<PAGE> 1
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:
[ ] Preliminary Proxy Statement
[X] 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:
- --------------------------------------------------------------------------------
<PAGE> 2
[ALPHA-BETA LOGO]
ALPHA-BETA TECHNOLOGY, INC.
THREE BIOTECH PARK
ONE INNOVATION DRIVE
WORCESTER, MASSACHUSETTS 01605
December 2, 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
Wednesday, December 16, 1998, 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
<PAGE> 3
ALPHA-BETA TECHNOLOGY, INC.
WORCESTER, MASSACHUSETTS 01605
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, DECEMBER 16, 1998
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 Wednesday, December 16, 1998, 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
December 2, 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.
<PAGE> 4
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 Wednesday, December 16, 1998, 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
Wednesday, December 2, 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
<PAGE> 5
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
2
<PAGE> 6
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
3
<PAGE> 7
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
4
<PAGE> 8
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 substantially 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
5
<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 (as
provided in Proposal III), 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
6
<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 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.
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 stock
to be granted under the 1997 Option Plan is 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
9
<PAGE> 13
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 cast 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.
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 a clinical trial for Betafectin(R) on March 1,
1997.
10
<PAGE> 14
(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.
(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.
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
11
<PAGE> 15
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
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.
12
<PAGE> 16
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.
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 Form 13F-E for the quarter ended September 30, 1998 as
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.
13
<PAGE> 17
(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.
(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.
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
14
<PAGE> 18
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.
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
A-1
<PAGE> 19
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 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).
A-2
<PAGE> 20
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 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
A-3
<PAGE> 21
Conversion Shares, 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
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
A-4
<PAGE> 22
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 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
A-5
<PAGE> 23
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 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 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
A-6
<PAGE> 24
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 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.
A-7
<PAGE> 25
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, 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
A-8
<PAGE> 26
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 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 "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.
A-9
<PAGE> 27
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 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
A-10
<PAGE> 28
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 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 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
A-11
<PAGE> 29
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 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
A-12
<PAGE> 30
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.
(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 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.
A-13
<PAGE> 31
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 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.
A-14
<PAGE> 32
(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 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 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
A-15
<PAGE> 33
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 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.
A-16
<PAGE> 34
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 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
A-17
<PAGE> 35
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 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.
------------------------
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
A-18
<PAGE> 36
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL/
ADDITIONAL INVESTOR'S REPRESENTATIVES'
INVESTOR ADDRESS PREFERRED A ADDRESS AND
INVESTOR NAME AND FACSIMILE NUMBER SHARES FACSIMILE NUMBER
------------- -------------------- ----------- ---------------------------
<S> <C> <C> <C>
HFTP INVESTMENTS LLC................. c/o Promethean Investment Group, 1500/1500 Promethean Investment Group, L.L.C.
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>
A-19
<PAGE> 37
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
_____________ 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.
B-1
<PAGE> 38
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 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-2
<PAGE> 39
(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 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);
B-3
<PAGE> 40
(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 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
B-4
<PAGE> 41
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
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 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.
B-5
<PAGE> 42
(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
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
B-6
<PAGE> 43
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
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.
(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
B-7
<PAGE> 44
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 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
B-8
<PAGE> 45
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).
(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
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.
B-9
<PAGE> 46
(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 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 Preferred
Shares or (II) to issue a new Preferred Stock Certificate representing
the
B-10
<PAGE> 47
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 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
B-11
<PAGE> 48
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 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:
(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
B-12
<PAGE> 49
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;
(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 "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
B-13
<PAGE> 50
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
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
B-14
<PAGE> 51
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 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 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
B-15
<PAGE> 52
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 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.
B-16
<PAGE> 53
(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 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 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
B-17
<PAGE> 54
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 purchasers 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 Purchasers
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 Purchasers shall sell or otherwise transfer any of such
Purchasers' Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchasers' 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 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
B-18
<PAGE> 55
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.
B-19
<PAGE> 56
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: ___________________________________________________
Title: ________________________________________________
Dated: _______________________________________________________________
Account Number
(if electronic book entry transfer): _______________________________
Transaction Code Number
(if electronic book entry transfer): _______________________________
B-20
<PAGE> 57
SIGNED UNDER THE PENALTIES OF PERJURY, this 21st day of October, 1998
/s/ SPIROS JAMAS
------------------------------------
SPIROS JAMAS
PRESIDENT
/s/ DAVIDSON EASSON, JR.
------------------------------------
D. DAVIDSON EASSON, JR.
CLERK
B-21
<PAGE> 58
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 $100.00 having been paid, said certificate is deemed
to have been filed with me this 21st day of October, 1998.
Effective date:
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
ROBERT E. BISHOP, ESQ.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE, BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 570-1000
B-22
<PAGE> 59
ALPHA-BETA TECHNOLOGY, INC.
Proxy for Special Meeting of Stockholders
Wednesday, December 16, 1998
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 December 2, 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 DECEMBER 2, 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> 60
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL I, PROPOSAL II AND PROPOSAL III.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
I. Proposal to approve the potential issuance of a number FOR AGAINST ABSTAIN
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.
II. Proposal to approve an amendment to the Company's FOR AGAINST ABSTAIN
Restated Articles of Organization increasing the number [ ] [ ] [ ]
of authorized shares of Common Stock to 60,000,000.
III. Proposal to approve an amendment to the Company's 1997 FOR AGAINST ABSTAIN
Stock Option and Grant Plan increasing the number of [ ] [ ] [ ]
shares of Common Stock reserved for issuance under such
plan.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A
COPY OF THE ACCOMPANYING NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS AND THE PROXY STATEMENT WITH
RESPECT THERETO, AND HEREBY REVOKES ANY PROXY OR
PROXIES HERETOFORE GIVEN. THIS PROXY MAY BE REVOKED
AT ANY TIME BEFORE IT IS EXERCISED.
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 SPECIAL MEETING.
(Please sign exactly as your name appears on your
stock certificate. Joint owners should each sign
personally. When signing as attorney, executor,
administrator, trustee or guardian, please give
your full title as such. It is requested that
corporation proxies be signed by the President or
Vice President and the Secretary or Assistant
Secretary.)
Signature: _____________________________ Date: ____________ Signature: _____________________________ Date: ____________
</TABLE>
