjusted to the nearest non-fractional amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
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f. MERGER OR CONSOLIDATION. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder an amended warrant providing that the holder of this Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of this Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such amended
Warrant shall provide for adjustments which shall be identical to the
adjustments provided in Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers. The Company will not
effect any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Section 8 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.
g. DISTRIBUTION OF ASSETS. In case the Company shall declare
or make any distribution of its assets (including cash but excluding any Common
Stock held in treasury) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of
record for determining stockholders entitled to such distribution, but prior to
the date of distribution, the holder of this Warrant shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares of Common
Stock subject hereto, to receive the amount of such assets which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of stockholders entitled to such
distribution.
h. CERTAIN DEFINITIONS.
i. The term "COMMON STOCK" shall mean (x) the
class of stock designated as Common Stock in the Certificate of Incorporation of
the Company as may be amended as of the date hereof, or (y) any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value.
ii. The term "COMMON STOCK DEEMED OUTSTANDING"
shall mean the number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the treasury of the Company), plus (x)
pursuant to Section 8(b)(i) hereof, the maximum total number of shares of Common
Stock
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issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Section 8(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
iii. The term "MARKET PRICE," as of any date, (x)
means the average of the last reported sale prices for the shares of Common
Stock on the Nasdaq National Market ("Nasdaq") for the five (5) trading days
immediately preceding such date as reported by Bloomberg, L.P. ("BLOOMBERG"), or
(y) if Nasdaq is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the Principal Market for
the Common Stock during the same period as reported by Bloomberg, or (iii) if
market value cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation (as set forth in the
Certificate of Amendment). The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
i. NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
i. Upon the issuance or sale of this Warrant or
the shares of Common Stock issuable upon the exercise of this
Warrant; or
ii. If the amount of said adjustment shall be
less than two cents (2(cent)) per Warrant Share, provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2(cent)) per Warrant Share.
9. INTENTIONALLY OMITTED.
10. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be reasonably designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of
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this Warrant, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
11. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
12. CERTAIN AGREEMENTS OF THE COMPANY
a. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Warrant, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of this Warrant and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as this Warrant shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of this Warrant to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on The Nasdaq Stock Market, Inc.
b. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
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c. SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
13. CASHLESS EXERCISE. Notwithstanding the provisions of Section 3, if
the resale of the Warrant Shares by the holder is not then registered pursuant
to an effective registration statement under the 1933 Act as a result of a
breach by the Company of its obligations under the Registration Rights Agreement
and as a result of which a Mandatory Redemption Event has occurred as set forth
in Article V.A(ii) of the Certificate of Amendment, this Warrant may be
exercised by presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder's intention to
effect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms hereof
(a "CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the numerator of
which (which shall not be less than zero) shall be the then current Market Price
per share of the Common Stock less the Exercise Price, and the denominator of
which shall be the then current Market Price per share of Common Stock.
14. NOTICES TO WARRANT HOLDER. Nothing contained in this Warrant shall
be construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of this Warrant and its exercise, any of the following events
shall occur:
a. the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
b. the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
c. there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or
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consolidation or merger of the Company with or into, or sale of all or
substantially all its assets to, another corporation or entity; or
d. a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days (or as many days as is practicable, if
such record date is not fixed at least fifteen (15) days in advance) prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
15. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or three (3) business days after mailing, if mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holder.
16. AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
17. SUCCESSORS. All the covenants and provisions of this Warrant shall
be binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
18. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Warrant Certificate
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State without giving effect to its rules governing the conflicts of laws.
The Company and the Holder hereby agree that any action,
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proceeding or claim against it arising out of or relating in any way to, this
Warrant shall be brought and enforced in the courts of the State of New York or
of the United States of America for the Southern District of New York, and
irrevocably submit to such jurisdiction, which jurisdiction shall be exclusive.
The Company and the Holder hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon the Company or the Holder (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address referred to in Section 14 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim. The Company and the Holder agree
that the prevailing party or parties in any such action or proceeding shall be
entitled to recover from the other party or parties all of its/their reasonable
legal costs and expenses relating to such action or proceeding and/or incurred
in connection with the preparation therefor.
19. ENTIRE AGREEMENT: MODIFICATION. This Warrant contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
20. SEVERABILITY. If any provision of this Warrant shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Warrant.
21. CAPTIONS. The caption headings of the Sections of this Warrant are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Warrant and shall be given no substantive effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder of the Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Warrant; and this Warrant shall be for the
sole and exclusive benefit of the Company and the Holder of this Warrant
Certificates or Warrant Shares.
23. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
12
<PAGE>
IN WITNESS WHEREOF the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of December 19, 1997
C-PHONE CORPORATION
[SEAL] By: _____________________
Daniel P. Flohr
President and Chief
Executive Officer
Attest:
- ---------------------------
Tina L. Jacobs
Secretary
13
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
C-Phone Corporation in the amount of $________, all in accordance with the
terms of Section 3 of this Warrant. The undersigned requests that a certificate
for such securities be registered in the name of ____________ whose address is
_____________________ and that such Certificate be delivered to ________________
whose address is ________________
Dated: ____________________
Signature ___________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of
Holder)
14
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED) __________________________ hereby sells, assigns and
transfers unto ____________________________________.
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ____________________
Signature ___________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
___________________________________________________
(Insert Social Security or Other Identifying Number of
Assignee)
15
Exhibit 6
CONTACT:
Bob Schu Jonathan Heit Paul Albritton
Desmond Towey & Associates HWH Public Relations C-Phone Corporation
Phone: (212) 888-7600 Phone: (212) 355-5049 (212) 395-6100
Fax: (212) 888-7686 Fax: (212) 593-0065 Fax:(910) 395-6108
Email: [email protected] Email: Jonathan Heit Email: Paul Albritton
C-Phone Signs Agreement With Sprint To Provide Video
Phone Technology
Sprint Video Phone Users Will be Able to See as well as
Talk To Friends and Loved Ones
WILMINGTON, N.C., December 16, 1997 -- C-Phone Corporation
(Nasdaq: CFON) announced today that it has signed an
Agreement with Sprint (NYSE: FON) to supply its C-Phone
consumer video technology. Sprint is co-branding C-Phone
Home(TM), an H.324 set-top videophone, which is manufactured
in the United States by C-Phone Corporation. The product
operates over a standard telephone line and uses a regular
television set to present video and audio during a phone
call. The C-Phone product has achieved remarkable new levels
of picture quality, affordability and ease of use. People
using the C-Phone product will have the ability to see their
friends and relatives while talking on the phone. The
Sprint/C-Phone video phone program has begun rolling out in
selected Sprint local markets.
"C-Phone is honored to have been chosen by Sprint as it's
supplier of consumer video phone technology," said Daniel
Flohr, Chairman and CEO of C- Phone Corporation. "This is a
milestone for our Company and we look forward to supporting
the Sprint relationship. We know Sprint's local customers
will appreciate this new, innovative service."
About C-Phone Home
The C-Phone Home video phone is a self-contained TV "set-top
box" that connects to a standard phone jack and to the TV.
The video phone units include a high quality, built-in
speakerphone for "hands-free" talking and a wireless remote
control for ease of use and one-button dialing. Privacy is
assured because each call always starts off as a normal
"voice-only" call -- only the receiving party can initiate
the video signal. As product enhancements become available,
the software in the units can be upgraded over the phone.
This C-Phone engineered technology is based on Lucent
Technologies' AVP(TM) III Audio/Video Processor. The product
is compatible with the H.324 international video standard. A
C-Phone Home unit, or any other H.324 compatible unit, is
required on the receiving end to complete a video call.
About C-Phone Corporation
C-Phone Corporation is a North Carolina-based video
<PAGE>
communications systems manufacturer. The Company has gained
recognition as an innovator and provider of scalable,
flexible and easy-to-use, H.320 PC-based video conferencing
products and H.324 TV-based video phones for point-to-point
and multipoint video calling. The Company's video
communications products are currently being used by a broad
range of industries. General information about C-Phone
Corporation is available from its Web site at
www.cphone.com.
About Sprint Corporation
Sprint is a global communications company -- at the
forefront in integrating long-distance, local and wireless
communications and is one of the world's largest carriers of
Internet traffic. Sprint built and operates the United
States' only nationwide, all-digital, fiber-optic network
and is the leader in advanced data communications services.
Sprint has $14 billion in annual revenues and serves more
than 16 million business and residential customers. General
information about Sprint Corporation is available from its
Web site at www.sprint.com.
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C-Phone Corporation, 6714 Netherlands Drive,
Wilmington, NC 28405
Phone: (910) 395-6100
Fax: (910) 395-6108
C-Phone Home Video: (910) 395-7824 (For LIVE Video
Calls Only)
ISDN Video: (910) 772-9146 (Bonding to 6B, 384Kb)
Email: [email protected]
Products mentioned herein may be trademarks and/or
registered trademarks of their respective companies.
Copyright (C) 1997, C-Phone Corporation., All rights
reserved.
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