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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ALPHA-BETA TECHNOLOGY, INC.
(Name of Registrant as Specified In Its Charter)
ALPHA-BETA TECHNOLOGY, INC.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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PRELIMINARY COPY
[ALPHA-BETA LOGO]
ALPHA-BETA TECHNOLOGY, INC.
THREE BIOTECH PARK
ONE INNOVATION DRIVE
WORCESTER, MASSACHUSETTS 01605
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Alpha-Beta Technology, Inc. (the "Company") to be held at [11:00 A.M.] on
, [1998/1999], at One Innovation Drive, Worcester, Massachusetts
01605 (the "Special Meeting"). The formal business to be considered and acted
upon by the stockholders at this meeting is (i) approval of the potential
issuance of a number of shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), equal to or in excess of 20% of the number of shares
of Common Stock outstanding upon conversion of the Company's Series F
Convertible Preferred Stock, par value $.01 per share (the "Series F Preferred
Stock"), (ii) approval of an amendment to the Company's Restated Articles of
Organization increasing the number of authorized shares of Common Stock to
60,000,000, (iii) approval of an amendment to the Company's 1997 Stock Option
and Grant Plan (the "1997 Option Plan") increasing the number of shares of
Common Stock reserved for issuance under such plan, and (iv) to consider and
vote upon such other business as may properly come before the Special Meeting or
any adjournments or postponements thereof. These matters are described in detail
in the enclosed Notice of Special Meeting and Proxy Statement.
The Board of Directors of the Company requests that you carefully review
the enclosed Proxy Statement and recommends that you vote "FOR" the approval of
the potential issuance of a number of shares of Common Stock equal to or in
excess of 20% of the number of shares of Common Stock outstanding upon
conversion of the Series F Preferred Stock, "FOR" the approval of an amendment
to the Company's Restated Articles of Organization increasing the number of
authorized shares of Common Stock to 60,000,000, and "FOR" the approval of an
amendment to the 1997 Option Plan increasing the number of shares of Common
Stock reserved for issuance under such plan.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE REPLY ENVELOPE
PROVIDED AT YOUR EARLIEST CONVENIENCE. THE REPLY ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
Sincerely,
SPIROS JAMAS
President and Chief Executive
Officer
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PRELIMINARY COPY
ALPHA-BETA TECHNOLOGY, INC.
WORCESTER, MASSACHUSETTS 01605
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , [1998/1999]
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Alpha-Beta Technology, Inc. (the "Company") will be held at [11:00 A.M.] at One
Innovation Drive, Worcester, Massachusetts on , [1998/1999], to
consider and act on the following matters:
1. Approval of the potential issuance of a number of shares of the
Company's common stock, par value $.01 per share (the "Common Stock"),
equal to or in excess of 20% of the number of shares of Common Stock
outstanding upon conversion of the Company's Series F Convertible Preferred
Stock, par value $.01 per share;
2. Approval of an amendment to the Company's Restated Articles of
Organization increasing the number of authorized shares of Common Stock to
60,000,000;
3. Approval of an amendment to the Company's 1997 Stock Option and
Grant Plan increasing the number of shares of Common Stock reserved for
issuance under such plan; and
4. Any other matter that may properly come before the meeting or any
adjournment or postponement thereof.
The close of business on Tuesday, November 17, 1998 has been fixed as the
record date for the determination of the stockholders entitled to notice of and
to vote at the Special Meeting.
By Order of the Board of Directors
D. DAVIDSON EASSON JR.,
Clerk
Worcester, Massachusetts
, 1998
IMPORTANT: MANAGEMENT INVITES YOU TO ATTEND THE SPECIAL MEETING, BUT IF YOU ARE
UNABLE TO BE PRESENT, PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF THE PROXY IS RETURNED IN THE
ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
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PRELIMINARY COPY
ALPHA-BETA TECHNOLOGY, INC.
THREE BIOTECH PARK
ONE INNOVATION DRIVE
WORCESTER, MASSACHUSETTS 01605
(508) 798-6900
PROXY STATEMENT
This statement is furnished in connection with the solicitation by the
Board of Directors of Alpha-Beta Technology, Inc. (the "Company") of proxies in
the accompanying form to be used at the Special Meeting of Stockholders of the
Company to be held at One Innovation Drive, Worcester, Massachusetts 01605 at
[11:00 A.M.] on , [1998/1999], and at all adjournments and
postponements thereof (the "Special Meeting"), for the purposes set forth in the
accompanying Notice of Special Meeting. It is intended that this statement and
the proxies solicited hereby be mailed to stockholders on or shortly after
, 1998. Any stockholder who signs and returns a proxy in the form
enclosed with this statement has the power to revoke the proxy at any time
before it is exercised by giving written notice to such effect to the Clerk of
the Company. A stockholder also may revoke a proxy by filing a duly executed
proxy bearing a later date or by appearing in person and voting by ballot at the
Special Meeting. Any stockholder of record as of the record date stated below
attending the Special Meeting may vote in person whether or not a proxy has been
previously given, but the presence (without further action) of a stockholder at
the Special Meeting will not constitute revocation of a previously given proxy.
Proxies properly executed and received in time for the Special Meeting will be
voted.
The close of business on Tuesday, November 17, 1998, has been fixed as the
record date for the determination of the stockholders entitled to notice of, and
to vote at, the Special Meeting. As of such date, 20,597,272 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), were
outstanding and entitled to be voted at the Special Meeting. Each share of
Common Stock is entitled to one vote on all matters voted on at the Special
Meeting.
The proxies in the accompanying form will be voted as specified, but if no
specification is made they will be voted in favor of the approval of the
potential issuance of a number of shares of Common Stock equal to or in excess
of 20% of the number of shares of Common Stock outstanding upon conversion of
the Company's Series F Convertible Preferred Stock, par value $.01 per share
(the "Series F Preferred Stock"), in favor of the approval of an amendment to
the Company's Restated Articles of Organization increasing the number of shares
of authorized Common Stock to 60,000,000, and in favor of the approval of an
amendment to the Company's 1997 Stock Option and Grant Plan (the "1997 Option
Plan") increasing the number of shares of Common Stock reserved for issuance
under such plan. In the discretion of the proxy holders, the proxies also will
be voted for or against such other matters as may properly come before the
Special Meeting. The Board of Directors is not aware that any other matters are
to be presented for action at the Special Meeting.
The presence in person or by proxy of at least a majority of the total
number of outstanding shares of the Common Stock of the Company is necessary to
constitute a quorum at the Special Meeting for the transaction of business. In
accordance with the provisions of Massachusetts law and the Company's Restated
Articles of Organization and By-Laws, the Company will treat abstentions and
broker non-votes as present at the Special Meeting solely for purposes of
determining whether or not a quorum exists. Accordingly, abstentions and broker
non-votes will not be considered to be voting on the matters as to which such
abstentions or broker non-votes exist and, thus, will not be counted in
determining whether such matters have been approved by the required votes
provided herein.
The Company will pay the entire expense of soliciting proxies for the
Special Meeting. In addition to solicitations by mail, certain Directors,
officers and employees of the Company (who will receive no compensation for
their services other than their regular compensation) may solicit proxies by
personal interview or telephone. Banks, brokerage houses, custodians, nominees
and other fiduciaries have been
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requested to forward proxy materials to the beneficial owners of shares held of
record by them and will be reimbursed for their expenses. In addition, D.F. King
& Co., Inc. has been engaged by the Company to assist in the solicitation of
proxies and will receive a fee of $4,500 plus expenses. All costs incurred with
respect to the Special Meeting will be borne by the Company.
PROPOSAL I
APPROVAL OF THE POTENTIAL ISSUANCE OF A NUMBER OF SHARES OF COMMON STOCK EQUAL
TO OR IN EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING UPON
CONVERSION OF THE SERIES F PREFERRED STOCK
THE ISSUANCE OF THE SERIES F PREFERRED STOCK
On October 21, 1998, the Company entered into a Securities Purchase
Agreement with HFPT Investments LLC (collectively, with its affiliates and
assignees, the "Investor"), a copy of which is attached hereto as Appendix A
(the "Securities Purchase Agreement"), pursuant to which the Investor (i)
purchased 1,500 shares of Series F Preferred Stock in a private placement
transaction, and (ii) is obligated to purchase an additional 1,500 shares of
Series F Preferred Stock in a private placement transaction upon effectiveness
of a selling stockholder registration statement (the "Resale Registration
Statement") covering the shares of Common Stock issuable upon conversion of the
Series F Preferred Stock (the "Conversion Shares") and the satisfaction of
certain other conditions. The Investor's obligation to purchase the second
tranche of Series F Preferred Stock is subject to the conditions provided in
Sections 1(c) and 7(b) of the Securities Purchase Agreement, which include the
following:
i. effectiveness of the Resale Registration Statement covering 200% of
the Conversion Shares issuable upon conversion of the Series F Preferred
Stock;
ii. the Company having reserved out of its authorized and unissued
Common Stock 200% of the Conversion Shares issuable upon conversion of the
Series F Preferred Stock; and
iii. the Company being able to issue 200% of the Conversion Shares
upon conversion of the Series F Preferred Stock in accordance with the Rule
4460 of the Nasdaq Stock Market. See "Nasdaq National Market Rule
4460 -- Exchange Cap" below.
The purchase price for both tranches of the Series F Preferred Stock is
$1,000 per share, or $1,500,000 for the first tranche and $1,500,000 for the
second tranche.
TERMS OF THE SERIES F PREFERRED STOCK
The rights, preferences, privileges and terms of the Series F Preferred
Stock are as set forth in the Certificate of Vote of Directors of the Company
Amending and Restating Terms of Series F Preferred Stock Prior to Issuance filed
with the Secretary of State of The Commonwealth of Massachusetts on October 21,
1998, a copy of which is attached hereto as Appendix B (the "Certificate of
Designations").
Subject to certain anti-dilution provisions, the Series F Preferred Stock
is convertible into shares of Common Stock pursuant to a formula (the
"Conversion Rate") whereby the purchase price of the shares of Series F
Preferred Stock to be converted (plus a premium which accrues at the rate of 6%
per annum) is divided by a conversion price equal to the lower of a fixed cap
(the "Fixed Cap") and a price equal to a 15% discount to the average closing
price of the Common Stock for the five trading days immediately preceding the
date of conversion. Initially, the Fixed Cap equals $1.50. As an example of the
application of the Conversion Rate, on November 17, 1998, the conversion price
was approximately $.97 (based on 85% of the average of the closing bid prices of
the Common Stock for the five consecutive trading days ending November 16,
1998). Assuming completion of the sale of the second tranche of Series F
Preferred Stock, 3,109,920 shares of Common Stock would be issuable upon
conversion of all of the outstanding shares of Series F Preferred Stock on
November 17, 1998. At the Fixed Cap, 2,004,603 shares of Common Stock would be
issuable upon conversion of all of the outstanding shares of Series F Preferred
Stock (including the second tranche of such shares). Upon issuance of the second
tranche of Series F Preferred Stock, the Fixed Cap will be redetermined
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pursuant to Section 2(b) of the Certificate of Designations utilizing a formula
which is based in part on the number of shares of Common Stock reserved for
issuance upon conversion of the Series F Preferred Stock. The Series F Preferred
Stock is convertible for a period of four years commencing on the date of
issuance and is subject to mandatory conversion upon expiration of such four
year period.
The Certificate of Designations prohibits the Investor from converting any
shares of the Series F Preferred Stock to the extent such conversion would
result in the Investor beneficially owning in excess of 4.99% of the outstanding
shares of Common Stock following such conversion.
Section 3 of the Certificate of Designations provides that upon the
occurrence of certain "Major Transactions" (which include the merger or
consolidation of the Company into another entity, the sale of all or
substantially all of the assets of the Company or the acceptance of a tender
offer or exchange offer by the holders of more than 40% of the outstanding
Common Stock) or "Triggering Events" (which include failure of the Company to
obtain the effectiveness of the Resale Registration Statement, suspension of
sales under the Resale Registration Statement, suspension of trading in the
Common Stock on the Nasdaq National Market, failure of the Company to convert
shares of the Series F Preferred Stock as required (including due to the
Exchange Cap described below), failure of the Company's stockholders to approve
the proposals contained in this Proxy Statement or failure of the Company to
have 200% of the Conversion Shares reserved for issuance at all times), the
Investor may require the Company to redeem the outstanding Series F Preferred
Stock at a premium equal to at least 130% of the original purchase price per
share of Series F Preferred Stock redeemed (the "Redemption Premium").
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series F Preferred Stock are entitled to receive cash, before
any amount is paid to the holders of any securities that rank junior to the
Series F Preferred Stock, in an amount per share of Series F Preferred Stock
outstanding equal to the purchase price for such share plus a premium which
accrues at the rate of 6% per annum. If the amounts available for distribution
are insufficient to pay the full amount due to the holders of the Series F
Preferred Stock and any other securities which are pari passu with the Series F
Preferred Stock, the Company shall distribute the available funds to such
persons pro rata.
The holders of the Series F Preferred Stock have no voting rights except as
required by law or as specified in the Certificate of Designations. Pursuant to
the Certificate of Designations, the affirmative vote of the holders of
two-thirds of the outstanding Series F Preferred Stock is required for (i) any
authorization or issuance of securities senior to, or pari passu with, the
Series F Preferred Stock, (ii) any amendment to the Certificate of Designations
or the Company's Restated Articles of Organization which would change or repeal
any of the preferences and rights of the Series F Preferred Stock, (iii) any
amendment to the Company's Restated Articles of Organization or Bylaws which
would impair the rights and preferences of the holders of the Series F Preferred
Stock relative to the holders of any other securities of the Company, (iv) any
issuance of shares of Series F Preferred Stock other than pursuant to the
Securities Purchase Agreement, and (v) any redemption or declaration or payment
of a dividend with respect to the Common Stock.
REGISTRATION OF CONVERSION SHARES
Pursuant to the Registration Rights Agreement dated as of October 21, 1998
(the "Registration Rights Agreement") by and among the Company and the Investor,
the Company is required to register under the Securities Act of 1933, as amended
(the "Securities Act"), 200% of the Conversion Shares issuable upon conversion
of the Series F Preferred Stock, and is required to maintain the effectiveness
of such registration until the earlier of the sale of all of the Conversion
Shares under the Resale Registration Statement or the saleability of such shares
pursuant to Rule 144(k) of the Securities Act. If the Company fails to cause or
maintain such effectiveness, it may be required to pay certain penalties as
provided in the Registration Rights Agreement.
NASDAQ NATIONAL MARKET RULE 4460 -- EXCHANGE CAP
Rule 4460 of the Nasdaq National Market, which is applicable to the Company
because the Company's shares of Common Stock are presently included for
quotation on the Nasdaq National Market, sets forth
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certain corporate governance standards for issuers whose securities are listed
on the Nasdaq National Market. Rule 4460 requires, among other things, that the
Company obtain stockholder approval for the sale or issuance of a number of
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) equal to or in excess of 20% of the number or shares of Common
Stock outstanding prior to such issuance if such issuance is for a purchase
price which is less than the greater of the book or market value of the Common
Stock.
Because the application of the Conversion Rate may result in issuances of
Common Stock at less than book or market value upon conversion of the Series F
Preferred Stock, Rule 4460 is applicable to such issuances to the extent they
exceed, in the aggregate, 20% of the number of shares of Common Stock
outstanding immediately prior to the issuance of the first tranche of Series F
Preferred Stock.
The Certificate of Designations provides that the Company is not obligated
to issue upon conversion of the Series F Preferred Stock, in the aggregate, a
number of shares of Common Stock which exceeds 19.99% of the number of shares of
Common Stock outstanding immediately prior to the issuance of the first tranche
of Series F Preferred Stock (the "Exchange Cap"). However, upon issuance of the
second tranche of Series F Preferred Stock, if the market price of the Common
Stock drops below a certain level, the Exchange Cap may operate to prevent the
Investor from being able to convert all of its shares of Series F Preferred
Stock. For this reason, the Investor has required that the Company be able to
issue 200% of the Conversion Shares upon conversion of the Series F Preferred
Stock in accordance with the Rule 4460 of the Nasdaq Stock Market as a condition
to the Investor's obligation to purchase the second tranche of Series F
Preferred Stock.
As noted above, in the event that the Exchange Cap precludes the Company
from issuing the total number of shares of Common Stock issuable upon conversion
of the Series F Preferred Stock, or if the stockholders of the Company fail to
approve the proposals contained in this Proxy Statement, the Investor may
require the Company to redeem the outstanding Series F Preferred Stock at the
Redemption Premium. Furthermore, the Fixed Cap may be reduced as provided in
Section 2(g)(v) of the Certificate of Designations. In addition, although there
can be no assurance that the Company will be able to satisfy all of the
conditions necessary to cause the Investor to purchase the second tranche of
Series F Preferred Stock, failure of the Company's stockholders to approve this
proposal would decrease the likelihood that the Company will be able to complete
the sale of the second tranche of shares. The inability to complete the sale of
the second tranche of Series F Preferred Stock would deprive the Company of
$1,500,000 of gross funding.
Under the Exchange Cap, the Company may issue no more than 4,094,894 shares
of Common Stock upon conversion of the Series F Preferred Stock. If the
stockholders approve this proposal, the number of shares issuable upon
conversion of the Series F Preferred Stock could be greater than 4,094,894 in
the event of a decrease in the trading price of the Common Stock, which could
result in increased dilution to the existing stockholders of the Company. In
addition, an increase in the number of shares of Common Stock being sold in the
public market as result of such conversion could reduce the market price of the
Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
In deciding to designate and issue the Series F Preferred Stock to the
Investor, the Board of Directors of the Company considered many factors,
including other potential sources of financing and the Company's current funding
needs. The Board of Directors ultimately concluded that no other sources of
financing were available on terms more favorable than those contemplated by the
Securities Purchase Agreement and related documents. The Company anticipates
that its existing capital resources and the funds to be received upon completion
of the sale of the second tranche of Series F Preferred Stock are sufficient to
maintain its operations and capital expenditures only through January 1999.
The Board of Directors of the Company believes that the approval by the
stockholders of the potential issuance of a number of shares of Common Stock
equal to or in excess of 20% of the number of shares of Common Stock outstanding
upon conversion of the Series F Preferred Stock is in the best interests of the
Company and its stockholders. The Board of Directors believes that the potential
adverse consequences of failure of the stockholders to approve such proposal
(i.e., potential redemption of the Series F Preferred Stock
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at the Redemption Premium and failure to complete the sale of the second tranche
of Series F Preferred Stock) far outweigh the possible dilutive effect of
approval of the proposal.
VOTE REQUIRED
To approve of the potential issuance of a number of shares of Common Stock
in excess of 20% of the number of shares of Common Stock outstanding upon
conversion of the Series F Preferred Stock, the affirmative vote of the holders
of a majority of the votes cast by the stockholders at the Special Meeting is
required. THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL BY THE STOCKHOLDERS
OF THE POTENTIAL ISSUANCE OF A NUMBER OF SHARES OF COMMON STOCK EQUAL TO OR IN
EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING UPON
CONVERSION OF THE SERIES F PREFERRED STOCK IS IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS, AND ACCORDINGLY, RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" SUCH PROPOSAL.
PROPOSAL II
APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF ORGANIZATION
INCREASING THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK TO 60,000,000
CURRENT STATUS OF THE COMPANY'S AUTHORIZED COMMON STOCK
Under the Company's Restated Articles of Organization, the Company
currently has 30,000,000 shares of Common Stock authorized for issuance, of
which as of November 17, 1998, 20,597,272 shares of Common Stock are outstanding
and 6,975,668 shares are reserved for issuance for committed purposes (including
2,786,622 shares reserved for issuance under the Company's stock option plans
and 4,100,000 shares reserved for issuance upon conversion of the Series F
Preferred Stock). Accordingly, the Company only has 2,431,606 shares of Common
Stock available for issuance for uncommitted purposes, including future
financings.
OBLIGATIONS WITH RESPECT TO THE SERIES F PREFERRED STOCK
Pursuant to the Certificate of Designations, the Company is required to
have reserved for issuance at all times 200% of the number of shares of Common
Stock issuable upon conversion of the Series F Preferred Stock (the "200%
Requirement"). As noted above, the Company currently has 4,100,000 shares
reserved for this purpose. Upon completion of the second tranche of Series F
Preferred Stock financing, if the market value of the Common Stock is below,
approximately $1.73 per share, the Company will have to reserve additional
shares in connection with the 200% Requirement. Moreover, if the market value of
the Common Stock is below approximately $1.08 per share, the Company will not
have enough authorized and uncommitted shares to comply with the 200%
Requirement. If the Company fails to comply with the 200% Requirement or if the
stockholders of the Company fail to approve the proposals contained in this
Proxy Statement, the Investor may require the Company to redeem the outstanding
Series F Preferred Stock at the Redemption Premium. In addition, although there
can be no assurance that the Company will be able to satisfy all of the
conditions necessary to cause the Investor to purchase the second tranche of
Series F Preferred Stock, failure of the Company's stockholders to approve this
proposal would decrease the likelihood that the Company will be able to complete
the sale of the second tranche shares. The inability to complete the sale of the
second tranche of Series F Preferred Stock would deprive the Company of
$1,500,000 of gross funding.
FUTURE ISSUANCES; EQUITY FINANCING TRANSACTIONS; AND AMENDMENT TO THE 1997
OPTION PLAN
Aside from the Company's obligations with respect to the Series F Preferred
Stock, the Board of Directors desires to increase the number of authorized
shares of Common Stock so that the Company will have shares available for future
issuances from time to time as and when the Board of Directors determines such
issuances may be appropriate. Except to the extent that the Company may issue
shares of Common Stock pursuant to its stock option plans or upon conversion of
the Series F Preferred Stock, the Company has not entered into any definitive
agreements or understandings for the issuance of additional shares of Common
Stock. However, the Company anticipates that its existing capital resources and
the funds to be received upon completion of the sale of the second tranche of
Series F Preferred Stock are sufficient to maintain its
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<PAGE> 9
operations and capital expenditures only through January 1999. As a result, the
Company is currently exploring various equity financing sources in order to
obtain additional capital resources. As noted above, the Company currently has
only 2,431,606 shares of Common Stock available for issuance for uncommitted
purposes, including future financings. Accordingly, failure of the stockholders
to approve the increase in the authorized Common Stock of the Company could
materially impair the Company's ability to enter into future financing
transactions.
If the stockholders approve an amendment to the 1997 Option Plan increasing
the number of shares of Common Stock reserved for issuance under such plan, the
Company will not have a sufficient number of authorized shares of Common Stock
to reserve for issuance all of the additional shares under the 1997 Option Plan.
Accordingly, if the stockholders of the Company also approve this Proposal II,
some of the additional authorized shares of Common Stock will be reserved for
issuance under the 1997 Option Plan. Failure of the stockholders to approve this
Proposal II will effectively prohibit the Company from amending the 1997 Option
Plan.
If the increase in the number of authorized shares is approved by the
stockholders, no further stockholder approval would be required prior to the
issuance of such additional shares (other than approval of Proposal I contained
herein to the extent such additional shares are issued in connection with the
conversion of the Series F Preferred Stock in excess of the Exchange Cap and
approval of Proposal III contained herein to the extent such additional shares
are reserved for issuance under the 1997 Option Plan).
CERTAIN EFFECTS OF THE INCREASE IN AUTHORIZED SHARES
To the extent the additional authorized shares are issued in connection
with the conversion of the Series F Preferred Stock in excess of the Exchange
Cap, such issuance will result in increased dilution to the existing
stockholders of the Company. See "Nasdaq National Market Rule 4460 -- Exchange
Cap" above.
The Securities and Exchange Commission requires the Company to discuss how
the increase in the authorized shares could be used by the Company to make
effecting a change in control of the Company more difficult. As examples, the
additional shares of Common Stock could be used to dilute the stock ownership of
a person seeking to obtain control of the Company or could be privately placed
with purchasers who would support the Board of Directors in opposing a hostile
takeover attempt. This proposal to amend the Company's Restated Articles of
Organization is not in response to any effort of which the Company is aware to
accumulate shares of Common Stock or obtain control of the Company. The Board of
Directors of the Company does not presently contemplate recommending the
adoption of any other amendments to the Company's Restated Articles of
Organization which could be construed to affect the ability of third parties to
take over or change control of the Company.
RECOMMENDATION OF THE BOARD DIRECTORS
The Board of Directors of the Company believes that the approval by the
stockholders of the amendment to the Company's Restated Articles of Organization
increasing the number of authorized shares of Common Stock to 60,000,000 is in
the best interests of the Company and its stockholders. The Board of Directors
believes that the potential adverse consequences of failure of the stockholders
to approve such proposal (i.e., potential redemption of the Series F Preferred
Stock at the Redemption Premium and failure to complete the sale of the second
tranche of Series F Preferred Stock) would have a material adverse effect on the
Company. In addition, the Board of Directors anticipates that the Company will
need the additional authorized shares in order to enter into future financing
transactions. Finally, if the stockholders of the Company approve an amendment
to the 1997 Stock Option Plan increasing the number of shares of Common Stock
reserved for issuance under such Plan, the Company will need the additional
authorized shares in order to reserve for issuance the increased shares under
the 1997 Option Plan.
VOTE REQUIRED
To approve the amendment to the Company's Restated Articles of Organization
increasing the number of authorized shares of Common Stock to 60,000,000, the
affirmative vote of the holders of a majority of the
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<PAGE> 10
outstanding shares of Common Stock is required. THE BOARD OF DIRECTORS OF THE
COMPANY BELIEVES THAT THE APPROVAL BY THE STOCKHOLDERS OF THE AMENDMENT TO THE
COMPANY'S RESTATED ARTICLES OF ORGANIZATION INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK TO 60,000,000 IS IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS, AND ACCORDINGLY, RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
SUCH PROPOSAL.
PROPOSAL III
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1997 STOCK OPTION AND GRANT PLAN
INCREASING THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER SUCH PLAN
The Company, since inception, has utilized stock options as part of its
overall program of compensation. The Company has had two option plans since its
inception, the 1988 Stock Option and Grant Plan, which expired in 1998, and the
1997 Option Plan. Originally, the Company reserved for issuance under the 1997
Option Plan 837,165 shares of Common Stock plus 5% of the total number of shares
of Common Stock issued by the Company after December 31, 1996. As of November
17, 1998, the Company had 654,999 shares of Common Stock available for future
option grants or outright grants under the 1997 Option Plan. The Board of
Directors believes that the Company needs additional shares available under the
1997 Option Plan in order to grant additional options and outright grants as an
incentive in attracting, maintaining and motivating key employees, consultants
and Directors of the Company. Accordingly, on November 3, 1998, the Board of
Directors voted to amend the 1997 Option Plan to increase the number of shares
of Common Stock reserved for issuance under such plan to 2,237,165 shares of
Common Stock plus 5 percent of the total number of shares of Common Stock issued
by the Company after December 31, 1996. A summary of the principal features of
the 1997 Option Plan is set forth below. The Company is seeking stockholder
approval of an amendment to the 1997 Option Plan in accordance with the
requirements of The Nasdaq National Market and applicable securities and tax
laws.
SUMMARY OF THE 1997 OPTION PLAN
Plan Administration; Eligibility. The 1997 Option Plan is administered by
the Board of Directors or by a committee appointed by the Board of Directors.
All members of such committee must be "Non-Employee Directors" as that term is
defined under the rules promulgated by the Securities and Exchange Commission
under the Exchange Act, and "outside directors" as defined in Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder. The Board of Directors or authorized committee will
interpret and make any determination under the 1997 Option Plan regarding any
options or unrestricted stock granted thereunder.
Persons eligible to participate in the 1997 Option Plan are officers,
employees, Directors who are not also employees of the Company or any subsidiary
("Independent Directors"), consultants, advisors and other key persons of the
Company and its subsidiaries upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business ("Eligible
Persons"), as selected from time to time by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
has full power to select from among the Eligible Persons the individuals to whom
awards will be granted, to make any combination of awards to such individuals,
and to determine the specific terms and conditions of each award, subject to the
provisions of the 1997 Option Plan.
The Compensation Committee, in its discretion, may delegate to the Chief
Executive Officer of the Company part of the Compensation Committee's authority
and duties with respect to the granting of awards to individuals who are not
subject to Section 16 of the Exchange Act and are not "covered employees" within
the meaning of Section 162(m) of the Code.
Stock Options. The 1997 Option Plan permits the grant of options to
purchase Common Stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Code and options that do not so qualify
("Non-Qualified Options"). The option exercise price of each Incentive Option
will be
7
<PAGE> 11
determined by the Compensation Committee but may not be less than 100% of the
fair market value of the Common Stock on the date of grant. The option exercise
price of each Non-Qualified Option shall be determined by the Compensation
Committee at the time of grant.
In lieu of a director fee, an Independent Director may elect to receive
such fee in Non-Qualified Options with a fair market value equal to the director
fee as determined by the Black-Scholes Option pricing model, an accepted model
for stock option valuation.
The term of each option will be fixed by the Compensation Committee and may
not exceed ten years from date of grant in the case of an Incentive Option. The
Compensation Committee will determine at what time or times each option may be
exercised and, subject to the provisions of the 1997 Option Plan, the period of
time, if any, after retirement, death, disability or termination of employment
during which options may be exercised. Options may be made exercisable in
installments and the exercisability of options may be accelerated by the
Compensation Committee.
Upon exercise, the option exercise price must be paid in full either in
cash or by certified or bank check or other instrument acceptable to the
Compensation Committee or, if the Compensation Committee so permits, by delivery
of shares of Common Stock already owned by the optionee. The exercise price may
also be delivered to the Company by a broker pursuant to irrevocable
instructions to the broker from the optionee.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
Amendments and Termination. The Board of Directors may at any time amend
or discontinue the 1997 Option Plan and the Compensation Committee may at any
time amend or cancel outstanding awards for the purpose of satisfying changes in
the law or for any other lawful purpose. However, no action may be taken which
adversely affects any rights under outstanding options without the option
holder's consent. Further, amendments to the 1997 Option Plan may be subject to
approval by the Company's stockholders if and to the extent required by the
Code, to preserve the qualified status of Incentive Options.
Change of Control Provisions. The 1997 Option Plan provides that in the
event of a dissolution or liquidation of the Company, a merger, reorganization
or consolidation in which a majority of the outstanding voting power of the
Company is acquired by a third-party or a sale to a third-party of all or
substantially all of the Company's assets or Common Stock, options (whether or
not otherwise exercisable) will be accelerated, unless provision is made in
connection with such transaction for the assumption or substitution of awards by
the successor or entity with appropriate adjustment to the number and kind of
shares and, if appropriate, per share exercise prices.
OPTIONS GRANTED
As of November 17, 1998, the Company had granted options pursuant to the
1997 Option Plan to purchase an aggregate of 331,168 shares of Common Stock at a
weighted average exercise price of $2.87 per share, of which options to purchase
59,051 shares were then exercisable, and the Company had granted 44,265 shares
of Common Stock pursuant to outright grants under the 1997 Option Plan.
As of November 17, 1998, none of the options granted pursuant to the 1997
Option Plan had been exercised. As of November 17, 1998, a total of 654,999
shares were available for future option grants or outright grants under the 1997
Option Plan.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal federal income tax consequences
of option grants under the 1997 Option Plan. It does not describe all federal
tax consequences under the 1997 Option Plan, nor does it describe state or local
tax consequences.
Incentive Options. Under the Code, an employee generally will not realize
taxable income by reason of the grant or the exercise of an Incentive Option. If
an employee exercises an Incentive Option and does not
8
<PAGE> 12
dispose of the shares until after the later of (a) two years from the date the
option was granted and (b) one year from the date shares were transferred to the
employee, the entire gain, if any, recognized upon a sale or exchange of such
shares should be taxable to the employee as long-term capital gain, and the
Company will not be entitled to any deduction. The exercise of an Incentive
Option, however, may result in alternative minimum tax liability for the
employee. If an employee disposes of shares within such one-year or two-year
period in a manner so as to violate the holding period requirements (a
"disqualifying disposition"), the employee will realize ordinary income in the
year of disposition, and the Company generally will receive a corresponding
deduction, in an amount generally equal to the excess of (1) the lesser of (x)
the amount realized on the sale or exchange of such shares (if the disposition
is by sale or exchange) and (y) the fair market value of the shares on the date
the option was exercised over (2) the exercise price for the shares. Any
additional gain recognized on the disposition should be treated as long-term or
short-term capital gain and any loss generally will be treated as long-term or
short-term capital loss, depending upon the holding period of the stock. A
disqualifying disposition generally includes any sale, exchange, gift or
transfer of legal title (other than by pledge) of shares during either of the
holding periods described above. Special rules apply in certain cases, including
transfer to the employee's spouse, transfer to the employee's former spouse
incident to divorce, and transfer on death. Special rules apply if an employee
surrenders shares of Common Stock in payment of the exercise price of the
Incentive Option.
An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for federal income tax purposes; provided that in the case of termination
by reason of disability, the three-month period is extended to one year, and in
the case of death during employment or within three months after termination,
the three-month limitation does not apply.
Non-Qualified Options. There are no federal income tax consequences to
either the optionee or the Company on the grant of a Non-Qualified Option. On
the exercise of a Non-Qualified Option, the optionee generally has taxable
ordinary income equal to the excess of the fair market value of the Common Stock
received on the exercise date over the option price of the shares. The
optionee's tax basis for the shares acquired upon exercise of a Non-Qualified
Option is increased by the amount of such taxable income. The Company generally
will be entitled to a federal income tax deduction in an amount equal to such
excess. Upon the sale of the shares acquired by exercise of a Non-Qualified
Option, the optionee generally will recognize long-term or short-term capital
gain or loss depending upon his or her holding period for such shares. Special
rules apply if an optionee surrenders shares of Common Stock in payment of the
exercise price of a Non-Qualified Option.
Capital Gains Rates. For transactions occurring after July 28, 1998, the
Taxpayer Relief Act of 1997 has created three different types of capital gains
for individuals: short-term gains (on assets held for one year or less) which
are taxed at ordinary income rates; mid-term capital gains (from the sale of
assets held more than a year but not more than 18 months) which are taxed at a
maximum rate of 28%; and long-term capital gains (from the sale of assets held
more than 18 months) which are taxed a maximum rate of 20%.
Parachute Payments. The exercise of any portion of any option that is
accelerated due to the occurrence of a change of control may cause a portion of
the payments with respect to such accelerated options to be treated as
"parachute payments" as defined in the Code. Any such parachute payments may be
non-deductible to the Company, in whole or in part, and may subject the
recipient to a non-deductible 20% federal excise tax on all or portion of such
payment (in addition to other taxes ordinarily payable).
Limitation on Company's Deductions. As a result of Section 162(m) of the
Code, the Company's deduction for certain awards under the Plan may be limited
to the extent that the Chief Executive Officer or other named executive officer
whose compensation is required to be reported in the Summary Compensation Table
receives compensation (other than performance-based compensation) in excess of
$1 million a year.
NEW PLAN BENEFITS
As of November 17, 1998, approximately 93 persons were eligible to
participate in the 1997 Option Plan. The number of options and shares of
unrestricted stock to be granted under the 1997 Option Plan is
9
<PAGE> 13
undeterminable at this time as grants of awards under the 1997 Option Plan are
subject to the discretion of the Compensation Committee.
MARKET VALUE
On November 17, 1998, the closing price of a share of Common Stock on The
Nasdaq National Market was $1.1875. Based on such closing price, the maximum
aggregate market value of the Common Stock underlying the outright grants of
Common Stock and the options outstanding and eligible for issuance under the
1997 Option Plan was $1,223,638.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company believes that the approval by the
stockholders of the amendment to the 1997 Option Plan increasing the number of
shares of Common Stock reserved for issuance under such plan is in the best
interests of the Company and its stockholders. The Board of Directors believes
that the Company needs the additional shares available under the 1997 Option
Plan in order to grant additional options and outright grants as an incentive in
attracting, maintaining and motivating key employees, consultants and Directors
of the Company.
VOTE REQUIRED
To approve the amendment to the 1997 Option Plan increasing the number of
shares of Common Stock reserved for issuance under such plan, the affirmative
vote of the holders of a majority of votes casts by the stockholders at the
Special Meeting is required. THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL
BY THE STOCKHOLDERS OF THE AMENDMENT TO THE 1997 OPTION PLAN INCREASING THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER SUCH PLAN IS IN THE
BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS, AND ACCORDINGLY RECOMMENDS
THAT THE STOCKHOLDERS VOTE "FOR" SUCH PROPOSAL.
10
<PAGE> 14
EXECUTIVE COMPENSATION
The following tables set forth (a) the compensation paid or accrued to the
Company's Chief Executive Officer and two other current executive officers of
the Company who made in excess of $100,000 for the year ended December 31, 1997
and two other executive officers who would have been included in the list of the
four most highly-compensated executive officers of the Company for the year
ended December 31, 1997 had their employment with the Company not terminated
prior to such date (the "Named Executive Officers") for services rendered to the
Company in all capacities during the fiscal years ended December 31, 1997, 1996
and 1995, and (b) certain information related to stock options held by such
individuals at December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------ --------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------ ----- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Spiros Jamas..................... 1997 $271,000 none $ 611(4) none 330,974(5) none none
President, Chief Executive 1996 242,000 $40,000 none none 80,000 none none
Officer and Director 1995 220,000 17,600 none none 65,250 none none
D. Davidson Easson, Jr........... 1997 204,000 none none none 202,537(6) none none
Executive Vice President, 1996 176,000 30,000 557(4) none 40,000 none none
Treasurer, Chief Operating 1995 160,000 12,800 2,414(4) none 42,250 none none
Officer and Director
Paul A. Bleicher................. 1997 201,400(1) 15,000(3) none none none none
Vice President, Clinical 1996 186,250 35,000 3,784(4) none 45,000 none none
Affairs and Strategic 1995 165,000 13,200 3,095(4) none 35,300 none none
Technology Acquisition
and Medical Director
Peter H. Grassam................. 1997 187,400(2) none $ 627(4) none 92,205(7) none none
Vice President, Operations 1996 178,500 25,000 707(4) none 20,000 none none
and General Manager, 1995 171,000 11,970 727(4) none 33,700 none none
Smithfield Site
</TABLE>
- ---------------
(1) The amount shown represents Dr. Bleicher's annual salary for 1997. Dr.
Bleicher's employment terminated with the Company on August 15, 1997.
(2) The amount shown represents Mr. Grassam's annual salary for 1997. Mr.
Grassam's employment terminated with the Company on October 31, 1997.
(3) The amount shown represents a bonus which was granted on April 3, 1996 and
accrued upon completion of the clinical trial for Betafectin(R) on March 1,
1997.
(4) The amounts shown represent amounts paid for certain tax planning and
advice.
(5) The amount shown includes 180,974 options granted in connection with the
Company's 1997 option exchange program pursuant to which effective October
1, 1997, each outstanding stock option held by an employee or Director of
the Company which had an exercise price greater than the fair market value
of the Common Stock on such date was eligible to be exchanged for a new
option exercisable for a number of shares of Common Stock equal to 90% of
the number of shares of Common Stock originally subject to the exchanged
option. Such new options have an exercise price equal to the fair market
value of the Common Stock on the date of exchange. These new options
terminate on October 1, 2007 and vest in accordance with the vesting
schedule of the exchanged options, subject to a one year delay.
(6) The amount shown includes 102,537 options granted in connection with the
Company's 1997 option exchange program pursuant to which effective October
1, 1997, each outstanding stock option held by an employee or Director of
the Company which had an exercise price greater than the fair market value
of the Common Stock on such date was eligible to be exchanged for a new
option exercisable for a number of shares of Common Stock equal to 90% of
the number of shares of Common Stock originally subject to the exchanged
option. Such new options have an exercise price equal to the fair market
value of the Common Stock on the date of exchange. These new options
terminate on October 1, 2007 and vest in accordance with the vesting
schedule of the exchanged options, subject to a one year delay.
11
<PAGE> 15
(7) The amount shown represents options granted in connection with the Company's
1997 option exchange program pursuant to which effective October 1, 1997,
each outstanding stock option held by an employee or Director of the Company
which had an exercise price greater than the fair market value of the Common
Stock on such date was eligible to be exchanged for a new option exercisable
for a number of shares of Common Stock equal to 90% of the number of shares
of Common Stock originally subject to the exchanged option. Such new options
have an exercise price equal to the fair market value of the Common Stock on
the date of exchange. These new options terminate on October 1, 2007 and
vest in accordance with the vesting schedule of the exchanged options,
subject to a one year delay.
12
<PAGE> 16
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF
------------------------------------------- STOCK PRICE
% OF TOTAL APPRECIATION
OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED IN 1997 ($/SH) DATE 5%($) 10%($)
---- ------- ---------------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Spiros Jamas....................... 749(2)(4) 0.04% $3.00 10/01/07 $ 1,413 $ 3,581
49,500(2)(5) 2.36 3.00 10/01/07 93,391 236,670
37,125(2)(6) 1.77 3.00 10/01/07 70,043 177,503
21,600(2)(7) 1.03 3.00 10/01/07 40,752 103,275
72,000(2)(8) 3.43 3.00 11/07/07 135,841 344,248
150,000(9) 7.15 2.97 11/07/07 280,173 710,012
D. Davidson Easson Jr.............. 587(2)(4) 0.03 3.00 10/01/07 1,107 2,807
27,900(2)(5) 1.33 3.00 10/01/07 52,638 133,396
23,650(2)(6) 1.13 3.00 10/01/07 44,620 113,076
14,400(2)(7) 0.69 3.00 10/01/07 27,168 68,850
36,000(2)(8) 1.72 3.00 10/01/07 67,921 172,124
75,000(9) 3.57 2.97 11/07/07 140,086 355,006
25,000(9) 1.19 2.81 12/16/07 44,180 111,960
Paul A. Bleicher................... n/a 0.00(3) n/a n/a n/a n/a
Peter H. Grassam................... 36,000(10) 1.72 $3.00 10/01/07 67,921 172,124
18,000(2)(6) .86 $3.00 10/01/07 33,960 86,062
10,125(2)(6) .48 $3.00 10/01/07 19,103 48,410
10,080(2)(7) .48 $3.00 10/01/07 19,107 48,195
18,000(2)(8) .86 $3.00 10/01/07 33,960 86,062
</TABLE>
- ---------------
(1) Represents the value of the options granted at the end of the option terms
if the price of the Company's Common Stock were to appreciate annually by
5% and 10%, respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table. If the stock price appreciates,
the value of stock held by all stockholders will increase.
(2) These options were granted in connection with the Company's 1997 option
exchange program pursuant to which effective October 1, 1997, each
outstanding stock option held by an employee or Director of the Company
which had an exercise price greater than the fair market value of the
Common Stock on such date was eligible to be exchanged for a new option
exercisable for a number of shares of Common Stock equal to 90% of the
number of shares of Common Stock originally subject to the exchanged
option. Such new options have an exercise price equal to the fair market
value of the Common Stock on the date of exchange. These new options
terminate on October 1, 2007 and vest in accordance with the vesting
schedule of the exchanged options, subject to a one year delay.
(3) Dr. Bleicher's employment with the Company terminated on August 15, 1997.
Dr. Bleicher was not granted any options in 1997.
(4) These options vest in five equal annual installments commencing on January
1, 1994.
(5) These options vest in five equal annual installments commencing on December
31, 1994.
(6) These options vest in four equal annual installments commencing on January
18, 1996.
(7) These options vest in four equal annual installments commencing on November
28, 1996.
(8) These options vest in four equal annual installments commencing on December
27, 1997.
(9) These options vest in four equal annual installments commencing on December
31, 1997.
(10) These options vest in five equal annual installments commencing on
September 1, 1995.
(11) These options vest in five equal annual installments commencing on October
1, 1997
13
<PAGE> 17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Spiros Jamas.................. none n/a 132,862/205,911 $16,251/0
D. Davidson Easson, Jr. ...... none n/a 83,129/126,709 15,266/0
Paul A. Bleicher.............. none n/a 77,675/ 0 (2) 0/0(2)
Peter H. Grassam.............. none n/a 31,320/ 60,885 (3) 0/0(3)
</TABLE>
- ---------------
(1) All information provided is with respect to stock options. No SARs have been
issued by the Company. The dollar values have been calculated by determining
the difference between the fair market value of the securities underlying
the options and the exercise price of the options. The fair market value of
unexercised in-the-money options was calculated on the basis of the closing
price per share for Common Stock on The Nasdaq National Market of $2.59375
on December 31, 1997.
(2) Pursuant to the terms of a consulting arrangement between the Company and
Dr. Bleicher, Dr. Bleicher's vested options did not expire in connection
with the termination of his employment on August 15, 1997.
(3) Mr. Grassam's options expired on January 29, 1998 in connection with the
termination of his employment on October 31, 1997.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Christensen pursuant to
which Mr. Christensen serves as Chairman of the Board and must commit a minimum
of one half of his business time to matters related to the Company. Mr.
Christensen currently receives an annual salary of $124,000 per annum. In
addition to his salary, the agreement provides for the sale, subject to certain
vesting conditions (which conditions have previously been met), of 44,000 shares
of Common Stock to Mr. Christensen at a purchase price of $.51 per share and the
issuance of options, subject to certain vesting conditions, for the purchase of
88,000 shares of Common Stock at an exercise price of $.51 per share. 44,000 of
such option shares have vested and the remainder shall vest, subject to certain
conditions, on December 31, 1998, subject to acceleration upon consummation of
certain corporate and financing transactions. The agreement also provides for
the payment of cash bonuses of up to 0.5% of the cumulative net proceeds
received by the Company from certain joint ventures, strategic alliances and
private placements through December 31, 1998.
Pursuant to an employment letter with the Company, Dr. Ostroff is entitled
to up to three months' salary and benefits if the Company terminates his
employment without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Dr. Canavan and Mr. Hoff. Neither of
these individuals is or formerly was an officer or employee of the Company or
has any other material business relationship or affiliation with the Company,
except his service as a Director.
14
<PAGE> 18
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the Company's
Common Stock as of November 17, 1998 by (i) each person known by the Company to
be the beneficial owner of more than 5% of the outstanding Common Stock, (ii)
each of the Company's Directors, (iii) each of the Named Executive Officers and
(iv) all of the Company's executive officers and Directors as a group. Except as
indicated in the footnotes to this table, the Company believes that the persons
named in this table have sole voting and investment power with respect to the
shares of Common Stock indicated.
<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVE SHARES PERCENTAGE
OFFICERS AND 5% STOCKHOLDERS BENEFICIALLY OWNED(1) OF CLASS
---------------------------- --------------------- ----------
<S> <C> <C>
Ross Financial Corporation(2)........................... 5,175,895 25.1%
P.O. Box 31363 SMB
Mirco Commerce Centre
Cayman Islands
State of Wisconsin Investment Board (3)................. 1,916,000 9.3%
P.O. Box 7842
Madison, WI 53707
Spiros Jamas, Sc.D.(4).................................. 581,246 2.8%
D. Davidson Easson Jr., Sc.D.(5)........................ 541,404 2.6%
Joseph M. Grimm(6)...................................... 155,000 *
Gustav A. Christensen(7)................................ 307,692 1.5%
Michael E. Porter, Ph.D. (8)............................ 83,238 *
Lawrence C. Hoff (9).................................... 37,200 *
Bernard Canavan, M.D. (10).............................. 25,300 *
Peter H. Levine, M.D. (11).............................. 22,200 *
All Directors and executive officers as a group
(8 persons) (12)...................................... 1,753,550 8.2%
</TABLE>
- ---------------
* Less than 1%
(1) The numbers and percentages include shares of Common Stock issuable upon
exercise of certain outstanding options as described in the footnotes
below.
(2) As reported in the Form 4/A dated March 2, 1998 and filed with the
Securities and Exchange Commission.
(3) As reported in the Amendment No. 5 to Schedule 13G dated June , 1998 and
filed with the Securities and Exchange Commission.
(4) Represents 368,154 shares of Common Stock and 213,092 shares of Common
Stock that Dr. Jamas may acquire upon the exercise of options exercisable
within 60 days after November 17, 1998 and includes 25,492 shares of Common
Stock owned by Dr. Jamas' mother, as to all of which Dr. Jamas disclaims
beneficial ownership.
(5) Represents 409,072 shares of Common Stock and 132,332 shares of Common
Stock that Dr. Easson may acquire upon the exercise of options exercisable
within 60 days after November 17, 1998 and includes 47,632 shares of Common
Stock owned by Dr. Easson's children, as to all of which Dr. Easson
disclaims beneficial ownership.
(6) Represents 130,000 shares of Common Stock and 25,000 shares of Common Stock
that Mr. Grimm may acquire upon the exercise of options exercisable within
60 days after November 17, 1998.
(7) Represents 73,819 shares of Common Stock and 234,143 shares of Common Stock
that may be acquired by Mr. Christensen upon the exercise of options
exercisable within 60 days after November 17, 1998.
(8) Represents 67,000 shares of Common Stock and 16,238 shares of Common Stock
that may be acquired by Dr. Porter upon the exercise of options exercisable
within 60 days after November 17, 1998.
15
<PAGE> 19
(9) Represents 30,000 shares of Common Stock and 7,200 shares of Common Stock
that may be acquired by Mr. Hoff upon the exercise of options exercisable
within 60 days after November 17, 1998.
(10) Represents 1,000 shares of Common Stock and 24,300 shares of Common Stock
that may be acquired by Dr. Canavan upon the exercise of options
exercisable within 60 days after November 17, 1998.
(11) Represents 10,000 shares of Common Stock and 12,200 shares of Common Stock
that may be acquired by Dr. Levine upon the exercise of options exercisable
within 60 days after November 17, 1998 and includes 500 shares of Common
Stock owned by Dr. Levine's wife, as to which Dr. Levine disclaims
beneficial ownership.
(12) Includes 664,505 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days after November 17, 1998.
16
<PAGE> 20
OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be
presented for action at the Special Meeting. If any other matters shall be
brought before the Special Meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their
judgment.
STOCKHOLDER PROPOSALS
In order for a proposal by a stockholder to be included in the Board of
Directors' Proxy Statement for the Company's Annual Meeting of Stockholders to
be held in 1999 (the "1999 Annual Meeting"), it must be received at the
Company's principal executive offices in Worcester on or before December 13,
1998. Such a proposal must also comply with the requirements as to form and
substance established by applicable laws and regulations in order to be included
in the Proxy Statement and should be directed to the Clerk of the Company.
In addition, the By-Laws of the Company provide that a stockholder must
give written notice to the Clerk of the Company of any nominees for Directors
and any proposals the stockholder intends to make at an annual meeting. To be
timely for the 1999 Annual Meeting, a stockholder's notice shall be delivered
to, or mailed and received at, the principal executive offices of the Company no
later than March 21, 1999 nor earlier than January 20, 1999; provided, however,
in the event that the 1999 Annual Meeting is scheduled to be held on a date
earlier than April 20, 1999 or later than July 19, 1999, notice by the
stockholder to be timely must be delivered not earlier than the close of
business on the 120th day prior to the scheduled date of the 1999 Annual Meeting
and not later than the close of business on the later of the 60th day prior to
the scheduled date of such 1999 Annual Meeting or the 10th day following the
first date on which the date of the 1999 Annual Meeting is publicly disclosed.
Proxies solicited by the Board of Directors may, under certain circumstances
prescribed in Rule 14a-4 of the Exchange Act, be voted in accordance with the
discretion of the proxy holders with respect to stockholder proposals presented
at the 1999 Annual Meeting (other than proposals included in the Company's proxy
statement for such meeting).
D. DAVIDSON EASSON JR.,
Clerk
17
<PAGE> 21
ALPHA-BETA TECHNOLOGY, INC.
Proxy for Special Meeting of Stockholders
__________, [1998/1999]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED hereby appoints Spiros Jamas, D. Davidson Easson Jr.
and Joseph M. Grimm, and each of them, proxies, with full power of substitution,
to represent and vote all shares of the Common Stock, $.01 par value (the
"Common Stock"), of Alpha-Beta Technology, Inc. (the "Company") which the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held at the Company's offices at One Innovation Drive, Worcester, MA 01605 at
11:00 A.M., local time, and at any adjournments and postponements thereof, upon
the matters set forth in the Notice of Special Meeting and Proxy Statement,
dated _________, 1998.
THIS PROXY WILL BE VOTED AS SPECIFIED BY THE STOCKHOLDER, BUT IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH IN
THE NOTICE OF SPECIAL MEETING AND PROXY STATEMENT, DATED ___________, 1998. A
STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
--------------
SEE REVERSE
SIDE
--------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 22
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL I.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
I. Proposal to approve the potential issuance of a number
of shares of the Company's Common Stock equal to or in
excess of 20% of the number of shares of Common Stock
outstanding upon conversion of the Company's Series F
Convertible Preferred Stock.
FOR WITHHELD
[ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL II. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS: COPY OF THE ACCOMPANYING NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS AND THE PROXY STATEMENT WITH
II. Proposal to approve an amendment to the Company's RESPECT THERETO, AND HEREBY REVOKES ANY PROXY OR
Restated Articles of Organziation increasing the number PROXIES HERETOFORE GIVEN. THIS PROXY MAY BE REVOKED
of authorized shares of Common Stock to 60,000,000. AT ANY TIME BEFORE IT IS EXERCISED.
FOR WITHHELD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
[ ] [ ] PERSON, PLEASE DATE, SIGN AND PROMPTLY MAIL THIS
PROXY IN THE RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
PROPOSAL III. THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS: (Please sign exactly as your name appears on your
stock certificate. Joint owners should each sign
III. Proposal to approve an amendment to the Company's 1997 personally. When signing as attorney, executor,
Stock Option and Grant Plan increasing the number of administrator, trustee or guardian, please give
shares of Common Stock reserved for issuance under such your full title as such. It is requested that
plan. corporation proxies be signed by the President or
Vice President and the Secretary or Assistant
FOR WITHHELD Secretary.)
[ ] [ ]
MARK HERE FOR [ ]
ADDRESS CHANGE
AND NOTE BELOW
Signature: _____________________________ Date: ____________ Signature: _____________________________ Date: ____________
</TABLE>
<PAGE> 23
APPENDIX A
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of October
21, 1998, by and among Alpha-Beta Technology, Inc., a Massachusetts corporation,
with headquarters located at One Innovation Drive, Worcester, Massachusetts
01605 (the "COMPANY"), and the investors listed on the Schedule of Buyers
attached hereto (individually, a "BUYER" and collectively, 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 Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, par value $0.01 per share (the "PREFERRED STOCK"): the
Company's Series F Convertible Preferred Stock (the "PREFERRED SHARES"), which
shall be convertible into shares of the Company's Common Stock, par value $0.01
per share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Vote of Directors
Establishing Series F Convertible Preferred Stock, substantially in the form
attached hereto as EXHIBIT A (the "CERTIFICATE OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, initially an aggregate of 1500 of the Preferred Shares
(the "INITIAL PREFERRED SHARES") in the respective amounts set forth opposite
each Buyer's name on the Schedule of Buyers on the Initial Closing Date (as
defined below);
D. Subject to the terms and conditions set forth in this
Agreement, the Buyers wish to purchase an aggregate of an additional 1500 of the
Preferred Shares (the "ADDITIONAL PREFERRED SHARES") in the respective amounts
set forth opposite each Buyer's name in the Schedule of Buyers on the Additional
Closing Date (as defined below) (the Initial Preferred Shares and the Additional
Preferred Shares collectively are referred to in this Agreement as the
"PREFERRED SHARES"); and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
<PAGE> 24
a. PURCHASE OF PREFERRED SHARES. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the respective number of Initial Preferred Shares set forth
opposite such Buyer's name on the Schedule of Buyers, (as defined below) (the
"INITIAL CLOSING"). Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 1(c), 6(b) and 7(b) below, the Company shall issue and
sell to each Buyer and each Buyer severally agrees to purchase from the Company
the respective number of Additional Preferred Shares set forth opposite such
Buyer's name on the Schedule of Buyers (the "ADDITIONAL CLOSING"). The Initial
Closing and the Additional Closing collectively are referred to in this
Agreement as the "CLOSINGS." The purchase price (the "PURCHASE PRICE") of each
Preferred Share at each of the Closings shall be $1,000. Notwithstanding the
foregoing, the aggregate amount of Additional Preferred Shares required to be
purchased by the Buyers shall be reduced on a dollar for dollar basis to the
extent of the amount of financing received by the Company from the issuance of
any equity securities or debt securities with an equity component to Ross
Financial Corporation or its affiliates after the Initial Closing but on or
prior to the Additional Closing Date.
b. THE INITIAL CLOSING DATE. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time, within
three (3) business days following the date hereof, subject to notification of
satisfaction (or waiver) of the conditions to the Initial Closing set forth in
Sections 6(a) and 7(a) below (or such later date as is mutually agreed to by the
Company and the Buyers). The Initial Closing shall occur on the Initial Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693 or such other place as the parties shall
agree.
c. THE ADDITIONAL CLOSING DATE. The date and time of the
Additional Closing (the "ADDITIONAL CLOSING DATE") shall be 10:00 a.m. Central
Time, on the fifth business day following the date of the receipt by each Buyer
of the Additional Share Notice (as defined below) following the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the SEC, subject to satisfaction (or waiver) of the
conditions to the Additional Closing set forth in Sections 6(b) and 7(b) and the
conditions set forth in this paragraph (or such later date as is mutually agreed
to by the Company and the Buyers). The Company shall deliver written notice (the
"ADDITIONAL SHARE NOTICE") to each Buyer of the event described in the preceding
sentence on the first business day (the "ADDITIONAL SHARE NOTICE DATE")
following the occurrence of such event. Notwithstanding the foregoing, no Buyer
shall be required to purchase the Additional Preferred Shares unless each of the
following conditions is satisfied: (i) such Buyer shall have received the
Additional Share Notice on or before the second business day after the
Effectiveness Deadline (as defined in the Registration Rights Agreement); (ii)
the Company shall take all action necessary to have on the Additional Closing
Date, Conversion Shares which are (1) authorized and reserved for issuance, (2)
available under rule 4460 of the Nasdaq National Market and (3) available for
resale under the Registration Statement which shall have been declared
effective, of no less than 200% of the sum of (A) the number of Conversion
Shares issuable upon the conversion of all of the outstanding Initial Preferred
Shares and the Additional Preferred Shares to be issued by the Company and (B)
the number of Conversion Shares then held by Buyers; (iii) during the period
beginning on the date of this Agreement and ending on and including the
Additional
<PAGE> 25
Closing Date, there shall not have occurred (A) a public announcement of a Major
Transaction (as defined in Section 3(c) of the Certificate of Designations)
which has not been abandoned or terminated, (B) a Triggering Event (as defined
in Section 3(d) of the Certificate of Designations) or (C) a Material Adverse
Change (as defined below); (iv) at all times during the period beginning on the
date of this Agreement and ending on and including the Additional Closing Date,
the Common Stock shall have been designated on the Nasdaq National Market and
shall not have been suspended from trading and the Company shall not have been
notified of any pending or threatened proceeding or other action to delist or
suspend the Common Stock; and (vii) and the Company shall not have previously
delivered an Additional Share Notice. The Additional Closing shall occur on the
Additional Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe
Street, Suite 1600, Chicago, Illinois 60661-3693 or such other place as the
parties shall agree. The Initial Closing Date and the Additional Closing Date
collectively are referred to in this Agreement as the "CLOSING DATES." "MATERIAL
ADVERSE CHANGE" means any change, event, result or happening involving, directly
or indirectly, the Company or any of its Subsidiaries (as defined below)
resulting in a material adverse effect on the business, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole.
d. FORM OF PAYMENT. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares to be
issued and sold to such Buyer at the respective Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers). Such Stock Certificates shall bear the restrictive legends required
pursuant to Section 2(g).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the
Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire
the Conversion Shares then issuable (the Preferred Shares and the Conversion
Shares collectively are referred to herein as the "SECURITIES"), for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying
<PAGE> 26
in part upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire such securities.
d. INFORMATION. Such 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 such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. TRANSFER OR RESALE. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have, if requested by
the Company, delivered to the Company an opinion of counsel, in a form
reasonably acceptable to the Company, to the effect that such Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) such Buyer provides the Company with
assurance reasonably acceptable to the Company that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the 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.
g. LEGENDS. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and, until such time as the
sale of the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares,
<PAGE> 27
except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment 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 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
h. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. RESIDENCY. Such Buyer is a resident of that country
specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. ORGANIZATION AND QUALIFICATION. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in SCHEDULE 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
<PAGE> 28
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or the
Certificate of Designations.
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER
INSTRUMENTS. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, the Second Amendment to the Shareholder
Rights Agreement and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents and the Certificate of Designations by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Shares and the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, except for, if required by the
Principal Market (as defined below), approval by its stockholders prior to the
issuance of a number of shares of Common Stock equal to or in excess of 20% of
the number of shares of common Stock outstanding immediately prior to the
Initial Closing Date; (iii) the Transaction Documents have been duly executed
and delivered by the Company, (iv) the Transaction Documents constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to each of the Closing Dates, the Certificate of Designations has been
filed with the Secretary of State of The Commonwealth of Massachusetts and will
be in full force and effect, enforceable against the Company in accordance with
its terms. The "PRINCIPAL MARKET" shall mean the securities or trading market
upon which the Common Stock is listed or quoted provided that such market is one
of the following: the Nasdaq National Market, The American Stock Exchange, Inc.
or The New York Stock Exchange, Inc.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 30,000,000 shares of Common Stock,
of which as of the date hereof, 20,597,272 shares were issued and outstanding,
2,786,622 shares are issuable and reserved for
<PAGE> 29
issuance pursuant to the Company's stock option plans and no shares are issuable
and reserved for issuance pursuant to securities (other than the Preferred
Shares) exercisable or exchangeable for, or convertible into, shares of Common
Stock, except as set forth on SCHEDULE 3(c) and (ii) 1,000,000 shares of
preferred stock, which as of the date hereof, no shares were issued and
outstanding, except as set forth on SCHEDULE 3(c). All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in SCHEDULE 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement, and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyers true and correct copies of the Company's Restated Articles of
Organization, as amended and as in effect on the date hereof (the "ARTICLES OF
ORGANIZATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. ISSUANCE OF SECURITIES. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. A number of shares
of Common Stock equal to 200% of the number of Conversion Shares issuable upon
conversion of the Preferred Shares and outstanding on the applicable Closing
Date (after giving effect to the Preferred Shares issued on such Closing Date
and assuming all such outstanding Preferred Shares were fully convertible on
such date regardless of any limitation on the timing or amount of such
conversions) initially have been duly authorized and reserved for issuance
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(f) below) upon conversion of the Preferred Shares. Upon conversion in
accordance with the Certificate of Designations, the Conversion Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Based in
<PAGE> 30
part upon the representations of the Buyers set forth in Section 2, the issuance
by the Company of the Securities is exempt from registration under the 1933 Act.
e. NO CONFLICTS. Except as disclosed in SCHEDULE 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
Articles of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of Preferred Stock of the Company or the
By-laws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or material instrument to which the Company or any
of its Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
SCHEDULE 3(e), neither the Company nor its Subsidiaries is in violation of any
term of or in default under the Articles of Organization, any Certificate of
Designations, Preferences and Rights of any outstanding series of Preferred
Stock or the By-laws or their organizational charter or by-laws, respectively,
or any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not individually or in the aggregate have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted in violation
of any law, ordinance, regulation of any governmental entity having authority or
jurisdiction over the Company, except for possible violations the sanctions for
which either individually or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the 1933 Act, 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 or contemplated by
the Transaction Documents or to perform its obligations under the Certificate of
Designations, in each case in accordance with the terms hereof or thereof.
Except as disclosed in SCHEDULE 3(e), 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. The Company is not in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting of
the Common Stock by the Principal Market in the foreseeable future.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31,
1997, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 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
<PAGE> 31
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Buyers or their respective
representatives true and complete copies of the 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. The financial
statements of the Company included in the SEC Documents have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the 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). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading.
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE
3(g) or in the SEC Documents filed at least five (5) days prior to the date
hereof and available on EDGAR, since December 31, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company or its Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as set forth in SCHEDULE 3(h).
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF PREFERRED
SHARES. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
of the Buyers or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the
<PAGE> 32
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Other than the transactions contemplated hereby, no event,
liability, development or circumstance has occurred or exists with respect to
the Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. NO INTEGRATED OFFERING. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the Principal Market, nor will the Company or
any of its Subsidiaries take any action or steps that would require registration
of the Securities under the 1933 Act or cause the offering of the Securities to
be integrated with other offerings.
m. EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
n. INTELLECTUAL PROPERTY RIGHTS. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on SCHEDULE 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademark,
<PAGE> 33
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
SCHEDULE 3(n), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
o. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
p. TITLE. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in SCHEDULE 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or any of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
q. INSURANCE. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any 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 materially and adversely affect
the condition, financial or otherwise, or the earnings, business or operations
of the Company and its Subsidiaries, taken as a whole.
r. REGULATORY PERMITS. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such items would not
have, individually or in the aggregate, a Material Adverse Effect and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or
<PAGE> 34
permit.
s. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is 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 officers has a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
which in the reasonable judgment of the Company's officers has or is expected to
have a Material Adverse Effect.
t. TAX STATUS. Except as set forth on SCHEDULE 3(t), the
Company and each of its Subsidiaries 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 and each of its Subsidiaries 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 provision 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 officers of the Company know of no basis
for any such claim.
u. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(u)
and in the SEC Documents filed at least ten days prior to the date hereof and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(c), none of the officers or directors of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (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 or
director or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.
v. DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that, subject to such limitations as are expressly set forth in the Transaction
Documents, its obligation to issue Conversion Shares upon conversion of the
Preferred Shares in accordance with this Agreement and the Certificate of
Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
w. SHAREHOLDER RIGHTS PLAN; APPLICATION OF TAKEOVER
PROTECTIONS. The Company and its directors have taken all necessary action, if
any, in order to render inapplicable (i) any shareholder rights plan, "poison
pill" or similar arrangement (a
<PAGE> 35
"Shareholder Rights Plan") to which it is a party and (ii) any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Restated
Articles of Organization of the Company or any anti-takeover laws which are or
could be applicable to any Purchaser as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Preferred Shares or the Conversion Shares and any Buyer's
ownership of such shares.
x. NO OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. FORM D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before each of
the Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating the
offer and sale of the Securities required under the applicable securities or
"Blue Sky" laws of the states of the United States following each of the Closing
Dates.
c. REPORTING STATUS. Until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold all the
Conversion Shares and (B) none of the Preferred Shares is outstanding (the
"REGISTRATION PERIOD"), the Company shall 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 otherwise permit such
termination.
d. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in SCHEDULE 4(d).
e. FINANCIAL INFORMATION. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Registration Period: (i) within five (5) days after the
filing thereof with the SEC, a copy of any Current Reports on Form 8-K; (ii) on
the same day as the release thereof, facsimile copies
<PAGE> 36
of all press releases issued by the Company or any of its Subsidiaries and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. RESERVATION OF SHARES. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares with respect to all
outstanding Preferred Shares.
g. INTENTIONALLY OMITTED.
h. LISTING. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation system
(including the Principal Market), if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents and the Certificate of Designations. The Company shall
maintain the Common Stock's authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall promptly provide to each
Buyer copies of any notices it receives from the Principal Market regarding the
continued eligibility of the Common Stock for listing on such Principal Market.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(h).
i. EXPENSES. Subject to Section 9(l) below, following the
Initial Closing, the Company shall reimburse the Buyers for the Buyers'
reasonable expenses (including attorneys fees and expenses) in connection with
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby up to an aggregate of $30,000.
j. PROXY STATEMENT. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
be not later than 120 days after the Initial Closing Date (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such stockholder meeting for approval of the Company's
issuance of all of the Securities as described in this Agreement and the
increase in the number of the Company's authorized shares of Common Stock to
50,000,000, and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the Board of
Directors of the Company to recommend to the stockholders that they approve such
proposal. If the Company fails to hold a meeting of its stockholders by the
Stockholder Meeting Deadline (unless such failure is the result solely of the
actions of the Buyers), then, as partial relief (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Preferred Shares an amount in cash per Preferred
Share equal to the product of (i) $1,000 multiplied by (ii) .025
<PAGE> 37
multiplied by (iii) the quotient of (x) the number of days after the Stockholder
Meeting Deadline that a meeting of the Company's stockholders is not held,
divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five days of the earlier of (I) the
holding of the meeting of the Company's stockholders, the failure of which
resulted in the requirement to make such payments and (II) the last day of each
30-day period beginning on the day after the Stockholder Meeting Deadline. In
the event the Company fails to make such payments in a timely manner, such
payments shall bear interest at the rate of 1.5% per month (pro rated for
partial months) until paid in full.
k. TRANSACTIONS WITH AFFILIATES. So long as (i) any Preferred
Shares are outstanding or (ii) any Buyer owns Conversion Shares with a market
value equal to or greater than $500,000, the Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
l. FILING OF FORM 8-K. On or before the second (2nd) business
day following each of the Closing Dates, the Company shall file a Form 8-K with
the SEC describing the terms of the transaction contemplated by the Transaction
Documents and consummated at such Closing, in each case in the form required by
the 1934 Act.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to
<PAGE> 38
time by each Buyer to the Company upon conversion of the Preferred Shares (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than 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, prior
to registration of the Conversion Shares under the 1933 Act) will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in form and substance which is generally
acceptable, that registration of a resale by such Buyer of any of such
Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
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 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. INITIAL CLOSING DATE. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares to each Buyer at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, 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 by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the
Transaction Documents and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of The Commonwealth of Massachusetts.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Initial Preferred Shares being purchased by such
Buyer at the Initial Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer
shall be true and
<PAGE> 39
correct as of the date when made and as of the Initial Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Initial Closing Date.
b. ADDITIONAL CLOSING DATE. The obligation of the
Company hereunder to issue and sell the Additional Preferred Shares to each
Buyer at the Additional Closing is subject to the satisfaction, at or before the
Additional Closing Date, of each of the following conditions, 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 by providing each Buyer with prior
written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Additional Preferred Shares being purchased by
such Buyer at the Additional Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(ii) The representations and warranties of such Buyer
shall be true and correct as of the date when made and as of the
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. INITIAL CLOSING DATE. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have executed each of the
Transaction Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of The Commonwealth of Massachusetts, and a
copy thereof certified by such Secretary of State shall have been
delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Principal Market, trading in the Common Stock shall not have been
suspended by the Principal Market or the SEC, at any time beginning on
the date hereof and through and including the Initial Closing Date and
the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock.
<PAGE> 40
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at
or prior to the Initial Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company,
dated as of the Initial Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of the
Company's counsel dated as of the Initial Closing Date, in form, scope
and substance reasonably satisfactory to such Buyer and in
substantially the form of EXHIBIT C attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Preferred Shares being purchased by such Buyer at the
Initial Closing.
(vii) The Board of Directors of the Company shall have
adopted resolutions consistent with Section 3(b)(ii) above and in a
form reasonably acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Initial Closing Date (after giving effect to the
Preferred Shares to be issued on the Initial Closing Date and assuming
all such Preferred Shares were fully convertible or exercisable on such
date regardless of any limitation on the timing or amount of such
conversions or exercises).
(ix) The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Initial Closing.
(xi) The Company shall have delivered to such Buyer a
certified copy of its
<PAGE> 41
Articles of Organization as certified by the Secretary of State of The
Commonwealth of Massachusetts within ten days of the Initial Closing
Date.
(xii) The Company shall have delivered to such Buyer a
clerk's certificate, dated as the Initial Closing Date, as to (i) the
Resolutions, (ii) the Articles of Organization and (iii) the Bylaws,
each as in effect at the Initial Closing.
(xiii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
b. ADDITIONAL CLOSING DATE. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares at the Additional Closing
is subject to the satisfaction, at or before the Additional Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
(i) Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of The
Commonwealth of Massachusetts shall have been delivered to such Buyer.
(ii) The Common Stock shall be authorized for quotation on
the Principal Market, trading in the Common Stock shall not have been
suspended by Principal Market or the SEC on or at any time prior to the
Additional Closing Date and the Company shall not have been notified of
any pending or threatened proceeding or other action to delist or
suspend the Common Stock on or prior to the Additional Closing Date.
(iii) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at
or prior to the Additional Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Additional Closing Date, to the foregoing effect and as
to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Additional Closing
Date regarding the representation contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of the
Company's counsel dated as of the Additional Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of EXHIBIT C attached hereto.
(v) The Company shall have executed and delivered to such
Buyer the Stock
<PAGE> 42
Certificates (in such denominations as such Buyer shall request) for
the Preferred Shares being purchased by such Buyer at the Additional
Closing.
(vi) The Board of Directors of the Company shall have
adopted the Resolutions.
(vii) As of the Additional Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Additional Closing Date (after giving effect to the
Preferred Shares to be issued on such Additional Closing Date and
assuming all such outstanding Preferred Shares were fully convertible
or exercisable on such date regardless on any limitation on the timing
or amount of such conversions or exercises) which such number of shares
of Common Stock shall be fully available to be issued as Conversion
Shares under Rule 4460 of the Nasdaq National Market.
(viii) The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Additional Closing.
(x) The Company shall have delivered to such Buyer a
certified copy of its Articles of Organization as certified by the
Secretary of State of The Commonwealth of Massachusetts within ten days
of the Additional Closing Date.
(xi) The Company shall have delivered to such Buyer a
clerk's certificate, dated as the Additional Closing Date, as to (i)
the Resolutions, (ii) the Articles of Organization and (iii) the
Bylaws, each as in effect at the Additional Closing.
(xii) The conditions to the Additional Closing set forth in
Section 1(c) shall have been satisfied on or before the Additional
Closing Date.
(xiii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents and the Certificate of Designations, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, officers, directors, employees
<PAGE> 43
and direct or indirect investors and any of the foregoing person's agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "INDEMNITEES") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee is
a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or the Certificate of
Designations or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in the Transaction Documents or the Certificate of
Designations or any other certificate, instrument or document contemplated
hereby or thereby, or (c) any cause of action, suit or claim brought or made
against such Indemnitee and arising out of or resulting from the execution,
delivery, performance or enforcement of the Transaction Documents or the
Certificate of Designations or any other certificate, instrument or document
contemplated hereby or thereby, (d) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities or (e) the status of such Buyer or holder of the Securities as
an investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Notwithstanding the
foregoing, if a Buyer breaches its obligations under Section 4(d) of the
Registration Rights Agreement to refrain from disposing of Registrable
Securities pursuant to the Registration Statement under the circumstances
described in Section 4(d) of the Registration Rights Agreement, then such Buyer
shall not be entitled to indemnification under clause (c) or (e) above with
respect to actions, suits or claims made against such Buyer which are based on
such breach.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. The corporate laws of The Commonwealth of
Massachusetts shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or
<PAGE> 44
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and 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 any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Preferred Shares then outstanding. No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents or the Certificates of
Designations unless the same consideration also is offered to all of the parties
to the Transaction Documents or holders of Preferred Shares, as the case may be.
f. NOTICES. Any notices consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon
<PAGE> 45
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically generated and kept on file by the sending party); (iii) one (1) day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Alpha-Beta Technology, Inc.
One Innovation Drive
Worcester, Massachusetts 01605
Telephone: 508-798-6900
Facsimile: 508-799-7968
Attention: Joseph M. Grimm
With a copy to:
Company Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Telephone: 617-570-1000
Facsimile: 617-523-1231
Attention: John J. Egan III, Esq.
If to the Transfer Agent:
Boston EquiServe
Shareholder Services Division
150 Royall Street
Canton, Massachusetts 02021
Telephone: 781-575-2000
Facsimile: 781-575-2549
Attention: Therese Collins
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares. Until
the Company fully satisfies its obligations, if any, under Sections 2(d)(i) and
3 of the Certificate of Designations, the Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of two-thirds (2/3) of the Preferred Shares then
outstanding including by merger or
<PAGE> 46
consolidation. A Buyer may assign some or all of its rights hereunder to
affiliates or associates of such Buyer, without the consent of the Company, and
to others, with the consent of the Company; provided, however, that any such
assignment shall not release such Buyer from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption. Notwithstanding anything to the contrary
contained in the Transaction Documents, Buyer shall be entitled to pledge the
Securities in connection with a bona fide margin account.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. SURVIVAL. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive each
of the Closings. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. PUBLICITY. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
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. TERMINATION. In the event that the Initial Closing shall
not have occurred with respect to a Buyer on or before three (3) business days
from the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse the
non-breaching Buyers for the expenses described in Section 4(i) above.
m. PLACEMENT AGENT. The Company acknowledges that it has
engaged
<PAGE> 47
World Capital Funding, LLC as placement agent in connection with the sale of the
Preferred Shares. The Company shall be responsible for the payment of any
placement agent's fees or broker's commissions relating to or arising out of the
purchase of the Securities by the Buyers. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim.
n. 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.
o. REMEDIES. Each Buyer and each holder of Preferred Shares,
Conversion Shares shall have all rights and remedies set forth in this
Agreement, the Certificate of Designation and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
* * * * * *
<PAGE> 48
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
- -------- -------
ALPHA-BETA TECHNOLOGY, INC. HFTP INVESTMENTS LLC
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ Joseph M. Grimm By: /s/ James F. O'Brien, Jr.
-------------------------------- ----------------------------------
Name: Joseph M. Grimm Name: James F. O'Brien, Jr.
Its: Chief Financial Officer Its: President
<PAGE> 49
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL/
DDITIONAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER A SHARES AND FACSIMILE NUMBER
- -------------------- --------------------------------------- --------- -----------------------------------
<S> <C> <C> <C>
HFTP INVESTMENTS LLC c/o Promethean Investment Group, L.L.C. 1500/1500 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Facsimile: 212-698-0505
Residence: New York Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
</TABLE>
<PAGE> 50
APPENDIX B
FEDERAL IDENTIFICATION
NO. 04-2997834
------------------
THE COMMONWEALTH OF MASSACHUSETTS
- ----------- WILLIAM FRANCIS GALVIN
Examiner Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
CERTIFICATE OF VOTE OF DIRECTORS
ESTABLISHING A CLASS OR SERIES OF STOCK
(GENERAL LAWS, CHAPTER 156B, SECTION26)
We, Spiros Jamas *President
-----------------------------------------------,
and D. Davidson Easson, Jr. *Clerk
-----------------------------------------------,
of ALPHA-BETA TECHNOLOGY, INC.
-------------------------------------------------------------,
(Exact name of corporation)
located at: One Innovation Drive, Worcester, Massachusetts 01605
-----------------------------------------------------,
(Street Address of corporation in Massachusetts)
do hereby certify that at a meeting of the directors of the
corporation held on October 5, 1998, the following vote amending
and restating the relative rights and preferences of a series of
stock prior to issuance was duly adopted:
See attached pages 2A through 28A and 2B
*Delete the inapplicable words.
- ----------- NOTE: VOTES FOR WHICH THE SPACE PROVIDED ABOVE IS NOT SUFFICIENT
P.C. SHOULD BE PROVIDED ON ONE SIDE OF SEPARATE 8 1/2 x 11 SHEETS OF
WHITE PAPER, NUMBERED 2A, 2B, ETC., WITH A LEFT MARGIN OF AT LEAST
1 INCH.
<PAGE> 51
CERTIFICATE OF VOTE OF DIRECTORS
OF ALPHA-BETA TECHNOLOGY, INC.
AMENDING AND RESTATING TERMS OF SERIES F
CONVERTIBLE PREFERRED STOCK
PRIOR TO ISSUANCE
WHEREAS, on October 16, 1998, Alpha-Beta Technology, Inc. (the
"COMPANY"), a corporation organized and existing under the Massachusetts
Business Corporation Law (the "MBCL"), filed a Certificate of Vote of Directors
Establishing Series F Convertible Preferred Stock with the Secretary of State of
The Commonwealth of Massachusetts certifying that the Board of Directors of the
Company adopted votes (i) authorizing three thousand (3,000) shares of the
Company's Series F Convertible Preferred Stock out of the Company's previously
authorized preferred stock, par value $0.01 per share (the "PREFERRED STOCK"),
and (ii) providing for the designations, preferences and relative participating,
optional or other rights, and the qualifications, limitations or restrictions
(collectively, "RIGHTS AND RESTRICTIONS") thereof;
WHEREAS, the Company has not yet issued any shares of the Series F
Convertible Preferred Stock; and
WHEREAS, the Company has decided to amend and restate the Rights and
Restrictions of the Series F Convertible Preferred Stock.
NOW THEREFORE, the Company does hereby certify that pursuant to
authority conferred upon the Company's Board of Directors by the Company's
Restated Articles of Organization, as amended, and pursuant to Section 26 of the
MBCL, the Board of Directors of the Company authorized the amendment and
restatement of the Rights and Restrictions of the Series F Convertible Preferred
Stock as follows:
VOTED, to amend and restate the Rights and
Restrictions of the Company's Series F Convertible Preferred
Stock (the "Preferred Shares"), par value $0.01 per share as
follows:
(1) DIVIDENDS. The Preferred Shares shall not bear any dividends.
(2) HOLDER'S CONVERSION OF PREFERRED SHARES. A holder of Preferred
Shares shall
<PAGE> 52
have the right, at such holder's option, to convert the Preferred Shares into
shares of the Company's common stock, $0.01 par value per share (the "COMMON
STOCK"), on the following terms and conditions:
(a) CONVERSION RIGHT. At any time or times on or after
the Issuance Date (as defined below), any holder of Preferred Shares
shall be entitled to convert any whole number of Preferred Shares into
fully paid and nonassessable shares (rounded to the nearest whole share
in accordance with Section 2(h)) of Common Stock, at the Conversion
Rate (as defined below); provided, however, that in no event shall any
holder be entitled to convert Preferred Shares in excess of that number
of Preferred Shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially owned
by the holder and its affiliates to exceed 4.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the
Preferred Shares with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining,
nonconverted Preferred Shares beneficially owned by the holder and its
affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including,
without limitation, any warrants or convertible preferred stock)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the holder and its
affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2(a), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended.
(b) CONVERSION RATE AND OTHER DEFINITIONS. The number of
shares of Common Stock issuable upon conversion of each of the
Preferred Shares pursuant to Sections (2)(a) and 2(g) shall be
determined according to the following formula (the "CONVERSION RATE"):
(.06)(N/365)(1,000) + 1,000
---------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any
Conversion Date (as defined below) or other date of
determination, the lower of the Fixed Conversion Price and the
Floating Conversion Price, each in effect as of such date and
subject to adjustment as provided herein;
(ii) "FIXED CONVERSION PRICE" means (A) during
the period beginning on the initial Issuance Date of the
Preferred Shares and ending on the Additional Closing Date,
$1.50 and (B) on and after the Additional Closing Date (as
<PAGE> 53
defined in the Securities Purchase Agreement, an amount equal
to the sum of the Market Price on the Measurement Date and the
Spread Adjustment, subject to adjustment as provided herein;
(iii) "FLOATING CONVERSION PRICE" means, as of any
date of determination, the lower of (A) the amount obtained by
multiplying the Conversion Percentage in effect as of such
date by the Market Price for the Common Stock and (B) the
Closing Bid Price on the Conversion Date (as defined in
Section 2(g)(i) below),each subject to adjustment as provided
herein;
(iv) "CONVERSION PERCENTAGE" means 85%, subject
to adjustment as provided herein;
(v) "MARKET PRICE" means, with respect to any
security for any date of determination, the price which shall
be computed as the arithmetic average of the Closing Sale
Price of the Common Stock for the 5 consecutive trading days
immediately preceding such date;
(vi) "MEASUREMENT DATE" means the business day
after the date of the meeting of the Company's stockholders
approving the proposals contained in Section 4(j) of the
Securities Purchase Agreement between the Company and the
initial holders of the Preferred Shares (the "SECURITIES
PURCHASE AGREEMENT");
(vii) "CLOSING SALE PRICE" means, for any security
as of any date, the last closing trade price for such security
on the Principal Market (as defined below) as reported by
Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the
last closing trade price of such security on the principal
securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing
do not apply, the last closing trade price of such security in
the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last
closing trade price is reported for such security by
Bloomberg, the last closing bid price of such security as
reported by Bloomberg, or, if no last closing bid price is
reported for such security by Bloomberg, the average of the
bid prices of any market makers for such security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Sale Price cannot be calculated for such security
on such date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market
value as mutually determined by the Company and the holders of
a majority of the shares of Series F Preferred Stock. If the
Company and the holders of Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(f)(iii)
with the term "Closing Sale Price" being substituted for the
term "Market Price." (All such determinations to be
appropriately adjusted for any stock dividend, stock, split or
other similar transaction during such period);
<PAGE> 54
(viii) "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price for such security
on the Principal Market as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or
trading market for such security, the last closing bid price
of such security on the principal securities exchange or
trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the last
closing trade price of such security as reported by Bloomberg,
or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing
Bid Price cannot be calculated for such security on such date
on any of the foregoing bases, the Closing Bid Price of such
security on such date shall be the fair market value as
mutually determined by the Company and the holders of a
majority of the shares of Series F Preferred Stock. If the
Company and the holders of Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(f)(iii)
with the term "Closing Bid Price" being substituted for the
term "Market Price." (All such determinations to be
appropriately adjusted for any stock dividend, stock, split or
other similar transaction during such period);
(ix) "N" means the number of days from, but
excluding, the Issuance Date through and including the
Conversion Date for the Preferred Shares for which conversion
is being elected;
(x) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable
Preferred Share;
(xi) "SEC" means the Securities and Exchange
Commission;
(xii) "REGISTRATION RIGHTS AGREEMENT" means that
certain Registration Rights Agreement among the Company and
the initial purchasers of the Preferred Shares;
(xiii) "REGISTRATION STATEMENT" means a
Registration Statement (as defined in the Registration Rights
Agreement);
(xiv) "RESERVE NUMBER" means the number of shares
of Common Stock reserved for issuance upon the conversion of
the Preferred Shares as set by the Company on the Measurement
Date, provided, however, that such Reserve Number shall not be
less than 200% of the sum of (A) the number of
<PAGE> 55
Conversion Shares issuable on the Measurement Date upon the
conversion of all of the outstanding Initial Preferred Shares
and the Additional Preferred Shares to be issued by the
Company and (B) the number of Conversion Shares held by Buyers
on the Measurement Date;
(xv) "SPREAD ADJUSTMENT" means the Market Price
on the Measurement Date minus the Base Price;
(xvi) "BASE PRICE" means the aggregate purchase
price for the Initial Preferred Shares and the Additional
Preferred Shares pursuant to the Securities Purchase Agreement
divided by the Reserve Number; and
(xvii) "PRINCIPAL MARKET" means the Nasdaq National
Market, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc.
(c) INTENTIONALLY OMITTED.
(d) ADJUSTMENT TO CONVERSION PRICE - DILUTION AND OTHER
EVENTS. In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(d).
(i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON
ISSUANCE OF COMMON STOCK. If and whenever on or after the date
of issuance of the Preferred Shares, the Company issues or
sells, or is deemed to have issued or sold, any shares of
Common Stock (other than shares of Common Stock deemed to have
been issued by the Company in connection with Approved
Issuances (as defined below)) for a consideration per share
less than the Market Price in effect immediately prior to such
time (the "APPLICABLE PRICE"), then immediately after such
issue or sale, the Fixed Conversion Price shall be reduced to
an amount equal to the product of (x) the Fixed Conversion
Price in effect immediately prior to such issue or sale and
(y) the quotient determined by dividing (1) the sum of (I) the
product of the Applicable Price and the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately
prior to such issue or sale, and (II) the consideration, if
any, received by the Company upon such issue or sale, by (2)
the product of (I) the Applicable Price and (II) the number of
shares of Common Stock Deemed Outstanding immediately after
such issue or sale. For purposes of determining the adjusted
Fixed Conversion Price under this Section 2(d)(i), the
following shall be applicable:
(A) ISSUANCE OF OPTIONS. If the
Company in any manner grants any rights or options to
subscribe for or to purchase Common Stock (other than
in connection with an Approved Issuance or upon
conversion of the Preferred Shares) or any stock or
other securities convertible into or exchangeable for
Common Stock (such rights or
<PAGE> 56
options being herein called "OPTIONS" and such
convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") and the price
per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than
the Applicable Price, then the total maximum number
of shares of Common Stock issuable upon the exercise
of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For
purposes of this Section 2(d)(i)(A), the "price per
share for which Common Stock is issuable upon
exercise of such Options or upon conversion or
exchange of such Convertible Securities" is
determined by dividing (I) the total amount, if any,
received or receivable by the Company as
consideration for the granting of such Options, plus
the minimum aggregate amount of additional
consideration payable to the Company upon the
exercise of all such Options, plus in the case of
such Options which relate to Convertible Securities,
the minimum aggregate amount of additional
consideration, if any, payable to the Company upon
the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the
total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the
conversion or exchange of all such Convertible
Securities issuable upon the exercise of such
Options. No adjustment of the Fixed Conversion Price
shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance
of such Common Stock upon conversion or exchange of
such Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES.
If the Company in any manner issues or sells any
Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion
or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible
Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such
price per share. For the purposes of this Section
2(d)(i)(B), the "price per share for which Common
Stock is issuable upon such conversion or exchange"
is determined by dividing (I) the total amount
received or receivable by the Company as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable
to the Company upon the conversion or exchange
thereof, by (II) the total maximum number of shares
of
<PAGE> 57
Common Stock issuable upon the conversion or exchange
of all such Convertible Securities. No adjustment of
the Fixed Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is
made upon exercise of any Options for which
adjustment of the Fixed Conversion Price had been or
are to be made pursuant to other provisions of this
Section 2(d)(i), no further adjustment of the Fixed
Conversion Price shall be made by reason of such
issue or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF
CONVERSION. If the purchase price provided for in any
Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any
Convertible Securities are convertible into or
exchangeable for Common Stock change at any time, the
Fixed Conversion Price in effect at the time of such
change shall be readjusted to the Fixed Conversion
Price which would have been in effect at such time
had such Options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or changed conversion rate,
as the case may be, at the time initially granted,
issued or sold; provided that no adjustment shall be
made if such adjustment would result in an increase
of the Fixed Conversion Price then in effect.
(D) CERTAIN DEFINITIONS. For purposes
of determining the adjusted Fixed Conversion Price
under this Section 2(d)(i), the following terms have
meanings set forth below:
(I) "APPROVED ISSUANCES" shall
mean (i) the issuance of Common Stock in a
firm commitment, underwritten public
offering with commissions, underwriting
discounts and allowances not in excess of
7.0% of the gross proceeds, (ii) the
issuance of securities upon exercise or
conversion of the Company's options,
warrants or other convertible securities
outstanding as of the date hereof or (iii)
the grant of additional options or warrants,
or the issuance of additional securities,
under any Company stock option plan,
restricted stock plan, stock purchase plan
or other plan or written compensation
contract for the benefit of the Company's
employees or directors.
(II) "COMMON STOCK DEEMED
OUTSTANDING" means, at any given time, the
number of shares of Common Stock actually
outstanding at such time, plus the number of
shares of Common Stock deemed to be
outstanding pursuant to Sections 2(d)(i)(A)
and 2(d)(i)(B) hereof regardless of whether
the Options or Convertible Securities are
actually exercisable at such time, but
<PAGE> 58
excluding any shares of Common Stock
issuable upon conversion of the Preferred
Shares.
(E) TREATMENT OF EXPIRED OPTIONS AND
UNEXERCISED CONVERTIBLE SECURITIES. If, in any case,
the total number of shares of Common Stock issuable
upon the exercise of any Option or upon exercise,
conversion or exchange of any Convertible Security is
not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such
Convertible Securities shall have expired or
terminated, the Fixed Conversion Price then in effect
will be readjusted to the Fixed Conversion Price
which would have been 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.
(F) EFFECT ON FIXED CONVERSION PRICE OF
CERTAIN EVENTS. For purposes of determining the
adjusted Fixed Conversion Price under this Section
2(d)(i), the following shall be applicable:
(I) CALCULATION OF
CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued
or sold or deemed to have been issued or
sold for cash, the consideration received
therefor will be deemed to 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 or sale. In case any Common Stock,
Options or Convertible Securities are issued
or sold for a consideration 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 of such security on the
date of receipt. In case any Common Stock,
Options or Convertible Securities are issued
to the owners of the non-surviving entity in
connection with any merger in which the
Company is the surviving entity 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
entity as is attributable to such Common
Stock, Options or Convertible Securities, as
the case may be. The fair value of any
<PAGE> 59
consideration other than cash or securities
will be determined jointly by the Company
and the holders of a majority of the
Preferred Shares then outstanding. If such
parties are unable to reach agreement within
ten (10) days after the occurrence of an
event requiring valuation (the "VALUATION
EVENT"), the fair value of such
consideration will be determined within
forty-eight (48) hours of the tenth (10th)
day following the Valuation Event by an
independent, reputable appraiser selected by
the Company. The determination of such
appraiser shall be deemed binding upon all
parties absent manifest error.
(II) INTEGRATED TRANSACTIONS.
In case any Option is issued in connection
with the issue or sale of other securities
of the Company, together comprising one
integrated transaction in which no specific
consideration is allocated to such Options
by the parties thereto, the Options will be
deemed to have been issued for a
consideration of $.01.
(III) TREASURY SHARES. The
number of shares of Common Stock outstanding
at any given time does not include shares
owned or held by or for the account of the
Company, and the disposition of any shares
so owned or held will be considered an issue
or sale of Common Stock.
(IV) RECORD DATE. If the
Company takes a record of the holders of
Common Stock for the purpose of entitling
them (1) to receive a dividend or other
distribution payable in Common Stock,
Options or in Convertible Securities or (2)
to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such
record date will be deemed to be the date of
the issue or sale of the shares of Common
Stock deemed to have been issued or sold
upon the declaration of such dividend or the
making of such other distribution or the
date of the granting of such right of
subscription or purchase, as the case may
be.
(ii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior
to such subdivision will be proportionately reduced. If the
Company at any time combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the
Fixed Conversion Price in effect immediately prior to such
combination will be proportionately increased.
<PAGE> 60
(iii) ADJUSTMENT OF FLOATING CONVERSION PRICE UPON
ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells Convertible Securities that are
convertible into Common Stock at a price which varies with the
market price of the Common Stock (the formulation for such
variable price being herein referred to as, the "VARIABLE
PRICE") and such Variable Price is not calculated using the
same formula used to calculate the Floating Conversion Price
in effect immediately prior to the time of such issue or sale,
the Company shall provide written notice thereof via facsimile
and overnight courier to each holder of the Preferred Shares
("VARIABLE NOTICE") on the date of issuance of such
Convertible Securities. If the holders of Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares
then outstanding provide written notice via facsimile and
overnight courier (the "VARIABLE PRICE ELECTION NOTICE") to
the Company within five (5) business days of receiving a
Variable Notice that such holders desire to replace the
Floating Conversion Price then in effect with the Variable
Price described in such Variable Notice, the Company shall
prepare and deliver to each holder of the Preferred Shares via
facsimile and overnight courier a copy of an amendment to this
Certificate of Designations (the "VARIABLE PRICE AMENDMENT")
that substitutes the Variable Price for the Floating
Conversion Price (together with such modifications to this
Certificate of Designations as may be required to give full
effect to the substitution of the Variable Price for the
Floating Conversion Price) within five (5) business days after
receipt of the requisite number of Variable Price Election
Notices set forth above. The Company shall file such Variable
Price Amendment with the Secretary of State of The
Commonwealth of Massachusetts within five (5) business days
after delivery of the Variable Price Amendment to the holders
of the Preferred Shares; provided that in the event that the
Company receives a notice prior to the filing of the Variable
Price Amendment from any holder who has delivered a Variable
Price Election Notice in connection with such Variable Price
Amendment that such holder objects to the form of the Variable
Price Amendment, the Company shall not file such Variable
Price Amendment until such time as the Variable Price
Amendment has been revised to the reasonable satisfaction of
such holder and approved in writing by the holders of the
Preferred Shares representing at least two-thirds (2/3) of the
Preferred Shares then outstanding. Except as provided in the
preceding proviso, a holder's delivery of a Variable Price
Election Notice shall serve as the consent required to amend
this Certificate of Designation pursuant to Section 12 below.
(iv) REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE. Any recapitalization,
reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another
Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent
<PAGE> 61
liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC
CHANGE." Prior to the consummation of any Organic Change, the
Company will make appropriate provision (in form and substance
reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding) to insure that each of the
holders of the Preferred Shares will thereafter have the right
to acquire and receive in lieu of or in addition to (as the
case may be) the shares of Common Stock otherwise acquirable
and receivable upon the conversion of such holder's Preferred
Shares, such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common
Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares had such Organic
Change not taken place (without taking into account any
limitations or restrictions on the timing or amount of
conversions). In any such case, the Company will make
appropriate provision (in form and substance reasonably
satisfactory to the holders of a majority of the Preferred
Shares then outstanding) with respect to such holders' rights
and interests to insure that the provisions of this Section
2(d) and Section 2(e) will thereafter be applicable to the
Preferred Shares (including, in the case of any such
consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate
adjustment of the Fixed Conversion Price to the value for the
Common Stock reflected by the terms of such consolidation,
merger or sale, if the value so reflected is less than the
Fixed Conversion Price in effect immediately prior to such
consolidation, merger or sale and an immediate revision to the
Floating Conversion Price to reflect the price of the common
stock of the surviving entity and the market in which such
common stock is traded). The Company will not effect any such
consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the
Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form
and substance reasonably satisfactory to the holders of a
majority of the Preferred Shares then outstanding), the
obligation to deliver to each holder of Preferred Shares such
shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to
acquire. "PERSON" shall mean an individual, a limited
liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(v) CERTAIN EVENTS. If any event occurs of the
type contemplated by the provisions of this Section 2(d) but
not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights
of the holders of the Preferred Shares; provided that no such
adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 2(d).
<PAGE> 62
(vi) NOTICES.
(A) Immediately upon any adjustment of the
Conversion Price as provided in Section 2(d)(i), the
Company will give written notice thereof to each
holder of the Preferred Shares, setting forth in
reasonable detail and certifying the calculation of
such adjustment.
(B) The Company will give written notice to
each holder of the Preferred Shares at least twenty
(20) days prior to the date on which the Company
closes its books or takes a record (I) with respect
to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription
offer to holders of Common Stock or (III) for
determining rights to vote with respect to any
Organic Change, dissolution or liquidation and in no
event shall such notice be provided to such holder
prior to such information being made known to the
public.
(C) The Company will also give written
notice to each holder of Preferred Shares at least
twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take
place and in no event shall such notice be provided
to such holder prior to such information being made
known to the public.
(e) PURCHASE RIGHTS. In addition to any
adjustments of the Conversion Price pursuant to Section 2(d),
if at any time after the Issuance Date the Company grants,
issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro
rata to the record holders of any class of Common Stock (the
"PURCHASE RIGHTS"), then the holders of the Preferred Shares
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 Preferred Shares (without taking into account any
limitations or restrictions on the timing or amount of
conversions) 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 the Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(f) FIXING OF CONVERSION PRICE - MAJOR CORPORATE
EVENT ANNOUNCEMENT. Notwithstanding anything contained in
Section 2(b) above, in the event (i) the Company makes a
public announcement that it intends to consolidate or merge
with or into another Person or engage in a business
combination involving the issuance or exchange of 40% or more
of the
<PAGE> 63
Company's outstanding Common Stock (ii) the Company makes a
public announcement that it intends to sell or transfer
substantially all of the Company's assets, or (iii) any
person, group or entity (including the Company) publicly
announces a purchase, tender or exchange offer for 50% or more
of the Company's outstanding Common Stock (the transactions
described in clauses (i), (ii) and (iii) above are hereinafter
referred to as "MAJOR CORPORATE EVENTS" and the date of the
announcement referred to in clause (i), (ii) or (iii) is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the
Fixed Conversion Price shall, effective upon the Announcement
Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the
Conversion Price which would have been applicable for a
conversion by the holder pursuant to Section 2(a) occurring on
the Announcement Date. From and after the Adjusted Conversion
Price Termination Date, the Conversion Price shall be
determined as set forth in Section 2(a). For purposes hereof,
"ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with
respect to any proposed Major Corporate Event for which a
public announcement as contemplated by this Section 2(f) has
been made, the date upon which the Company or the person,
group or entity (in the case of clause (iii) above) publicly
announces the consummation, termination or abandonment of the
proposed Major Corporate Event which was the subject of the
previous public announcement.
(g) MECHANICS OF CONVERSION.
(i) HOLDER'S DELIVERY REQUIREMENTS. To
convert Preferred Shares into full shares of Common
Stock on any date (the "CONVERSION DATE"), the holder
thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m.,
Eastern Time on such date, a copy of a fully executed
notice of conversion in the form attached hereto as
EXHIBIT I (the "CONVERSION NOTICE"), to the Company
or its designated transfer agent (the "TRANSFER
AGENT") and (B) surrender to a common carrier for
delivery to the Company, as soon as practicable
following such date, the original certificate(s)
representing the Preferred Shares being converted (or
an indemnification undertaking reasonably
satisfactory to the Company with respect to such
shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATE(S)").
(ii) COMPANY'S RESPONSE. Upon receipt by
the Company of a facsimile copy of a Conversion
Notice, the Company shall as soon as practicable, but
in any event no later than the next business day,
send, via facsimile, a confirmation of receipt of
such Conversion Notice to such holder. Upon receipt
by the Company of the Preferred Stock Certificate(s)
to be converted pursuant to a Conversion Notice, the
Company shall, on the next business day following the
date of receipt, (I) issue and surrender to a common
carrier for overnight delivery to the address
specified in the Conversion Notice, a certificate,
registered in the
<PAGE> 64
name of the holder or its designee, for the number of
shares of Common Stock to which the holder shall be
entitled, or (II) credit such aggregate number of
shares of Common Stock to which the holder shall be
entitled to the holder's or its designee's balance
account with The Depository Trust Company. If the
number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred
Shares being converted, then the Company or Transfer
Agent, as the case may be, shall, as soon as
practicable and in no event later than two business
days after receipt of the Preferred Stock
Certificate(s) and at its own expense, issue and
deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred
Shares not converted.
(iii) DISPUTE RESOLUTION. In the case of
a dispute as to the determination of the Market Price
or the arithmetic calculation of the Conversion Rate,
the Company shall promptly issue to the holder the
number of shares of Common Stock that is not disputed
and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile
within one business day of receipt of such holder's
Conversion Notice. If such holder and the Company are
unable to agree upon the determination of the Market
Price or arithmetic calculation of the Conversion
Rate within one (1) business day of such disputed
determination or arithmetic calculation being
submitted to the holder, then the Company shall
within one (1) business day submit via facsimile (A)
the disputed determination of the Market Price to an
independent, reputable investment bank or (B) the
disputed arithmetic calculation of the Conversion
Rate to its independent, outside accountant. The
Company shall cause the investment bank or the
accountant, as the case may be, to perform the
determinations or calculations and notify the Company
and the holder of the results no later than
forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such
investment bank's or accountant's determination or
calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(iv) RECORD HOLDER. The person or
persons entitled to receive the shares of Common
Stock issuable upon a conversion of Preferred Shares
shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on
the Conversion Date.
(v) COMPANY'S FAILURE TO TIMELY
CONVERT. If within five (5) business days after the
Company's or the Transfer Agent's receipt of the
Preferred Stock Certificates to be converted the
Company shall fail (I) to issue a certificate for the
number of shares of Common Stock to which a holder is
entitled or to credit the holder's balance account
with The Depository Trust Company for such number of
shares of Common Stock to which the holder is
entitled upon such holder's conversion of
<PAGE> 65
Preferred Shares or (II) to issue a new Preferred
Stock Certificate representing the number of
Preferred Shares to which such holder is entitled
pursuant to Section 2(f)(ii), in addition to all
other available remedies which such holder may pursue
hereunder and under the Securities Purchase Agreement
(including indemnification pursuant to Section 6
thereof), the Company shall pay additional damages to
such holder on each date after the fifth business day
that such conversion or delivery of such Preferred
Stock Certificates, as the case may be, is not timely
effected in an amount equal to 0.5% of the product of
(A) the sum of the number of shares of Common Stock
not issued to the holder on a timely basis pursuant
to Section 2(f)(ii) and to which such holder is
entitled and, in the event the Company has failed to
deliver a Preferred Stock Certificate to the holder
on a timely basis pursuant to Section 2(f)(ii), the
number of shares of Common Stock issuable upon
conversion of the Preferred Shares represented by
such Preferred Stock Certificate, as of the last
possible date which the Company could have issued
such Preferred Stock Certificate to such holder
without violating Section 2(f)(ii) and (B) the
Closing Sale Price of the Common Stock on the last
possible date which the Company could have issued
such Common Stock and the Preferred Stock
Certificate, as the case may be, to such holder
without violating Section 2(f)(ii). In addition to
the foregoing, if for any reason a holder has not
received all of the shares of Common Stock prior to
the tenth (10th) business day after the expiration of
the share delivery period with respect to a
conversion of Preferred Shares, then the Fixed
Conversion Price in respect of any Preferred Shares
held by such holder (including Preferred Shares
submitted for conversion, but for which shares of
Common Stock have not been issued to such holder)
shall thereafter be the lesser of (i) the Fixed
Conversion Price on the Conversion Date specified in
the Conversion Notice which resulted in the
Conversion Failure and (ii) the lowest Conversion
Price in effect during the period beginning on, and
including, such Conversion Date through and including
the day such shares of Common Stock are delivered to
the holder. The Fixed Conversion Price shall
thereafter be subject to further adjustment for any
other events described in this Section 2. If the
Company fails to pay the additional damages set forth
in this Section 2(g)(v) within five (5) business days
of the date incurred, then the holder entitled to
such payments shall have the right at any time, so
long as the Company continues to fail to make such
payments, to require the Company upon written notice,
to immediately issue, in lieu of the cash additions
damages set forth in this Section 2(g)(v), the number
of shares of Common Stock equal to the quotient of
(X) the aggregate amount of the additional damages
payments described above divided by (Y) the
Conversion Price in effect on such Conversion Date
<PAGE> 66
as is specified by the holder in writing to the
Company
(h) MANDATORY CONVERSION AT MATURITY. If any
Preferred Shares remain outstanding on the Maturity Date (as
defined below), then all such Preferred Shares shall be
converted as of such date in accordance with this Section 2 as
if the holders of such Preferred Shares had given the
Conversion Notice on the Maturity Date; provided, however,
that if a Triggering Event (other than a Triggering Event
resulting from the Section 3(d)(vi) due to the Company's
breach of a representation) has occurred and is continuing on
the Maturity Date, then the Company shall, within five
business days following the Maturity Date (unless otherwise
notified in writing by the holder of its request to have the
Preferred Shares converted into Common Stock), pay to each
holder of Preferred Shares then outstanding, in immediately
available funds, an amount equal to the Triggering Event
Redemption Price as of the Maturity Date. All holders of
Preferred Shares shall thereupon surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company
or the Transfer Agent, provided that the Company has complied
with its obligations under this Section 2(g). Notwithstanding
the foregoing, if the Common Stock is not designated for
quotation or listed on the Principal Market but such event
does not constitute Triggering Event, then the Mandatory
Conversion Date shall be extended until the Common Stock is so
designated or listed. "MATURITY DATE" means the date which is
four years after the applicable Issuance Date for the
Preferred Shares.
(i) FRACTIONAL SHARES. The Company shall not
issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one Preferred
Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after
the aforementioned aggregation, the issuance would result in
the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock
up or down to the nearest whole share.
(j) TAXES. The Company shall pay any and all
taxes that may be payable with respect to the issuance and
delivery of Common Stock upon the conversion of Preferred
Shares.
(3) REDEMPTION AT OPTION OF HOLDERS.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition
to all other rights of the holders of Preferred Shares contained
herein, simultaneous with or after the occurrence of a Major
Transaction (as defined below), each holder of Preferred
<PAGE> 67
Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at
a price per Preferred Share equal to the greater of (i) 130% of the
Liquidation Value (as defined in Section 8) and (ii) the product of (A)
the Conversion Rate on the date the Notice of Redemption at Option of
Buyer Upon Major Transaction is given and (B) the Closing Sale Price on
the date of the public announcement of such Major Transaction or the
next date on which the exchange or market on which the Common Stock is
traded is open if such public announcement is made (X) after 12:00
p.m., Central Time, time on such date or (Y) on a date on which the
exchange or market on which the Common Stock is traded is closed
("MAJOR TRANSACTION REDEMPTION PRICE").
(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition
to all other rights of the holders of Preferred Shares contained
herein, simultaneous with or after the occurrence of a Triggering Event
(as defined below), each holder of Preferred Shares shall have the
right, at such holder's option, to require the Company to redeem all or
a portion of such holder's Preferred Shares at a price per Preferred
Share equal to the greater of (i) 130% of the Liquidation Value and
(ii) the product of (A) the Conversion Rate on the date of such
holder's delivery of a Notice of Redemption at Option of Holder Upon
Triggering Event (as defined below) and (B) the greater of (I) the
Closing Sale Price on the trading day immediately preceding such
Triggering Event or (II) the Closing Sale Price on the date of the
holder's delivery to the Company of a Notice of Redemption at Option of
Holder Upon Triggering Event (as defined below) or, if such date of
delivery is not a trading day, the next date on which the exchange or
market on which the Common Stock is traded is open ("TRIGGERING EVENT
REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION
PRICE," the "REDEMPTION PRICE").
(c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be
deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other
than pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the
Company);
(ii) the sale or transfer of all or substantially
all of the Company's assets; or
(iii) a purchase, tender or exchange offer made to
and accepted by the holders of more than 40% of the
outstanding shares of Common Stock.
(d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
<PAGE> 68
(i) the failure of the Registration Statement to
be declared effective by the SEC on or prior to the date that
is 120 days after the Issuance Date to which such Registration
Statement is related;
(ii) while the Registration Statement is required
to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the
Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of
the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or
unavailability continues for a period of at least ten
consecutive days or for an aggregate of at least twenty days
in any 180 day period;
(iii) the suspension from trading or quotation or
failure of the Common Stock to be listed or quoted on the
Principal Market for a period of five consecutive days or for
an aggregate of at least ten days in any 365 day period;
<PAGE> 69
(iv) the Company's notice to any holder of
Preferred Shares, including by way of public announcement, at
any time, of its intention not to comply with requests for
conversion of any Preferred Shares into shares of Common
Stock, including due to any of the reasons set forth in
Section 4(a), or the Company's failure to deliver Conversion
Shares within ten days of the Conversion Date;
(v) upon the Company's receipt of a Conversion
Notice, the Company shall not be obligated to issue the
Conversion Shares due to the provisions of Section 11;
(vi) any representation or warranty by the
Company was not true and correct at the time made (including
the Issuance Date) or the Company breaches any covenant or
other term or condition of the Securities Purchase Agreement,
the Registration Rights Agreement, this Certificate of
Designations, the Irrevocable Transfer Agent Instructions (as
defined in the Securities Purchase Agreement), or any other
agreement, document, certificate or other instrument delivered
in connection with the transactions contemplated thereby or
hereby, except (i) to the extent that such breach would not
have a Material Adverse Effect (as defined in Section 3(a) of
the Securities Purchase Agreement) or would materially impair
the value of the Preferred Shares (it being agreed and
acknowledged that the breach of the covenant contained in
Section 4(f) of the Purchase Agreement will be deemed to
materially impair the value of the Preferred Shares), and (ii)
in the case of a breach of a covenant which is curable, such
breach continues for a period of less than ten days; or
(vii) the Company's shareholders fail to approve
the proposals contemplated by Section 4(j) of the Securities
Purchase Agreement on or before the earlier of the first
meeting of the Company's shareholders after the initial
Issuance Date and 120 days after the initial Issuance Date.
(e) MECHANICS OF REDEMPTION AT OPTION OF HOLDER UPON
MAJOR TRANSACTION. No sooner than fifteen days nor later than ten days
prior to the consummation of a Major Transaction, but not prior to the
public announcement of such Major Transaction, the Company shall
deliver written notice thereof via facsimile and overnight courier (a
"NOTICE OF MAJOR TRANSACTION") to each holder of Preferred Shares. At
any time after receipt of a Notice of Major Transaction (or, in the
event a Notice of Major Transaction is not delivered at least ten days
prior to a Major Transaction, at any time on or after the date which is
ten days prior to a Major Transaction), any holder of the Preferred
Shares then outstanding may require the Company to redeem all or a
portion of the holder's Preferred Shares, which redemption shall be
effective concurrent with the consummation of the Major Transaction,
then outstanding by delivering written notice thereof via facsimile and
overnight courier (a
<PAGE> 70
"NOTICE OF REDEMPTION AT OPTION OF HOLDER UPON MAJOR TRANSACTION") to
the Company, which Notice of Redemption at Option of Holder Upon Major
Transaction shall indicate (i) the number of Preferred Shares that such
holder is submitting for redemption and (ii) the applicable Major
Transaction Redemption Price, as calculated pursuant to Section 3(a).
(f) MECHANICS OF REDEMPTION AT OPTION OF HOLDER UPON
TRIGGERING EVENT. Within one business day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "NOTICE OF TRIGGERING EVENT") to
each holder of Preferred Shares. At any time after the earlier of a
holder's receipt of a Notice of Triggering Event and such holder
becoming aware of a Triggering Event, any holder of the Preferred
Shares then outstanding may require the Company to redeem all or a
portion of the holder's Preferred Shares then outstanding by delivering
written notice thereof via facsimile and overnight courier (a "NOTICE
OF REDEMPTION AT OPTION OF HOLDER UPON TRIGGERING EVENT") to the
Company, which Notice of Redemption at Option of Holder Upon Triggering
Event shall indicate (i) the number of Preferred Shares that such
holder is submitting for redemption and (ii) the applicable Triggering
Event Redemption Price, as calculated pursuant to Section 3(b).
(g) PAYMENT OF REDEMPTION PRICE. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Holder Upon
Triggering Event or a Notice(s) of Redemption at Option of Holder Upon
Major Transaction from any holder of Preferred Shares, the Company
shall immediately notify each holder of Preferred Shares by facsimile
of the Company's receipt of such Notice(s) of Redemption at Option of
Holder Upon Triggering Event or Notice(s) of Redemption at Option of
Holder Upon Major Transaction and each holder which has sent such a
notice shall promptly submit to the Company or its Transfer Agent such
holder's Preferred Stock Certificates which such holder has elected to
have redeemed. The Company shall deliver the applicable Triggering
Event Redemption Price, in the case of a redemption pursuant to Section
3(f), to such holder within five business days after the Company's
receipt of a Notice of Redemption at Option of Holder Upon Triggering
Event and, in the case of a redemption pursuant to Section 3(e), the
Company shall deliver the applicable Major Transaction Redemption Price
concurrent with the consummation of the Major Transaction; provided
that a holder's Preferred Stock Certificates shall have been so
delivered to the Company; and provided further that if the Company is
unable to redeem all of the Preferred Shares to be redeemed, the
Company shall redeem an amount from each holder of Preferred Shares
being redeemed equal to such holder's pro rata amount (based on the
number of Preferred Shares held by such holder relative to the number
of Preferred Shares outstanding) of all Preferred Shares being
redeemed. If the Company shall fail to redeem all of the Preferred
Shares submitted for redemption in addition to any remedy such holder
of Preferred Shares may have under this Certificate of Designations,
the Securities Purchase Agreement and the Registration Rights
Agreement, the applicable Redemption Price payable in respect of such
<PAGE> 71
unredeemed Preferred Shares shall bear interest at the rate of 2.5% per
month (prorated for partial months) until paid in full. Until the
Company pays such unpaid applicable Redemption Price in full to a
holder of Preferred Shares submitted for redemption, such holder shall
have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of
redemption, require the Company to promptly return to such holder(s)
all of the Preferred Shares that were submitted for redemption by such
holder(s) under this Section 3 and for which the applicable Redemption
Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Optional Redemption Notice(s) and prior
to payment of the full applicable Redemption Price to such holder, (i)
the Notice(s) of Redemption at Option of Holder Upon Triggering Event
or the Notice(s) of Redemption at Option of Holder Upon Major
Transaction, as the case may be, shall be null and void with respect to
those Preferred Shares submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Preferred Shares submitted to the Company by
each holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid, (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price in effect on the date on
which the Void Optional Redemption Notice(s) is delivered to the
Company and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option of
Buyer Upon a Major Transaction or the Notice(s) of Redemption at Option
of Buyer Upon Triggering Event, as the case may be, is delivered to the
Company and ending on the date which the Void Optional Redemption
Notice is delivered to the Company; provided that no adjustment shall
be made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect, (iv) the Conversion Percentage in
effect at such time shall be reduced by a number of percentage points
equal to the product of (A).50 and (B) the number of days in the period
beginning on the date which is the last date on which the Triggering
Event Redemption Price or Major Transaction Redemption Price, as the
case may be, is required to be delivered in accordance with the
foregoing provisions of this Section 3(g) and ending on the date on
which the Void Optional Redemption Notice(s) is delivered to the
Company and (v) if the redemption was caused by a Triggering Event
involving the Company's inability to issue Conversion Shares because of
the Exchange Cap (as defined in Section 11), the holders of at least
two-thirds of the Preferred Shares then outstanding, including
Preferred Shares submitted for redemption pursuant to this Section 3
with respect to which the applicable Redemption Price has not been
paid, may direct the Company to immediately delist the Common Stock
from the exchange or automated quotation system on which the Common
Stock is traded and have the Common Stock, at such holders' option,
traded in the electronic bulletin board or the "pink sheets."
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Sale Price or the arithmetic calculation
of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Closing Sale Price" being
substituted for the term "Market Price" and the term "Redemption Price"
being substituted for the term "Conversion Rate". A holder's delivery
of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not effect the Company's obligations to
make any payments which have
<PAGE> 72
accrued prior to the date of such notice. Payments provided for in this
Section 3 shall have priority to payments to other stockholders in
connection with a Major Transaction.
(4) INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If,
upon the Company's receipt of a Conversion Notice or on the Maturity
Date, the Company cannot issue shares of Common Stock registered for
resale under the Registration Statement (or which are exempt from the
registration requirements under the 1933 Act pursuant to Rule 144(k)
under the 1933 Act) for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or its Securities, including without
limitation the Exchange Cap (as defined below), from issuing all of the
Common Stock which is to be issued to a holder of Preferred Shares
pursuant to a Conversion Notice or (z) fails to have a sufficient
number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) and, with respect to the
unconverted Preferred Shares, the holder, solely at such holder's
option, can elect to:
(i) require the Company to redeem from such
holder those Preferred Shares for which the Company is unable
to issue Common Stock in accordance with such holder's
Conversion Notice ("MANDATORY REDEMPTION") at a price per
Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to
the Triggering Event Redemption Price as of such Conversion
Date;
(ii) if the Company's inability to fully convert
Preferred Shares is pursuant to Section 4(a)(z), require the
Company to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant
to Section 2(f);
(iii) void its Conversion Notice and retain or
have returned, as the case may be, the nonconverted Preferred
Shares that were to be converted pursuant to such holder's
Conversion Notice (provided that a holder's voiding its
Conversion Notice shall not effect the Company's obligations
to make any payments which have accrued prior to the date of
such notice); or
(iv) if the Company's inability to fully convert
Preferred Shares is pursuant to Section 4(a)(y), require the
Company to issue shares of Common Stock in accordance with
such holder's Conversion Notice and pursuant to Section 2(f)
at a Conversion Price equal to the average of the Closing Sale
Prices of the Common Stock on the five consecutive trading
days immediately
<PAGE> 73
preceding such holder's Notice in Response to Inability to Convert (as
defined below).
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The
Company shall immediately send via facsimile to a holder of Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
4(a), a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "INABILITY TO FULLY CONVERT NOTICE").
Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Preferred Shares which cannot be converted
and (iii) the applicable Mandatory Redemption Price. Such holder shall
notify the Company of its election pursuant to Section 4(a) above by
delivering written notice via facsimile to the Company ("NOTICE IN
RESPONSE TO INABILITY TO CONVERT").
(c) PAYMENT OF MANDATORY REDEMPTION PRICE. If such holder
shall elect to have its shares redeemed pursuant to Section 4(a)(i),
the Company shall pay the Mandatory Redemption Price in cash to such
holder within five (5) days of the Company's receipt of the holder's
Notice in Response to Inability to Convert. If the Company shall fail
to pay the applicable Mandatory Redemption Price to such holder on a
timely basis as described in this Section 4(c) (other than pursuant to
a dispute as to the determination of the arithmetic calculation of the
Redemption Price), in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement, such unpaid
amount shall bear interest at the rate of 2.5% per month (prorated for
partial months) until paid in full. Until the full Mandatory Redemption
Price is paid in full to such holder, such holder may void the
Mandatory Redemption with respect to those Preferred Shares for which
the full Mandatory Redemption Price has not been paid and (i) receive
back such Preferred Shares and (ii) the Fixed Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (A) the
Fixed Conversion Price as in effect on the date on which the holder
voided the Mandatory Redemption and (B) the lowest Closing Bid Price
during the period beginning on the Conversion Date and ending on the
date the holder voided the Mandatory Redemption. Notwithstanding the
foregoing, if the Company fails to pay the applicable Mandatory
Redemption Price within such five (5) days time period due to a dispute
as to the determination of the Mandatory Redemption Price, such dispute
shall be resolved pursuant to Section 2(f)(iii) with the term
"MANDATORY REDEMPTION PRICE" being substituted for the term "Conversion
Rate".
(d) PRO-RATA CONVERSION AND REDEMPTION. In the event the
Company receives a Conversion Notice, Notice of Redemption at Option of
Holder Upon Major Transaction or Notice of Redemption at Option of
Holder Upon Triggering Event from more than one holder of Preferred
Shares on the same day and the Company can convert and/or redeem some,
but not all, of the Preferred Shares pursuant to this Section 4, the
Company shall convert and/or redeem from each holder of Preferred
Shares electing to have Preferred Shares converted and redeemed at such
time an
<PAGE> 74
amount equal to such holder's pro-rata amount (based on the number of
Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being converted
and redeemed at such time.
(5) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(6) RESERVATION OF SHARES. The Company shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holder.
(7) VOTING RIGHTS. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the MBCL,
and as expressly provided in this Certificate of Designations.
(8) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $1,000 and
(ii) an amount equal to the product of (.06) (N/365) ($1,000) (such sum being
referred to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds
are insufficient to pay the full amount due to the holders of Preferred Shares
and holders of shares of other classes or series of preferred stock of the
Company that are of equal rank with the Preferred Shares as to payments of
Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds
<PAGE> 75
payable to such holder as a liquidation preference, in accordance with their
respective Certificate of Designations, as a percentage of the full amount of
Preferred Funds payable to all holders of Preferred Shares and Pari Passu
Shares. The purchase or redemption by the Company of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other Person, nor the sale or transfer
by the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Preferred Shares shall be entitled to receive any amounts
with respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein; provided that a holder of
Preferred Shares shall be entitled to all amounts previously accrued with
respect to amounts owed hereunder.
(9) PREFERRED RANK; PARTICIPATION.
(a) All shares of Common Stock shall be of junior rank to
all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the
Company. The rights of the shares of Common Stock shall be subject to
the preferences and relative rights of the Preferred Shares. Without
the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or issue additional or other capital
stock that is of senior or equal rank to the Preferred Shares in
respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or make any amendment to the Company's
Restated Articles of Organization or bylaws, or file any resolution of
the board of directors of the Company with the Secretary of State of
The Commonwealth of Massachusetts containing any provisions, which
would adversely affect or otherwise impair the rights or relative
priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock.
In the event of the merger or consolidation of the Company with or into
another corporation, the Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger
shall result inconsistent therewith.
(b) Subject to the rights of the holders, if any, of the
Pari Passu Shares, the holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as
if such holders of Preferred Shares had converted the Preferred Shares
into Common Stock (without regard to any limitations on conversion
herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the
preceding sentence shall be made concurrently with
<PAGE> 76
the dividend or distribution to the holders of Common Stock.
(10) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO
OTHER CAPITAL STOCK. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its Common Stock
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.
(11) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding any
other provision herein, the Company shall not be obligated to issue any shares
of Common Stock upon conversion of the Preferred Shares if the issuance of such
shares of Common Stock would exceed 4,094,894 (the "EXCHANGE CAP") without
breaching the Company's obligations under the rules or regulations, of the
Principal Market requiring the approval of the Company's stockholders for the
issuance of a certain number of shares of Common Stock, except that such
limitation shall not apply in the event that the Company (i) obtains the
approval of its stockholders as required by applicable rules and regulations, of
the Principal Market for issuances of Common Stock in excess of the Exchange Cap
or (ii) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to the
holders of a majority of the Preferred Shares then outstanding. To the extent
that the above limitation is applicable to the Company, until such approval or
written opinion is obtained, no purchaser of Preferred Shares pursuant to the
Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon
conversion of Preferred Shares, shares of Common Stock in an amount greater than
the product of (x) the Exchange Cap amount multiplied by (y) a fraction, the
numerator of which is the number of Preferred Shares issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the Preferred Shares issued to the Purchasers
pursuant to the Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap Allocation Amount. In the event that any holder
of Preferred Shares shall convert all of such holder's Preferred Shares into a
number of shares of Common Stock which, in the aggregate, is less than such
holder's Cap Allocation Amount, then the difference between such holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Preferred Shares on a pro rata basis in proportion to the
number of Preferred Shares then held by each such holder.
(12) VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED SHARES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
this Certificate of Designations or the Company's Restated Articles of
Organization which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares, or (b) any
issuance of Preferred Shares other than pursuant to the Securities Purchase
Agreement.
(13) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of
<PAGE> 77
an indemnification undertaking by the holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(14) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(15) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and the initial holders of
the Preferred Shares and shall not be construed against any person as the
drafter hereof.
(16) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof (except to the extent that
such power, right or privilege must, in accordance with the terms of this
Certificate of Designations, be exercised within a specified period of time and
such period of time has lapsed without such power, right or privilege being
exercised), nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
(17) NOTICES. Any notice required to be delivered pursuant to the
terms of this Certificate of Designations shall be delivered, unless otherwise
provided in these Certificate of Designations, in accordance with the terms, and
subject to the notice provisions of, the Securities Purchase Agreement.
<PAGE> 78
ALPHA-BETA TECHNOLOGY, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights, of the Series F Convertible Preferred Stock of Alpha-Beta Technology,
Inc. (the "CERTIFICATE OF DESIGNATIONS"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series F Convertible Preferred Stock, par value $0.01 per share
(the "PREFERRED SHARES"), of Alpha-Beta Technology, Inc., a Massachusetts
corporation (the "COMPANY"), indicated below into shares of Common Stock, par
value $0.01 per share (the "COMMON STOCK"), of the Company, by tendering the
stock certificate(s) representing the Preferred Shares specified below as of the
date specified below.
Date of Conversion: ___________________________________________________
Number of Preferred Shares to be converted: ___________________________
Stock certificate no(s). of Preferred Shares to be converted: _________
Please confirm the following information:
Conversion Price: _____________________________________________________
Number of shares of Common Stock
to be issued: _________________________________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: _____________________________________________________
_____________________________________________________
_____________________________________________________
Facsimile Number: _____________________________________________________
Authorization: _____________________________________________________
By: _________________________________________________
<PAGE> 79
Title: ______________________________________________
Dated: _____________________________________________________
Account Number:
(if electronic book entry transfer): _________________________________
Transaction Code Number
(if electronic book entry transfer): _________________________________
<PAGE> 80
SIGNED UNDER THE PENALTIES OF PERJURY, this 21st day of October, 1998
---- ------- --
/s/ Spiros Jamas *President
- --------------------------------------------------------,
Spiros Jamas
/s/ Davidson Easson, Jr. *Clerk
- --------------------------------------------------------,
D. Davidson Easson, Jr.
*Delete the inapplicable words.
<PAGE> 81
THE COMMONWEALTH OF MASSACHUSETTS
CERTIFICATE OF VOTE OF DIRECTORS
ESTABLISHING A SERIES OF A CLASS OF STOCK
(GENERAL LAWS, CHAPTER 156B, SECTION 26)
=============================================================
I hereby approve the within Certificate of Vote of Directors
and, the filing fee in the amount of $_______________ having
been paid, said certificate is deemed to have been filed with
me this __________ day of ____________________, 19__.
Effective date:______________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Robert E. Bishop, Esq.
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Goodwin, Procter & Hoar LLP
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Exchange Place, Boston, Massachusetts 02109
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Telephone: (617) 570-1000
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