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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 21, 1999
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INPUT/OUTPUT, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
1-13402 22-2286646
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(Commission File Number) (IRS Employer Identification No.)
11104 WEST AIRPORT BLVD., STAFFORD, TEXAS 77477
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 933-3339
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On April 21, 1999, SCF-IV, L.P., a limited partnership organized
under the laws of the State of Delaware ("SCF-IV"), and Input/Output, Inc., a
Delaware corporation (the "Company") entered into a Purchase Agreement (the
"Purchase Agreement") pursuant to which SCF-IV agreed to purchase, in a
privately negotiated transaction, from the Company 40,000 shares of Series B
preferred stock, par value $0.01 per share (the "Series B Preferred Stock" or
the "Initial Shares"), of the Company, and the Company granted to SCF-IV an
option to purchase up to 15,000 additional shares of Series C preferred
stock, par value $0.01 per share (the "Series C Preferred Stock" or the
"Option Shares," and together with the Series B Preferred Stock, the
"Shares"), of the Company. SCF-IV purchased the Initial Shares on May 7, 1999
(the "Initial Closing Date"). The consideration paid by SCF-IV for the
Initial Shares was $40,000,000. The net cash proceeds will be used to fund
the Company's research and development projects, to provide additional
working capital and for general corporate purposes.
For a period of ninety days after the Initial Closing Date (the
"Option Period"), SCF-IV may, at its sole option, purchase up to 15,000
shares of the Series C Preferred Stock (the "Exercise Notice") under the
option granted under the Purchase Agreement. The purchase price payable for
the Option Shares will be $1,000 per share (or an aggregate maximum of
$15,000,000).
THE PURCHASE AGREEMENT
Pursuant to the Purchase Agreement, the Company has agreed to use
its best efforts to take, or cause to be taken, such action as may be
necessary or advisable to ensure that immediately following the later of (i)
the Initial Closing Date and (ii) the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Company's Board of Directors
will be increased by one (if necessary) and an individual designated by
SCF-IV will be elected as a director of the Company in accordance with the
terms of the Shares as described below.
In connection with the Purchase Agreement, the Company has amended
its Rights Agreement with Harris Trust and Savings Bank as rights agent dated
as of January 17, 1997 (the "Rights Plan"), to provide that neither SCF-IV
nor any of its affiliates will be deemed to be an "Acquiring Person" within
the meaning of the Rights Plan by reason of the transactions contemplated by
the Purchase Agreement. The Company has agreed in the Purchase Agreement that
it will not further amend the Rights Plan, or adopt any similar agreement,
that conflicts with, or restricts SCF-IV to a greater extent than the
provisions contained in the Purchase Agreement. In addition, the Board of
Directors of the Company has approved SCF-IV and its affiliates becoming an
"interested stockholder" within the meaning of Section 203 of the Delaware
General Corporation Law (the "DGCL") and a "Related Person" within the
meaning of Article THIRTEENTH of the Company's Certificate of Incorporation
by reason of the acquisition by SCF-IV or any of its affiliates of (i) the
Shares, (ii) any shares issued to SCF-IV upon conversion of the Shares (the
"Underlying Shares"), (iii) any shares of Common Stock permitted to be
acquired by SCF-IV or any of its affiliates in accordance with the limitation
set forth in the standstill provisions contained in the Purchase Agreement
(discussed below) or (iv) any
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other securities (including shares of Common Stock issuable upon conversion,
exercise or exchange thereof pursuant to their terms) received by SCF-IV or
its affiliates pursuant to the Purchase Agreement.
Under the Purchase Agreement, SCF-IV has agreed that, without the
prior written consent of the Company, it will not sell or otherwise transfer
any of the Shares to any other person or entity other than a partner of
SCF-IV, who, in any event, shall agree to be bound by the transfer
restrictions contained in the Purchase Agreement. SCF-IV has also agreed
that, without the prior written consent of the Company, it will not, prior to
the earlier of (i) the seventh anniversary of the Initial Closing, or (ii)
the occurrence of a Change of Control (defined as (i) an agreement providing
for a Business Combination (defined below under "Series B Preferred Stock")
is approved by the Board of Directors of the Company or a Business
Combination is consummated, (ii) a tender offer for Common Stock is approved
or recommended by the Board of Directors of the Company or (iii) there is a
redemption, repurchase or reacquisition by the Company of rights issued
pursuant to the Rights Plan or any waiver of the application of the Rights
Plan to any beneficial owner other than SCF-IV or its affiliates except as
approved by SCF-IV's representative to the Board of Directors of the
Company), sell or otherwise transfer the Underlying Shares in a single
transaction or series of related transactions involving a number of shares in
the aggregate constituting in excess of 1% of the Company's issued and
outstanding shares of Common Stock at the time of such sale or transfer
(based on the Company's most recent report filed with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to such sale or transfer disclosing such
number of outstanding shares) to any entity which SCF-IV knows competes to a
material extent with the Company or is engaged to a material extent in the
energy services or equipment business, without first offering such shares to
the Company on the same terms and in the manner set forth in the Purchase
Agreement (subject to certain exceptions relating to an underwritten public
offering).
The Company has agreed that, from and after the date of the Purchase
Agreement, it will not issue any Permitted Parity Securities (as defined
below), except for (i) the issuance of the Option Shares to SCF-IV or its
affiliates pursuant to the Purchase Agreement, or (ii) the issuance of a
number of shares of Permitted Parity Securities issued at a price of $1,000
cash per share in a single series within eighteen months of the Initial
Closing equal to 35,000 less the number of Option Shares purchased under the
Purchase Agreement (or, if the Option Period shall not yet have expired, less
the full 15,000 Option Shares); provided that if such Permitted Parity
Securities are issued after the first anniversary of the Initial Closing,
then SCF-IV will be entitled to prior written notice of such proposed
issuance and the terms thereof and shall have a right of first refusal option
to purchase any or all of such securities on the same terms as offered to the
proposed purchaser. "Permitted Parity Securities" for this purpose means up
to 35,000 shares of preferred stock of the Company constituting no more than
two series of preferred stock, each share of which (i) has a liquidation
preference of not more than $1,000 per share exclusive of accrued and unpaid
dividends, (ii) has a dividend rate of not more than one percent per annum,
(iii) has no more than one vote per share with respect to matters on which it
votes together with the Series B Preferred Stock and other Permitted Parity
Securities as a single class and (iv) is PARI PASSU with the Series B
Preferred Stock with respect to the payment of dividends and the
distributions upon Liquidation (as defined in the Certificate of Designation
of Series B Preferred Stock). The Series C Preferred Stock that may be issued
pursuant
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to the Purchase Agreement shall be considered Permitted Parity Securities for
purposes of the foregoing.
The Company agrees that if it issues any Permitted Parity Securities
(other than Option Shares) pursuant to the foregoing that have terms that
SCF-IV reasonably believes to be more favorable to the purchaser of such
shares than the terms of the Initial Shares, then SCF-IV shall have the right
to exchange all of the Shares purchased under the Purchase Agreement (or, if
such issuance occurs prior to the expiration of the Option Period and the
Option Closing has not occurred, all of the Shares that may be purchased
under the Purchase Agreement if SCF-IV agrees to pay the applicable purchase
price therefor upon such exchange) on a share for share basis.
By executing the Purchase Agreement, SCF-IV has agreed that, for a
period commencing on the date of the Purchase Agreement and ending on the
earlier of the third anniversary of the Initial Closing Date or the
occurrence of a Change of Control (as defined), it will not:
(a) directly or indirectly, take any action to acquire, in the
aggregate, beneficial ownership of more than 4% of the Company's
outstanding Common Stock or voting stock (based on the Company's most
recent Exchange Act report filed with the SEC prior to such acquisition
disclosing such number of outstanding shares), excluding from such
ownership the Initial Shares and Option Shares or the Underlying Shares
or any other Common Stock or voting stock acquired directly from the
Company;
(b) form or encourage the formation of a "group" within the
meaning of Section 13(d)(3) of the Exchange Act, to acquire, change or
influence control of the Company;
(c) solicit, or participate in any "solicitation" of "proxies"
or become a "participant" in any "election contest" or consent
solicitation (as such terms are defined or used under Regulation 14A
under the Exchange Act) with respect to the Company in opposition to
the recommendation of a majority of the Board of Directors of the
Company;
(d) initiate, propose or otherwise solicit stockholders for
the approval of, one or more stockholder proposals with respect to the
Company or induce any person to initiate any stockholder proposal, in
each case in opposition to the recommendation of a majority of the
Board of Directors of the Company;
(e) deposit any voting stock in a voting trust or subject them
to a voting agreement or other agreement or arrangement with respect to
the voting of such voting stock, other than any such trust, agreement
or other arrangement involving no persons other than SCF-IV, its
partners or affiliates; or
(f) solicit, propose or negotiate with any other person
(including the Company) with respect to any form of business
combination or other extraordinary transaction with the Company or any
of its subsidiaries, in each case which would result in a Change of
Control, or solicit, make or propose or negotiate with any other person
with respect to or announce
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an intent to make, any tender offer or exchange offer for any
securities of the Company, in each case in opposition to the
recommendation of a majority of the Board of Directors of the Company,
or publicly disclose an intent, purpose, plan or proposal with respect
to the Company, any of its subsidiaries, or any securities or assets of
the Company, that would violate the provisions of this paragraph (f);
provided, however, that nothing in the foregoing paragraphs (a)-(f) shall be
deemed to limit in any way (i) the right of SCF-IV to exercise its voting
rights in any manner it sees fit with respect to the Shares, the Underlying
Shares or any other shares of voting stock acquired by SCF-IV in accordance
with the Purchase Agreement, or (ii) the right of any director elected to the
Board of Directors as a representative of the holders of the Shares to take
any action he believes necessary to fulfill his fiduciary duties.
The Company has agreed to indemnify SCF-IV and its affiliates and
hold SCF-IV and its affiliates harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind, which may be
incurred by SCF-IV or such affiliates as a result of any claims made against
SCF-IV or such affiliates by any person that relate to or arise out of (i)
any breach by the Company of any of its representations, warranties or
covenants contained in the Purchase Agreement or in the agreements related
thereto, or (ii) any litigation, investigation or proceeding instituted by
any person with respect to the Purchase Agreement or the Shares or the
Underlying Shares (excluding, however, any such litigation, investigation or
proceeding which arises solely from the acts or omissions of SCF-IV or its
affiliates). Notwithstanding the foregoing, the Company will not be
responsible for or assume any of the investment risk associated with any
securities purchased under the Purchase Agreement.
THE SERIES B PREFERRED STOCK
The holders of Series B Preferred Stock are entitled to receive
cumulative cash dividends of $10.00 per annum (1% of the liquidation
preference) for each share of Series B Preferred Stock. The Series B
Preferred Stock is entitled to a liquidation preference of $1,000.00, plus
all accrued but unpaid dividends.
The Series B Preferred Stock is convertible at the holder's option
after the first to occur of any of the following (the "Initial Conversion
Date"): (i) the third anniversary of the original date of issuance of such
Shares (the "Issue Date"), (ii) the approval by the Board of Directors of the
Company of an agreement relating to a Business Combination or the
consummation of a Business Combination, (iii) a tender offer for Common Stock
is approved or recommended by the Board of Directors of the Company or (iv)
the redemption, repurchase or reacquisition by the Company of rights issued
pursuant to the Rights Plan or any waiver of the application of the Rights
Plan to any beneficial owner other than SCF-IV or its affiliates (except as
approved by SCF-IV's representative on the Board of Directors of the
Company). After the Initial Conversion Date and prior to the Mandatory
Conversion Date (defined below), the holders of Series B Preferred Stock will
be entitled to convert any and all shares of Series B Preferred Stock into a
number of fully paid and nonassessable shares of Common Stock per share equal
to, at the option of the holder, one of, or if
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not specified by the holder, at the greater of, the following (such amount
being referred to as the "Conversion Ratio"): (a) $1,000.00 (plus any accrued
and unpaid dividends through the record date for determining shareholders
entitled to vote) divided by the conversion price of $8.00 (as adjusted from
time to time in accordance with the anti-dilution provisions in the Series B
Preferred Stock's Certificate of Designation) or (b) $1,000.00 increased at a
rate of eight percent per annum from the Issue Date, compounded quarterly,
less the amount of cash dividends actually paid through the applicable
conversion date (the "Adjusted Stated Value"), divided by the average market
price for the Common Stock during the ten trading day period prior to the
date of conversion (the "Conversion Ratio").
On April 20, 1999, the closing sales price per share of the Common
Stock on the New York Stock Exchange was $6.875.
A "Business Combination" for this purpose means (i) any
consolidation or merger of the Company with or into any person or (ii) any
Change of Control Stock Issuance (defined below), or (iii) the sale,
assignment conveyance, transfer, lease or other disposition by the Company of
all or substantially all of its assets followed by a liquidation of the
Company. A "Change of Control Stock Issuance" means any issuance, in a single
transaction or series of related transactions, by the Company of shares of
Common Stock or Common Stock equivalents in connection with the acquisition
of assets (including cash) or securities by the Company or a subsidiary of
the Company (including by way of a merger of a subsidiary of the Company with
or into a person), except where (i) the shareholders of the Company
immediately prior to such issuance own (in substantially the same proportion
relative to each other as such shareholders owned the Common Stock or voting
stock of the Company, as the case may be, immediately prior to such
consummation) (x) more than 50% of the voting stock of the Company
immediately after such issuance, and (y) more than 50% of the outstanding
Common Stock immediately after such issuance, (ii) the members of the Board
of Directors of the Company immediately prior to entering into the agreement
relating to such issuance (or if no such agreement is entered into, then
immediately prior to the consummation of such issuance) constitute at least a
majority of the Board of Directors of the Company immediately after such
issuance, with no agreements or arrangements in place immediately after such
consummation that would result in the members of the Board of Directors of
the Company immediately prior to the entering into the agreement relating to
such issuance ceasing to constitute at least a majority of the Board of
Directors of the Company and (iii) no person or group of persons immediately
after such issuance is the beneficial owner of 40% or more of the total
outstanding voting stock of the Company or Common Stock.
On the fifth anniversary of the Issue Date (the "Mandatory
Conversion Date"), each outstanding share of Series B Preferred Stock shall,
without any action on the part of the holder, be converted automatically into
a number of fully paid and nonassessable shares of Common Stock equal to the
Conversion Ratio, provided the Shelf Registration Statement (discussed below)
contemplated by the Registration Rights Agreement is then in effect.
In the event of a conversion of Series B Preferred Stock pursuant to
which the Conversion Ratio is determined using clause (b) above, then,
provided that full cumulative dividends have been
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paid or declared and set apart for payment upon all outstanding shares of
Series B Preferred Stock for all past dividend periods, the Company may
redeem for cash up to 50% (or such greater percentage as the holders shall
agree) of the shares of Series B Preferred Stock submitted for conversion at
a redemption price per share equal to the Adjusted Stated Value (a
"Redemption Offer"), in lieu of effecting such conversion.
If the Company issues Common Stock upon conversion of the Series B
Preferred Stock pursuant to which the Conversion Ratio is calculated pursuant
to clause (b) of the definition of Conversion Ratio as set forth above, the
Company shall not be obligated to issue, in the aggregate, a number of shares
of Common Stock in excess of the NYSE Limitation upon conversion of the
Series B Preferred Stock. The "NYSE Limitation" shall mean the maximum number
of shares of Common Stock that could be issued by the Company pursuant to the
conversion of the Series B Preferred Stock and any substantially similar
series of Permitted Parity Securities issued to the holder (including any
Series C Preferred Stock) pursuant to the terms of the Purchase Agreement
without triggering a requirement to obtain the approval of the Company's
shareholders of such issuance pursuant to Section 312.03(c) of the New York
Stock Exchange Listed Company Manual as in effect on the Issue Date. To the
extent that any shares of Series B Preferred Stock are submitted for
conversion such that the NYSE Limitation would be exceeded, such excess
shares shall, in lieu of being converted into Common Stock, be redeemed in
exchange for a cash payment equal to the Adjusted Stated Value per share.
Following the expiration or earlier termination of the applicable
waiting period under the HSR Act (the "HSR Expiration Date"), holders of the
Series B Preferred Stock will be entitled to vote upon all matters upon which
the holders of Common Stock and other Permitted Parity Securities are
entitled to vote. The holders of Series B Preferred Stock, when voting
together with the Common Stock as a single class, will be entitled to cast a
number of votes equal to $1,000.00 (plus any accrued and unpaid dividends
through the record date for determining the shareholders entitled to vote)
divided by the conversion price of $8.00 (as adjusted from time to time in
accordance with the Series B Preferred Stock's Certificate of Designation).
After the HSR Expiration Date, the holders of Series B Preferred Stock,
voting together as a class with other Permitted Parity Securities, shall be
entitled to elect one member of the Board of Directors of the Company. The
consent of the holders of a majority of the Series B Preferred Stock, voting
together as a class with other Permitted Parity Securities, will be necessary
to (i) amend, alter or repeal the Series B Preferred Stock Certificate of
Designation to authorize, create or issue parity securities or senior
securities, (ii) issue any parity or senior securities or (iii) consummate
any Business Combination. Further, the consent of the holders of at least a
majority of the Series B Preferred Stock, voting separately as a single class
with one vote per share, will be necessary to amend, alter or repeal any of
the provisions of (i) the Series B Preferred Stock Certificate of Designation
or any certificate of designation relating to any parity securities, or (ii)
the Certificate of Incorporation of the Company, so as to adversely affect
any of the rights, preferences or privileges of the holders of Series B
Preferred Stock.
THE SERIES C PREFERRED STOCK
The Series C Preferred Stock, if issued, will have substantially the
same terms as the Series
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B Preferred Stock, except for the determination of the conversion price. The
conversion price for the Series C Preferred Stock will be equal to 125% of
the average market price per share of the Common Stock for the ten trading
days ending on and including the trading day prior to the date on which
SCF-IV notifies the Company that it wishes to exercise its option to purchase
some or all of the Series C Preferred Stock; provided, however, that if such
average is less than $4.80, then the initial conversion price shall be $6.00
and if such average is higher than $6.80, the initial conversion price shall
be $8.50, subject to certain anti-dilution adjustments.
THE REGISTRATION RIGHTS AGREEMENT
The Company has entered into a Registration Rights Agreement with
SCF-IV pursuant to which the holder or holders of at least 25% of the then
outstanding Registrable Securities (which subject to certain limitations
means the Underlying Shares and any other securities issued or issuable with
respect to the Underlying Shares) at any time on or after the earlier of (i)
the Initial Conversion Date or (ii) the date sixty days prior to the third
anniversary of the date of the initial issuance of the Series B Preferred
Stock, may request a registration of the Company of any or all of SCF-IV's
Registrable Securities (a "Demand Registration"); provided, however, that the
number of Registrable Securities to be included in such a Demand Registration
must be at least 1,000,000 or such lesser number of Registrable Securities as
have an aggregate market price of at least $10,000,000 as of the date of such
request. The holders of Registrable Securities will be entitled to request an
aggregate of two Demand Registrations. The Registration Rights Agreement also
entitles the holders of Registrable Securities the right to have such
securities registered whenever the Company proposes to register any
securities under the Securities Act of 1933, as amended, (a "Piggyback
Registration"). As contemplated by the Registration Rights Agreement, the
ability of the holders of Registrable Securities to participate in Piggyback
Registration will depend on the individual circumstances and the nature of
the offering at issue. The Registration Rights Agreement obligates the
Company to file a shelf registration statement (the "Shelf Registration
Statement") relating to all of the Registrable Securities prior to the
Mandatory Conversion Date and to cause such Shelf Registration Statement to
remain in effect for one year (subject to certain suspension rights). The
registration expenses with relation to Registrable Securities included in a
Demand Registration will be borne by the holders of Registrable Securities;
the registration expenses with relation to Registrable Securities included in
a Piggyback Registration or the Shelf Registration will be borne by the
Company.
BENEFICIAL OWNERSHIP BY SCF-IV
According to its Schedule 13D filed with the SEC on April 30, 1999,
SCF-IV may be deemed to beneficially own 5,000,000 shares of Common Stock
based on its acquisition of 40,000 shares of Series B Preferred Stock. The
5,000,000 shares of Common Stock represent shares issuable to SCF-IV upon
conversion of the Initial Shares, based on the $8.00 fixed conversion price
described above. Such 5,000,000 shares of Common Stock would constitute
approximately 9.0% of the issued and outstanding Common Stock of the Company.
This amount excludes (i) an indeterminate number of additional shares of
Common Stock that may be acquired by SCF-IV upon conversion of the Initial
Shares pursuant to market price-based conversions as described above, or in
respect of accrued and unpaid dividends and (ii) shares of Common Stock that
may be acquired upon the conversion of the
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Option Shares, since the conversion price for such shares has not been
established.
The sale of the Series B Preferred Stock and the offer to sell the
Series C Preferred Stock was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
The foregoing, to the extent it summarizes terms of agreements or
documents, is qualified in its entirety by reference to the full text of such
documents, copies of which have been filed herewith as exhibits and are
incorporated herein by reference.
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<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<S> <C> <C>
4.1* Certificate of Designation related to Series B Preferred Stock
dated May 7, 1999.
4.2* Form of Certificate of Designation related to Series C
Preferred Stock.
10.1* Purchase Agreement by and between the Company and SCF-IV dated
April 21, 1999.
10.2* Registration Rights Agreement by and between the Company and
SCF-IV dated May 7, 1999.
10.3* First Amendment to Rights Agreement by and between the Company
and Harris Trust and Savings Bank as Rights Agent, dated
April 21, 1999.
</TABLE>
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* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INPUT/OUTPUT, INC.
By: /s/ W. J. "ZEKE" ZERINGUE
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W. J. "Zeke" Zeringue
Chief Executive Officer
Date: May 7, 1999
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CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
INPUT/OUTPUT, INC.
Pursuant to Section 151(g) of the Delaware General Corporation Law,
Input/Output, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "COMPANY"), hereby certifies that the following
resolution was duly adopted by the Board of Directors of the Company on April
21, 1999, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Company (the "CERTIFICATE OF
INCORPORATION"), which authorizes the issuance of up to 5,000,000 shares of
preferred stock, $0.01 par value.
RESOLVED, that pursuant to authority expressly granted to and vested
in the Board of Directors of the Company and pursuant to the provisions of
the Certificate of Incorporation, the Board of Directors hereby creates a
series of preferred stock, herein designated and authorized as the Series B
Preferred Stock, $0.01 par value per share, which shall consist of 40,000 of
the 5,000,000 shares of preferred stock which the Company now has authority
to issue, and the Board of Directors hereby fixes the powers, designations,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations and
restrictions thereof as follows:
1. NUMBER AND RANK. The number of shares constituting the Series B
Preferred Stock shall be 40,000. The Series B Preferred Stock shall rank
senior to the Company's Series A Preferred Stock with respect to the payment
of dividends and distributions on Liquidation.
2. DEFINITIONS. Unless the context otherwise requires, when used
herein the following terms shall have the meaning indicated.
"ADJUSTED STATED VALUE" with respect to each share of Series B
Preferred Stock means the Stated Value (a) increased at an annual rate of 8%
thereof, compounded quarterly, less (b) the amount of cash dividends actually
paid with respect to such share, in each case commencing on the Issue Date
and accruing through the applicable Conversion Date, or, in the case of a
redemption being effected pursuant to SECTIONS 6(H) OR 6(I), through the date
of payment of the redemption price.
"AFFILIATE" means with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person. For purposes of this
definition, the term "control" (and correlative terms "controlling,"
"controlled by" and "under common control with") means possession of the
power, whether by contract, equity ownership or otherwise, to direct the
policies or management of a Person.
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"AVERAGE MARKET PRICE" means, for a given security, the average
Market Price for such security for the ten Trading Day period ending on and
including the Trading Day prior to the date of determination; PROVIDED,
HOWEVER, that if during such period the Company takes any action or an action
becomes effective that would require an adjustment to the Conversion Price
pursuant to SECTION 7 hereof, then such Average Market Price shall be
appropriately adjusted to reflect such action in a manner consistent with the
adjustments set forth in SECTION 7.
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" has the meaning set forth
in Rules 13d-3 and 13d-5 of the Exchange Act.
"BOARD" means the Board of Directors of the Company.
"BUSINESS COMBINATION" means (i) any consolidation or merger of the
Company with or into any Person or (ii) any Change of Control Stock Issuance,
or (iii) the sale, assignment conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets followed
by a liquidation of the Company.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas generally are authorized or required by law or other governmental
actions to close.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated) of capital or capital stock of such Person
and (ii) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"CERTIFICATE" means the Certificate of Incorporation of the Company,
as amended (including any certificate of designation establishing a series of
preferred stock).
"CERTIFICATE OF DESIGNATION" means this Certificate of Designation of
the Series B Preferred Stock.
"CHANGE OF CONTROL STOCK ISSUANCE" shall mean any issuance, in a
single transaction or series of related transactions, by the Company of
shares of Common Stock or Common Stock Equivalents in connection with the
acquisition of assets (including cash) or securities by the Company or a
Subsidiary of the Company (including by way of a merger of a Subsidiary of
the Company with or into a Person), except where (i) the shareholders of the
Company immediately prior to such issuance own (in substantially the same
proportion relative to each other as such shareholders owned the Common Stock
or Voting Stock of the Company, as the case may be, immediately prior to such
consummation) (x) more than 50% of the Voting Stock of the Company
immediately after such issuance, and (y) more than 50% of the outstanding
Common Stock immediately after such issuance, (ii) the members of the Board
immediately prior to entering into the agreement relating to such issuance
(or if no such agreement is entered into, then immediately prior to the
consummation of such issuance) constitute at least a majority of the Board
immediately after such issuance, with no agreements or arrangements in place
immediately after such consummation that would result in the members of the
Board immediately prior to the entering into the agreement relating to such
issuance
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ceasing to constitute at least a majority of the Board and (iii) no Person or
Group of Persons immediately after such issuance is the Beneficial Owner of
40% or more of the total outstanding Voting Stock of the Company or Common
Stock. In calculating the percentage of the Voting Stock of the Company
owned by the shareholders of the Company immediately prior to an issuance of
Common Stock or Common Stock Equivalents in which there is more than one
class or series of Voting Stock, the percentage of the Voting Stock shall be
calculated based on the number of votes eligible to be cast in the election
of the directors of the Company generally. In calculating the percentages of
Voting Stock and Common Stock owned for purposes of this definition, such
calculation shall be calculated on a basis assuming the exercise or
conversion in full of all Common Stock Equivalents and on a basis
disregarding all Common Stock Equivalents, and the percentage which results
in the lower percentage owned by the shareholders of the Company shall apply
in the application of clause (i) above.
"COMMON STOCK" means the Company's common stock, par value $.01 per
share, and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or
pursuant to a Business Combination to which the Company is a party.
"COMMON STOCK EQUIVALENTS" means (without duplication with any other
Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or exchangeable securities, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock,
whether at the time of issuance or upon the passage of time or the occurrence
of some future event.
"COMPANY" means Input/Output, Inc. a Delaware corporation.
"CONVERSION DATE" is defined in SECTION 6(D).
"CONVERSION PRICE" means $8.00, as adjusted from time to time in
accordance with SECTION 7.
"CONVERSION RATIO" is defined in SECTION 6(C).
"DGCL" means the General Corporation Law of the State of Delaware, as
amended, or any successor statute or other legislation.
"DIVIDEND PAYMENT DATE" is defined in SECTION 3(A).
"DIVIDEND PERIOD" is defined in SECTION 3(A).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated
thereunder.
"EXCLUDED STOCK" means (i) shares of Common Stock issued by the
Company as a stock dividend payable in shares of Common Stock, or upon any
subdivision or split-up of the outstanding shares of Capital Stock in each
case which is subject to SECTION 7(B), or upon conversion of shares of
Capital Stock (but not the issuance of such Capital Stock which will be
subject to the provisions
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of SECTION 7(A)(iii)), (ii) shares of Common Stock
to be issued to employees, directors, consultants and advisors of the Company
pursuant to Stock Plans in accordance with their respective terms.
"GROUP" means a group as contemplated by Section 13(d)(3) of the
Exchange Act.
"HOLDER" means a holder of record of Series B Preferred Stock.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR EXPIRATION DATE" shall mean the expiration or earlier termination
of the applicable waiting period under the HSR Act relating to the
transaction described in the filings referred to in Section 5.4 of the
Purchase Agreement.
"INITIAL CONVERSION DATE" means the first to occur of any of the
following: (i) the third anniversary of the date on which shares of Series B
Preferred Stock are first issued pursuant to the Purchase Agreement, (ii) an
agreement providing for a Business Combination is approved by the Board or a
Business Combination is consummated, (iii) a Tender Offer for Common Stock is
approved or recommended by the Board or (iv) there is a redemption,
repurchase or reacquisition by the Company of Rights issued pursuant to the
Rights Agreement or any waiver of the application of the Rights Agreement to
any Beneficial Owner other than Purchaser or its Affiliates except in the
case of this clause (iv) as approved by the Purchaser's representative to the
Board.
"ISSUE DATE" means with respect to any shares of Series B Preferred
Stock the original date of issuance of such shares of Series B Preferred
Stock.
"JUNIOR SECURITIES" means Capital Stock that, with respect to
dividends and distributions upon Liquidation, ranks junior to the Series B
Preferred Stock.
"LIQUIDATION" means the voluntary or involuntary liquidation,
dissolution or winding up of the Company; PROVIDED, HOWEVER, that a merger or
consolidation shall not be deemed a Liquidation nor shall the sale of assets
not requiring shareholder approval be deemed to be a Liquidation.
"LIQUIDATION PREFERENCE" is defined in SECTION 5.
"MANDATORY CONVERSION DATE" is defined in SECTION 6(B).
"MARKET PRICE" means, with respect to a particular security, on any
given day, the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the last closing bid
and asked prices regular way, in either case on the principal national
securities exchange on which the applicable security is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, (i) the closing sale price for such day reported by the Nasdaq
Stock Market if such security is traded over-the-counter and quoted in the
Nasdaq Stock Market, or (ii) if such security is so traded, but not so
quoted, the average of the closing reported bid and asked prices of such
security as reported by the Nasdaq Stock Market or any comparable system, or
(iii) if such security is not listed on the Nasdaq Stock Market or any
comparable system but is actively traded, the average of the closing bid and
asked prices as furnished by two members of the
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National Association of Securities Dealers, Inc. selected from time to time
by the Company for that purpose. If such security is not listed and traded
in a manner that the quotations referred to above are available for the
period required hereunder, the Market Price shall be deemed to be the fair
value per share of such security as determined by a nationally recognized
investment banking firm selected by the Board and reasonably acceptable to
the Holders of a majority of the outstanding shares of Series B Preferred
Stock.
"ORDINARY CASH DIVIDENDS" means any cash dividend or distribution
which, when combined on a per share of Common Stock basis with the per share
amounts of all other cash dividends and distributions paid on the Common
Stock during the 365-day period ending on the date of declaration of such
dividend or distribution (as adjusted to appropriately reflect any of the
events referred to in SECTION 7 and excluding cash dividends or distributions
that resulted in an adjustment to the Conversion Price), does not exceed 5%
of the Market Price of a share of Common Stock on the Trading Day immediately
preceding the date of declaration of such dividend or distribution.
"PARITY SECURITIES" means Capital Stock that, with respect to
dividends or distributions upon Liquidation, is PARI PASSU with the Series B
Preferred Stock.
"PERMITTED PARITY SECURITIES" means up to 35,000 shares of Preferred
Stock of the Company constituting no more than two series of Preferred Stock,
each share of which (i) has a liquidation preference of not more than $1,000
per share exclusive of accrued and unpaid dividends, (ii) has a dividend rate
of not more than one percent per annum, (iii) has no more than one vote per
share with respect to matters on which it votes together with the Series B
Preferred Stock and other Permitted Parity Securities as a single class and
(iv) is PARI PASSU with the Series B Preferred Stock with respect to the
payment of dividends and distributions upon Liquidation. The Series C
Preferred Stock that may be issued pursuant to the Purchase Agreement shall
be considered Permitted Parity Securities for purposes of the foregoing.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PRO RATA REPURCHASE" means any purchase of shares of Common Stock by
the Company or any Affiliate thereof pursuant to any tender offer or exchange
offer subject to Section 13(e) of the Exchange Act, or pursuant to any other
offer available to substantially all holders of Common Stock, whether for
cash, shares of capital stock of the Company, other securities of the
Company, evidences of indebtedness of the Company or any other person or any
other property (including, without limitation, shares of capital stock, other
securities or evidences of indebtedness of a subsidiary of the Company), or
any combination thereof; PROVIDED, HOWEVER, that "Pro Rata Repurchase" shall
not include any purchase of shares by the Company or any Affiliate thereof
made in accordance with the requirements of Rule 10b-18 as in effect under
the Exchange Act. The "effective date" of a Pro Rata Repurchase shall mean
the date of acceptance of shares for purchase or exchange under any tender or
exchange offer which is a Pro Rata Repurchase or the date of purchase with
respect to any Pro Rata Repurchase that is not a tender or exchange offer.
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"PURCHASE AGREEMENT" means the Purchase Agreement dated as of April
21, 1999 between the Company and the Purchaser providing for the purchase by
the Purchaser of 40,000 shares of Series B Preferred Stock and up to 15,000
shares of Series C Preferred Stock from the Company, including all schedules
and exhibits thereto.
"PURCHASER" means SCF-IV, L.P., a Delaware limited partnership.
"RECORD DATE" is defined in SECTION 3(A).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date of the Initial Closing under the Purchase
Agreement between the Company and the Purchaser providing for certain
registration rights under the Securities Act with respect to the Common Stock
into which the Series B Preferred Stock and Series C Preferred Stock may be
converted.
"RIGHTS AGREEMENT" has the meaning set forth in SECTION 6(G).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"SENIOR SECURITIES" means Capital Stock that, with respect to
dividends or distributions upon Liquidation, ranks senior to the Series B
Preferred Stock.
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock of the
Company that may be issued to Purchaser pursuant to the Purchase Agreement.
"STATED VALUE" is an amount equal to $1,000.00 per share of Series B
Preferred Stock.
"STOCK PLANS" means the Company's stock option, stock incentive,
restricted stock, employee stock purchase or other similar plans, in each
case that have been approved by the Company's shareholders.
"SUBSIDIARY" of a Person means (i) a corporation, a majority of whose
stock with voting power, under ordinary circumstances, to elect directors is
at the time of determination, directly or indirectly, owned by such Person or
by one or more Subsidiaries of such Person, or (ii) any other entity (other
than a corporation) in which such Person or one or more Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof has a
majority ownership interest or, with respect to a limited partnership, is a
general partner of such limited partnership.
"TENDER OFFER" means any transaction to which Regulation 14D of the
Exchange Act applies.
"TRADING DAY" means a day on which the principal market with respect
to the security in question is regularly scheduled to be open for trading, or
if there is not such principal market, then a day on which the New York Stock
Exchange is regularly scheduled to be open for trading.
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"VOTING STOCK" of a Person means Capital Stock of such Person of the
class or classes pursuant to which the holders thereof have the general
voting power under ordinary circumstances to vote in the election of the
board of directors, managers or trustees of such Person.
The foregoing definitions will be equally applicable to both the
singular and plural forms of the defined terms.
3. DIVIDENDS AND DISTRIBUTIONS.
(A) The holders of Series B Preferred Stock shall be entitled
to receive out of the assets of the Company legally available for that
purpose, cumulative preferential cash dividends at a rate per annum of
one percent (1%) of the Stated Value (equivalent to $10 per annum or
$2.50 per quarter) for each share of Series B Preferred Stock, and,
except as provided in SECTION 3(B), no more, to be paid in accordance
with the terms of this SECTION 3. Such dividends shall be cumulative
from the Issue Date and shall be payable in arrears, when and as
declared by the Board, on March 31, June 30, September 30 and
December 31 of each year (each such date being herein referred to as a
"DIVIDEND PAYMENT DATE"), commencing on June 30, 1999; PROVIDED that if
any Dividend Payment Date shall not be a Business Day, then the Dividend
Payment Date shall be on the next succeeding day that is a Business Day.
The period from the Issue Date to the next Dividend Payment Date and
each quarterly period between consecutive Dividend Payment Dates shall
hereinafter be referred to as "DIVIDEND PERIODS." Dividends for the
initial Dividend Period shall be pro rated on a daily basis commencing
on and including the Issue Date on the basis of a 360-day year. Each
such dividend shall be paid to the holders of record of the Series B
Preferred Stock as their names appear on the share register of the
Company on the corresponding Record Date. As used above, the term
"RECORD DATE" means, with respect to the dividend payable on March 31,
June 30, September 30 and December 31, respectively, of each year, the
preceding March 15, June 15, September 15 and December 15, or such other
record date designated by the Board with respect to the dividend payable
on such respective Dividend Payment Date not exceeding 30 days preceding
such Dividend Payment Date. Dividends on account of arrears for any
past Dividend Periods may be declared and paid, together with any
accrued but unpaid interest thereon to and including the date of
payment, at any time, without reference to any Dividend Payment Date, to
holders of record on a date designated by the Board, not exceeding 30
days preceding the payment date thereof, as may be fixed by the Board.
(B) If, on any Dividend Payment Date, the Company fails to pay
dividends, then until the dividends that were scheduled to be paid on
such date are paid, such dividends shall cumulate and shall accrue
additional dividends with respect to such unpaid dividends to and
including the date of payment thereof at the rate of one percent (1%)
per annum, compounded on a quarterly basis. Dividends for any period
less than a full quarterly Dividend Period or for a period commencing
on a Dividend Payment Date and ending on a Conversion Date shall
cumulate on a day-to-day basis and shall be computed on the basis of a
360-day year.
(C) So long as any shares of the Series B Preferred Stock
shall be outstanding, (i) the Company shall not declare or pay any
dividend whatsoever, whether in cash, property
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or otherwise, set aside any cash or property for the payment of
dividends, or make any other distribution on any Junior Securities
(except a dividend or distribution payable solely in shares of Junior
Securities), (ii) the Company shall not declare or pay any dividend
whatsoever, whether in cash, property or otherwise, set aside any cash
or property for the payment of dividends, or make any other
distribution on any Parity Securities ranking on parity with the
Series B Preferred Stock with respect to dividends or distributions
(except a dividend or distribution payable solely in shares of Junior
Securities), unless declared and paid PRO RATA with the Series B
Preferred Stock in proportion to the full amount to which they would
otherwise be respectively entitled, and (iii) the Company shall not
and shall cause its Subsidiaries not to repurchase, redeem or
otherwise acquire or set aside any cash or property for the repurchase
or redemption of any Junior Securities or Parity Securities, unless in
each such case all dividends to which the holders of the Series B
Preferred Stock shall have been entitled for all previous Dividend
Periods shall have been paid or declared and a sum of money sufficient
for the payment thereof shall have been set aside.
4. VOTING RIGHTS. The Holders shall have the following voting
rights with respect to the Series B Preferred Stock:
(A) Subject to applicable law, the shares of Series B Preferred
Stock shall have no voting rights other than as set forth in this
SECTION 4.
(B) After the HSR Expiration Date, but only after the HSR
Expiration Date, Holders of shares of the Series B Preferred Stock
shall be entitled to vote upon all matters upon which holders of
Common Stock have the right to vote, and Holders shall have that
number of votes on all such matters as is equal to the Conversion
Ratio that would apply if such Holder's shares of Series B Preferred
Stock were to be converted pursuant to SECTION 6(A) (using the
calculation of such Conversion Ratio specified in SECTION 6(C)(i) and
not SECTION 6(C)(ii) for such purpose) as of the record date for the
determination of the shareholders entitled to vote on such matters,
or, if no such record date is established as of the date such vote is
taken or any written consent of shareholders is solicited, such votes
to be counted together with all other shares of capital stock having
general voting powers and not separately as a class. Fractional votes
shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into
which shares of Series B Preferred Stock held by each Holder could be
converted) shall be rounded up to the nearest whole number.
(C) After the HSR Expiration Date, but only after the HSR
Expiration Date, the Holders of the Series B Preferred Stock, voting
together with Permitted Parity Securities as a separate class with one
vote per share of Series B Preferred Stock, shall be entitled to elect
one member of the Board at each meeting or pursuant to each consent of
the Company's shareholders for the election of directors (unless the
term of the director previously elected by the Holders pursuant to
this Section 4(C) would continue after such election). If the
director so elected by the Holders shall cease to serve as director
before his term shall expire, the Holders may, at a special meeting of
such Holders, elect a successor to hold office for the unexpired term
of such director. The Secretary of the Company may call, and upon
written request of the Holders of ten percent (10%) or more of the
outstanding Series B Preferred
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Stock addressed to him at the principal office of the Company shall
call, such a special meeting of the Holders for the election of such
director as provided herein. Such meeting shall be held within fifty
(50) days after delivery of such request to such Secretary, at the
place and upon the notice provided by law and in the Bylaws of the
Company for the holding of meetings of its shareholders. Any director
who shall have been elected pursuant to this SECTION 4(C), may be
removed during the aforesaid term of office, with or without cause,
only by the affirmative vote of a majority votes entitled to be cast
by the Holders of Series B Preferred Stock and the holders of then
outstanding Permitted Parity Securities.
(D) (i) The consent of the Holders of at least a majority of
the Series B Preferred Stock, voting together with Permitted Parity
Securities as a single class with one vote per share, in person or by
proxy, either in writing without a meeting or at an annual or a
special meeting of shareholders called for the purpose, shall be
necessary to:
(A) amend, alter or repeal, by way of merger or
otherwise, any of the provisions of the Certificate, so as
to authorize, create or issue any shares of Parity
Securities (other than Permitted Parity Securities) or
Senior Securities (or amend the provisions of any existing
class of Capital Stock to make such class of Capital Stock
a class of Parity Securities or Senior Securities),
(B) issue any Parity Securities (other than Permitted
Parity Securities) or Senior Securities, or
(C) consummate any Business Combination.
(ii) The consent of the Holders of at least a majority
of the Series B Preferred Stock, voting separately as a single
class with one vote per share, in person or by proxy, either in
writing without a meeting or at an annual or a special meeting of
shareholders called for the purpose, shall be necessary to amend,
alter or repeal, by way of merger or otherwise, any of the
provisions of (x) the Certificate of Designation or any
certificate of designation of terms of any Parity Securities, or
(y) the Certificate, so as to affect adversely any of the rights,
preferences or privileges of Holders.
5. LIQUIDATION PREFERENCE. In the event of any Liquidation, after
payment or provision for payment by the Company of the debts and other
liabilities of the Company and the liquidation preference of any Senior
Securities that rank senior to the Series B Preferred Stock with respect to
distributions on Liquidation, each Holder shall be entitled to receive an
amount in cash for each share of the then outstanding Series B Preferred
Stock held by such Holder equal to the Stated Value per share, plus an amount
equal to all accrued but unpaid dividends thereon, whether or not earnings
are available in respect of such dividends or such dividends have been
declared, to and including the date full payment is tendered to the Holders
with respect to such Liquidation, and no more (such amount being referred to
herein as the "LIQUIDATION PREFERENCE"), before any distribution shall be
made to the holders of any Junior Securities upon the Liquidation of the
Company. In case the assets of the Company available for payment to the
Holders upon a Liquidation are insufficient to pay the full
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Liquidation Preference on all outstanding shares of the Series B Preferred
Stock and all outstanding Senior Securities or Parity Securities, in each
case ranking on parity with the Series B Preferred Stock as to distributions
on Liquidation, in the amounts to which the holders of such shares are
entitled, then the entire assets of the Company available for payment to the
Holders of Series B Preferred Stock and holders of such Senior Securities or
Parity Securities will be distributed ratably among the Holders of the Series
B Preferred Stock and the holders of such Senior Securities or Parity
Securities, based upon the aggregate amount due on such shares upon
Liquidation. Written notice of any Liquidation of the Company, stating a
payment date and the place where the distributable amounts shall be payable,
shall be given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to the Holders of record of the Series B
Preferred Stock at their respective addresses as the same shall appear on the
books of the Company.
6. CONVERSION RIGHTS. The Series B Preferred Stock shall be
convertible as follows:
(A) CONVERSION AT HOLDER'S OPTION. The Holder of any shares of
Series B Preferred Stock shall have the right at such Holder's option,
at any time after the Initial Conversion Date and prior to the
Mandatory Conversion Date and without the payment of any additional
consideration, to convert any or all of such shares of Series B
Preferred Stock into a number of fully paid and nonassessable shares
of Common Stock for each such share of Series B Preferred Stock equal
to the Conversion Ratio, upon the terms hereinafter set forth.
(B) MANDATORY CONVERSION. On the fifth anniversary of the
date on which shares of Series B Preferred Stock are first issued
pursuant to the Purchase Agreement (the "MANDATORY CONVERSION DATE"),
each outstanding share of Series B Preferred Stock shall, without any
action on the part of the Holder of such share, be converted
automatically into a number of fully paid and nonassessable shares of
Common Stock equal to the Conversion Ratio, upon the terms hereinafter
set forth; PROVIDED, HOWEVER, that if the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock are not
immediately freely transferrable under the Securities Act by the
Holders thereof, the Mandatory Conversion Date shall be delayed until
such time as the resale of the Common Stock issuable upon conversion
of such Series B Preferred Stock has been registered under the
Securities Act in accordance with the terms of the Registration Rights
Agreement.
(C) CONVERSION RATIO. In the event of a conversion pursuant
to SECTION 6(A) OR 6(B), the Conversion Ratio shall be a number of
shares of Common Stock calculated using either of the following methods
at the option of the Holder as may be specified by the Holder at the
time of conversion, or, if no such specification is made, using the
method that results in the highest number:
(i) the amount determined by dividing (a) the Stated
Value plus any accrued and unpaid dividends to and including the
applicable Conversion Date by (b) the Conversion Price in effect
on the applicable Conversion Date; or
(ii) the amount determined by dividing (a) the Adjusted
Stated Value as of the applicable Conversion Date by (b) the
Average Market Price determined as of the
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applicable Conversion Date (but not less than the lesser of
$.01 or the par value per share of the Common Stock at the
time of conversion).
(D) MECHANICS OF CONVERSION. The Holder of any shares of
Series B Preferred Stock may exercise the conversion right specified
in SECTION 6(A) by surrendering to the Company or any transfer agent
of the Company the certificate or certificates representing the shares
of Series B Preferred Stock to be converted, accompanied by written
notice specifying the number of such shares to be converted. If the
certificates representing shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock are to be issued in a
name other than the name on the face of the certificates representing
such shares of Series B Preferred Stock, such certificates shall be
accompanied by such evidence of the assignment and such evidence of
the signatory's authority with respect thereto as deemed appropriate
by the Company or its transfer agent. Conversion shall be deemed to
have been effected (i) with respect to conversions pursuant to SECTION
6(A), on the date when the notice of an election to convert pursuant
to SECTION 6(A) and certificates representing the shares being
converted are actually received by the Company or any transfer agent
of the Company, or (ii) with respect to mandatory conversion pursuant
to SECTION 6(B), on the Mandatory Conversion Date. Such dates that
the conversion shall be deemed to be effective shall be referred to
herein as the "CONVERSION DATE." Subject to the provisions of SECTION
7(G), as promptly as practicable after the Conversion Date, the
Company shall issue and deliver to or upon the written order of such
Holder a certificate or certificates for the number of shares of
Common Stock to which such Holder is entitled upon such conversion and
a check or cash with respect to any fractional interest in a share of
Common Stock, as provided in SECTION 6(E). The person in whose name
the certificate or certificates for shares of Common Stock are to be
issued shall be deemed to have become a holder of record of such
shares of Common Stock on the applicable Conversion Date. Upon
conversion of only a portion of the shares covered by a certificate
representing shares of Series B Preferred Stock surrendered for
conversion pursuant to SECTION 6(A), the Company shall issue and
deliver to or upon the written order of the Holder of the certificate
so surrendered for conversion, at the expense of the Company, a new
certificate representing the number of shares of Series B Preferred
Stock representing the unconverted portion of the certificate so
surrendered.
(E) FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Series B Preferred
Stock. If more than one share of Series B Preferred Stock shall be
surrendered for conversion at any one time by the same Holder, the
number of shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of
Series B Preferred Stock so surrendered. Instead of any fractional
share of Common Stock which would otherwise be issuable upon
conversion of any shares of Series B Preferred Stock, the Company
shall pay a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the Market Price of the
Common Stock on the Conversion Date.
(F) AUTHORIZATION AND ISSUANCE. The Company covenants and
agrees that:
(i) the shares of Common Stock issuable upon any
conversion of any shares of Series B Preferred Stock will be
deemed to have been issued to the Person
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exercising such conversion rights set forth herein on the
Conversion Date, and the Person exercising such conversion rights
will be deemed for all purposes to have become the record holder
of such shares of Common Stock on the Conversion Date;
(ii) all shares of Common Stock which may be issued
upon any conversion of any Series B Preferred Stock will, upon
issuance, be fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof;
(iii) the Company will take all such action as may be
necessary to assure that all shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock may be issued
without violation of any applicable law or regulation or of any
requirements of any domestic securities exchange upon which
securities of the same class may be listed and shall endeavor to
list the shares of Common Stock required to be delivered upon
conversion of the shares of Series B Preferred Stock, prior to
such delivery, upon each national securities exchange, if any,
upon which the outstanding Common Stock is listed at the time of
such delivery;
(iv) the Company will not take any action which would
result in any adjustment of the Conversion Price if the total
number of shares of Common Stock issuable after such action upon
conversion of all shares of Series B Preferred Stock, together
with all shares of Common Stock then outstanding and all shares
of Common Stock then issuable upon the exercise of all
outstanding Common Stock Equivalents, would exceed the total
number of shares of Common Stock then authorized by the
Certificate of Incorporation;
(v) the Company will at all times reserve and keep
available, out of its authorized but unissued shares of Common
Stock or out of shares of Common Stock held in its treasury, the
full number of shares of Common Stock into which all shares of
the Series B Preferred Stock having conversion privileges from
time to time outstanding are convertible; and
(vi) the Company will at no time close its transfer
books against the transfer of the Series B Preferred Stock or of
any share of Common Stock issued or issuable upon the conversion
of the Series B Preferred Stock in any manner which interferes
with the timely conversion of the Series B Preferred Stock.
(G) RIGHTS. Whenever the Company issues shares of Common Stock
upon conversion of Series B Preferred Stock, the Company will issue,
together with each such share of Common Stock, one right to purchase
Series A Preferred Stock of the Company (or other securities in lieu
thereof) pursuant to the Rights Agreement dated as of January 17, 1997
by and between the Company and Harris Trust and Savings Bank, as
amended (the "RIGHTS AGREEMENT"), or any similar rights, if any,
issued to holders of Common Stock in addition thereto or in the
replacement therefor (such rights, together with any additional or
replacement rights, being collectively referred to as the "RIGHTS"),
whether or not such rights shall be exercisable at such time, but only
if such Rights are issued and outstanding and held
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by other holders of Common Stock (or are evidenced by outstanding
share certificates representing Common Stock) at such time and have
not expired or been redeemed.
(H) CASH REDEMPTION OPTION. Notwithstanding the provisions of
SECTIONS 6(A) OR 6(B), in the event of a conversion of Series B
Preferred Stock pursuant to which the Conversion Ratio is determined
using SECTION 6(C)(ii) (rather than SECTION 6(C)(i)), then, provided
that full cumulative dividends shall have been paid or declared and
set apart for payment upon all outstanding shares of Series B
Preferred Stock for all past dividend periods, the Company may offer
to redeem for cash any or all of such shares of Series B Preferred
Stock at a redemption price per share equal to the Adjusted Stated
Value (a "REDEMPTION OFFER"), in lieu of effecting such conversion.
To effect a Redemption Offer, the Company must give notice of such
election, specifying the redemption price, (a "REDEMPTION OFFER
NOTICE") to the Holder of such shares of Series B Preferred Stock (i)
with respect to conversions pursuant to SECTION 6(A), within three
Business Days after the notice of an election to convert pursuant to
SECTION 6(A) is received by the Company or any transfer agent of the
Company, or (ii) with respect to mandatory conversion pursuant to
SECTION 6(B), on the Mandatory Conversion Date. If the Company fails
to give a Redemption Offer Notice within the foregoing time periods,
it may not make a Redemption Offer. If the Company has given a
Redemption Offer Notice with respect to more than 50% of the shares of
Series B Preferred Stock to be converted, then within three Business
Days following receipt of a Redemption Offer Notice, the Holder may
give notice to the Company declining the Company's offer to redeem up
to 50% of the shares of Series B Preferred Stock to be converted, in
which event the Company will not be entitled to redeem such shares as
specified and must convert such shares into Common Stock in accordance
with the terms hereof effective as of the Conversion Date. The
Company shall be entitled to redeem all of the shares subject to the
Redemption Offer Notice at the redemption price set forth above to the
extent the Holder does not properly decline such redemption in
accordance with the prior sentence. The Company shall make any such
redemption payment by wire transfer to an account specified by the
Holder on the first Business Day following the expiration of the three
Business Day period after the Holder's receipt of the Redemption Offer
Notice, failing which payment the Company shall not be entitled to
redeem such shares but shall be obligated to convert all of such
Shares into Common Stock in accordance with the terms hereof.
(I) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding
the provisions of SECTIONS 6(A) OR 6(B), if the Company ever issues
Common Stock upon conversion of Series B Preferred Stock pursuant to
which the Conversion Ratio is calculated pursuant to SECTION 6(C)(ii)
rather than SECTION 6(C)(i), the Company shall not be obligated to
issue, in the aggregate, a number of shares of Common Stock in excess
of the NYSE Limitation upon conversion of the Series B Preferred
Stock. The "NYSE Limitation" shall mean the maximum number of shares
of Common Stock that could be issued by the Company pursuant to the
conversion of the Series B Preferred Stock and any substantially
similar series of Permitted Parity Securities issued to the Holder
pursuant to the terms of the Purchase Agreement without triggering a
requirement to obtain the approval of the Company's shareholders of
such issuance pursuant to Section 312.03(c) of the New York Stock
Exchange Listed Company Manual as in effect on the Issue Date. To the
extent that any shares of Series B Preferred Stock are submitted for
conversion such that the NYSE Limitation would be
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<PAGE>
exceeded, such excess shares shall, in lieu of being converted into
Common Stock, be redeemed in exchange for a cash payment equal to the
Adjusted Stated Value per share. The Company shall make any such
redemption payment by wire transfer to an account specified by the
Holder on the second Business Day following the Conversion Date on
which the shares of Series B Preferred Stock would otherwise be
converted into Common Stock.
7. CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be
subject to adjustment from time to time as follows:
(A) COMMON STOCK ISSUED AT LESS THAN MARKET PRICE OR CONVERSION
PRICE. If the Company issues or sells any Common Stock other than
Excluded Stock without consideration or for a consideration per share
less than the Market Price per share of Common Stock, on the Trading
Day immediately preceding such issuance or sale or less than the
Conversion Price in effect immediately prior to such issuance or sale,
the Conversion Price in effect immediately prior to each such issuance
or sale will immediately (except as provided below) be reduced to the
price determined by multiplying the Conversion Price in effect
immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale plus (ii) the
number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such additional shares
of Common Stock so issued or sold would purchase at the higher of (x)
the Market Price per share of Common Stock on the Trading Day
immediately preceding such issuance or sale and (y) the Conversion
Price in effect immediately prior to such issuance or sale and (2) the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after such issue or sale. For the purposes of
any adjustment of the Conversion Price pursuant to this SECTION 7(A),
the following provisions shall be applicable:
(i) in the case of the issuance of Common Stock for
cash, the amount of the consideration received by the Company
shall be deemed to be the amount of the cash proceeds received by
the Company for such Common Stock before deducting therefrom any
discounts or commissions allowed, paid or incurred by the Company
for any underwriting or otherwise in connection with the issuance
and sale thereof;
(ii) in the case of the issuance of Common Stock
(otherwise than upon the conversion of shares of Capital Stock or
other securities of the Company) for a consideration in whole or
in part other than cash, including securities acquired in
exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed
to be the fair value thereof as reasonably determined by the
Board, irrespective of any accounting treatment; PROVIDED,
HOWEVER, that such fair value as determined by the Board shall
not exceed the aggregate Market Price of the shares of Common
Stock being issued as of the date the Board authorizes the
issuance of such shares;
(iii) in the case of the issuance of (a) options,
warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (b) securities by their
terms convertible into or exchangeable for Common Stock (whether
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<PAGE>
or not at the time so convertible or exchangeable) or options,
warrants or rights to purchase such convertible or exchangeable
securities (whether or not at the time exercisable):
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of
such options, warrants or other rights to
purchase or acquire Common Stock shall be
deemed to have been issued at the time
such options, warrants or rights are
issued and for a consideration equal to
the consideration (determined in the
manner provided in SECTION 7(A)(i) AND
(ii)), if any, received by the Company
upon the issuance of such options,
warrants or rights plus the minimum
purchase price provided in such options,
warrants or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion
of or in exchange for any such convertible
or exchangeable securities, or upon the
exercise of options, warrants or other
rights to purchase or acquire such
convertible or exchangeable securities and
the subsequent conversion or exchange
thereof, shall be deemed to have been
issued at the time such securities were
issued or such options, warrants or rights
were issued and for a consideration equal
to the consideration, if any, received by
the Company for any such securities and
related options, warrants or rights
(excluding any cash received on account of
accrued interest or accrued dividends),
plus the additional consideration
(determined in the manner provided in
SECTION 7(A)(i) AND (ii)), if any, to be
received by the Company upon the
conversion or exchange of such securities,
or upon the exercise of any related
options, warrants or rights to purchase or
acquire such convertible or exchangeable
securities and the subsequent conversion
or exchange thereof;
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of
any such options, warrants or rights or
conversion or exchange of such convertible
or exchangeable securities or any change
in the consideration to be received by the
Company upon such exercise, conversion or
exchange, but excluding changes resulting
from the anti-dilution provisions thereof
(to the extent comparable to the
anti-dilution provisions contained
herein), the Conversion Price as then in
effect shall forthwith be readjusted to
such Conversion Price as would have been
obtained had an adjustment been made upon
the issuance of such options, warrants or
rights not exercised prior to such change,
or of
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<PAGE>
such convertible or exchangeable securities
not converted or exchanged prior to such
change, upon the basis of such change;
(4) on the expiration or cancellation of any
such options, warrants or rights (without
exercise), or the termination of the right
to convert or exchange such convertible or
exchangeable securities (without
exercise), if the Conversion Price shall
have been adjusted upon the issuance
thereof, the Conversion Price shall
forthwith be readjusted to such Conversion
Price as would have been obtained had an
adjustment been made upon the issuance of
such options, warrants, rights or such
convertible or exchangeable securities on
the basis of the issuance of only the
number of shares of Common Stock actually
issued upon the exercise of such options,
warrants or rights, or upon the conversion
or exchange of such convertible or
exchangeable securities; and
(5) if the Conversion Price shall have been
adjusted upon the issuance of any such
options, warrants, rights or convertible
or exchangeable securities, no further
adjustment of the Conversion Price shall
be made for the actual issuance of Common
Stock upon the exercise, conversion or
exchange thereof;
PROVIDED, HOWEVER, that no increase in the Conversion Price shall
be made pursuant to subclauses (1) or (2) of this SECTION
7(A)(iii).
(B) STOCK SPLITS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Company shall (1) declare a dividend or make a
distribution on its Common Stock in shares of Common Stock, (2)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (3) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Price in
effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Holder
of any shares of Series B Preferred Stock surrendered for conversion
or exchange after such date shall be entitled to receive the number of
shares of Common Stock which such holder would have owned or been
entitled to receive after such date had such Series B Preferred Stock
been converted or exchanged immediately prior to such date. Successive
adjustments in the Conversion Price shall be made whenever any event
specified above shall occur.
(C) OTHER DISTRIBUTIONS. In case the Company shall fix a
record date for the making of a distribution to all holders of shares
of its Common Stock (1) of shares of any class other than its Common
Stock or (2) of evidence of indebtedness of the Company or any
Subsidiary or (3) of assets (including cash but excluding Ordinary
Cash Dividends, and dividends or distributions referred to in SECTION
7(B)), or (4) of rights or warrants, then in
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each such case the Conversion Price in effect immediately prior
thereto shall be reduced to the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a
fraction, (i) the numerator of which shall be an amount equal to the
difference resulting from (A) the number of shares of Common Stock
outstanding on such record date multiplied by the Market Price per
share of Common Stock on such record date, less (B) the fair market
value (as reasonably determined by the Board) of said shares or
evidences of indebtedness or assets or rights or warrants to be so
distributed, and (ii) the denominator of which shall be equal to the
number of shares of Common Stock outstanding on such record date
multiplied by the Market Price per share of Common Stock on such
record date. Such adjustment shall be made successively whenever such
a record date is fixed. In the event that such distribution is not so
made, the Conversion Price then in effect shall be readjusted,
effective as of the date when the Board determines not to distribute
such shares, evidences of indebtedness, assets, rights or warrants, as
the case may be, to the Conversion Price that would then be in effect
if such record date had not been fixed.
(D) CERTAIN REPURCHASES OF COMMON STOCK. In case the Company
effects a Pro Rata Repurchase of Common Stock, then the Conversion
Price shall be reduced to the price determined by multiplying the
Conversion Price in effect immediately prior to the effective date of
such Pro Rata Repurchase by a fraction of which (1) the numerator
shall be (i) the product of (x) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the
Market Price per share of Common Stock on the Trading Day immediately
preceding the first public announcement of the intent to effect such
Pro Rata Repurchase, minus (ii) the aggregate purchase price of the
Pro Rata Repurchase, and of which (2) the denominator shall be the
product of (a) the number of shares of Common Stock outstanding
immediately prior to such Pro Rata Repurchase minus the number of
shares of Common Stock so repurchased and (b) the Market Price per
share of Common Stock on the Trading Day immediately preceding the
first public announcement of such Pro Rata Repurchase.
(E) BUSINESS COMBINATIONS. In case of any Business Combination
in which the holders of shares of Common Stock are entitled to receive
stock, securities or property by virtue of their ownership of Common
Stock or a reclassification of Common Stock (other than a
reclassification of Common Stock referred to in SECTION 7(B)), each
share of Series B Preferred Stock shall after the date of such
Business Combination or reclassification be convertible into the
number of shares of stock or other securities or property (including
cash) to which the Common Stock issuable upon conversion of such share
of Series B Preferred Stock immediately prior to such Business
Combination or reclassification would have been entitled upon such
Business Combination or reclassification; and in any such case, if
necessary, the provisions set forth herein with respect to the rights
and interests thereafter of the Holders of the shares of Series B
Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion
of the shares of Series B Preferred Stock. In determining the kind
and amount of stock, securities or the property receivable upon
consummation of such Business Combination, if the holders of Common
Stock have the right to elect the kind or amount of consideration
receivable upon consummation of such Business Combination, then the
Holder of the Series B Preferred Stock shall have the right to make a
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<PAGE>
similar election as of the Conversion Date with respect to the number
of shares of stock or other securities or property into which the
Series B Preferred Stock shall be convertible.
(F) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENTS. All
calculations under this SECTION 7 shall be made to the nearest one
tenth (1/10th) of a cent or to the nearest one hundredth (1/100th) of
a share, as the case may be. Any provision of this SECTION 7 to the
contrary notwithstanding, no adjustment in the Conversion Price shall
be made if the amount of such adjustment would be less than $0.01, but
any such amount shall be carried forward and an adjustment with
respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate $0.01 or more.
In addition, in no event shall be Conversion Price be adjusted to less
than the lesser of $.01 per share or the par value of the Common
Stock.
(G) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON CERTAIN
ADJUSTMENTS. In any case in which the provisions of this SECTION 7
shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the
occurrence of such event (1) issuing to the Holder of any share of
Series B Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying
to such Holder any amount of cash in lieu of a fractional share of
such Common Stock; PROVIDED, HOWEVER, that the Company upon request
shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(H) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion
Price shall be adjusted as provided in SECTION 7 the Company shall
forthwith file, at the office of any transfer agent for the Series B
Preferred Stock and at the principal office of the Company a
statement showing in reasonable detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment and the Company shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each Holder at its
address appearing in the Company's records.
(I) NOTICES. In the event that the Company shall propose to
take any action of the type described in SECTION 7 (but only if the
action of the type described in SECTION 7 would result in an
adjustment in the Conversion Price or a change in the type of
securities or property to be delivered upon a conversion or exchange
of Series B Preferred Stock), the Company shall give notice to each
Holder, in the manner set forth in SECTION 7(H), which notice shall
specify the record date, if any, with respect to any such action and
the approximate date on which such action is to take place. Such
notice shall also set forth the facts with respect thereto as shall be
reasonably necessary to indicate the effect on the Conversion Price
and the number, kind or class of shares or other securities or
property which shall be deliverable upon conversion of shares of the
Series B Preferred Stock. In the case of any action which would
require the fixing or a record date, such notice shall be given at
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<PAGE>
least 10 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 15 days prior to the
taking of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such
action.
(J) NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of SECTIONS 6
and 7 and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holders
of the Series B Preferred Stock against impairment.
(K) NO DUPLICATION OF ADJUSTMENTS. If any action would require
adjustment of the Conversion Price pursuant to more than one of the
provisions of this SECTION 7, only one adjustment shall be made and
such adjustment shall be the adjustment that results in the lowest
Conversion Price after giving effect to such adjustment.
8. LIMITATIONS ON SERIES B PREFERRED STOCK. No share or shares of
Series B Preferred Stock the Company acquires through redemption, option,
exchange or otherwise will be reissued as Series B Preferred Stock, and all
such shares will be canceled, retired and eliminated from the shares of
Series B Preferred Stock which the Company will be authorized to issue, and
will be restored to the status of authorized but undesignated preferred stock
of the Company eligible for designation and reissuance subject to the terms
hereof and the Certificate. The Company will not issue any further shares of
Series B Preferred Stock.
9. WAIVERS. With the written consent of Holders of a Majority of
the Series B Preferred Stock, the obligations of the Company and the rights
of the Holders under this Certificate of Designation may be waived (either
generally or in a particular instance, either retroactively or prospectively
and either for a specified period of time or indefinitely). Upon the
effectuation of each such waiver, the Company will promptly give written
notice thereof to the Holders who have not previously consented thereto in
writing.
10. REDEMPTION. Except as expressly set forth herein, the Company
shall have no right or obligation to redeem the Series B Preferred Stock.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on behalf of the
Company by its President and attested to by its Secretary, all as of the 6th
day of May, 1999.
INPUT/OUTPUT, INC.
By: /s/ Axel M. Sigmar
-------------------------
President
ATTEST:
By: /s/ Ronald A. Harris
-----------------------------
Assistant Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES C PREFERRED STOCK
OF
INPUT/OUTPUT, INC.
Pursuant to Section 151(g) of the Delaware General Corporation Law,
Input/Output, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "COMPANY"), hereby certifies that the following
resolution was duly adopted by the Board of Directors of the Company on April
21, 1999, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Company (the "CERTIFICATE OF
INCORPORATION"), which authorizes the issuance of up to 5,000,000 shares of
preferred stock, $0.01 par value.
RESOLVED, that pursuant to authority expressly granted to and vested
in the Board of Directors of the Company and pursuant to the provisions of
the Certificate of Incorporation, the Board of Directors hereby creates a
series of preferred stock, herein designated and authorized as the Series C
Preferred Stock, $0.01 par value per share, which shall consist of
[insert number up to 15,000] of the 5,000,000 shares of preferred stock which
the Company now has authority to issue, and the Board of Directors hereby
fixes the powers, designations, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof as follows:
1. NUMBER AND RANK. The number of shares constituting the Series
C Preferred Stock shall be [insert number up to 15,000]. The Series C
Preferred Stock shall rank senior to the Company's Series A Preferred Stock
with respect to the payment of dividends and distributions on Liquidation and
on parity with the Series B Preferred Stock with respect to the payment of
dividends and distributions on Liquidation.
2. DEFINITIONS. Unless the context otherwise requires, when used
herein the following terms shall have the meaning indicated.
"ADJUSTED STATED VALUE" with respect to each share of Series C
Preferred Stock means the Stated Value (a) increased at an annual rate of 8%
thereof, compounded quarterly, less (b) the amount of cash dividends actually
paid with respect to such share, in each case commencing on the Issue Date
and accruing through the applicable Conversion Date, or, in the case of a
redemption being effected pursuant to SECTIONS 6(H) OR 6(I), through the date
of payment of the redemption price.
"AFFILIATE" means with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person. For purposes of this
definition, the term "control" (and correlative terms "controlling,"
"controlled
<PAGE>
by" and "under common control with") means possession of the power, whether
by contract, equity ownership or otherwise, to direct the policies or
management of a Person.
"AVERAGE MARKET PRICE" means, for a given security, the average
Market Price for such security for the ten Trading Day period ending on and
including the Trading Day prior to the date of determination; PROVIDED,
HOWEVER, that if during such period the Company takes any action or an action
becomes effective that would require an adjustment to the Conversion Price
pursuant to SECTION 7 hereof, then such Average Market Price shall be
appropriately adjusted to reflect such action in a manner consistent with the
adjustments set forth in SECTION 7.
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" has the meaning set forth
in Rules 13d-3 and 13d-5 of the Exchange Act.
"BOARD" means the Board of Directors of the Company.
"BUSINESS COMBINATION" means (i) any consolidation or merger of the
Company with or into any Person or (ii) any Change of Control Stock Issuance,
or (iii) the sale, assignment conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets followed
by a liquidation of the Company.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas generally are authorized or required by law or other governmental
actions to close.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated) of capital or capital stock of such Person
and (ii) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"CERTIFICATE" means the Certificate of Incorporation of the Company,
as amended (including any certificate of designation establishing a series of
preferred stock).
"CERTIFICATE OF DESIGNATION" means this Certificate of Designation of
the Series C Preferred Stock.
"CHANGE OF CONTROL STOCK ISSUANCE" shall mean any issuance, in a
single transaction or series of related transactions, by the Company of
shares of Common Stock or Common Stock Equivalents in connection with the
acquisition of assets (including cash) or securities by the Company or a
Subsidiary of the Company (including by way of a merger of a Subsidiary of
the Company with or into a Person), except where (i) the shareholders of the
Company immediately prior to such issuance own (in substantially the same
proportion relative to each other as such shareholders owned the Common Stock
or Voting Stock of the Company, as the case may be, immediately prior to such
consummation) (x) more than 50% of the Voting Stock of the Company
immediately after such issuance, and (y) more than 50% of the outstanding
Common Stock immediately after such issuance, (ii) the members of the Board
immediately prior to entering into the agreement relating to such issuance
(or if no such agreement is entered into, then immediately prior to the
consummation of such
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<PAGE>
issuance) constitute at least a majority of the Board immediately after such
issuance, with no agreements or arrangements in place immediately after such
consummation that would result in the members of the Board immediately prior
to the entering into the agreement relating to such issuance ceasing to
constitute at least a majority of the Board and (iii) no Person or Group of
Persons immediately after such issuance is the Beneficial Owner of 40% or
more of the total outstanding Voting Stock of the Company or Common Stock.
In calculating the percentage of the Voting Stock of the Company owned by the
shareholders of the Company immediately prior to an issuance of Common Stock
or Common Stock Equivalents in which there is more than one class or series
of Voting Stock, the percentage of the Voting Stock shall be calculated based
on the number of votes eligible to be cast in the election of the directors
of the Company generally. In calculating the percentages of Voting Stock and
Common Stock owned for purposes of this definition, such calculation shall be
calculated on a basis assuming the exercise or conversion in full of all
Common Stock Equivalents and on a basis disregarding all Common Stock
Equivalents, and the percentage which results in the lower percentage owned
by the shareholders of the Company shall apply in the application of clause
(i) above.
"COMMON STOCK" means the Company's common stock, par value $.01 per
share, and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or
pursuant to a Business Combination to which the Company is a party.
"COMMON STOCK EQUIVALENTS" means (without duplication with any other
Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or exchangeable securities, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock,
whether at the time of issuance or upon the passage of time or the occurrence
of some future event.
"COMPANY" means Input/Output, Inc. a Delaware corporation.
"CONVERSION DATE" is defined in SECTION 6(D).
"CONVERSION PRICE" means $____, as adjusted from time to time in
accordance with SECTION 7. [Note - this is to be determined as set forth
in the definition of Series C Preferred Stock in the Purchase Agreement]
"CONVERSION RATIO" is defined in SECTION 6(C).
"DGCL" means the General Corporation Law of the State of Delaware, as
amended, or any successor statute or other legislation.
"DIVIDEND PAYMENT DATE" is defined in SECTION 3(A).
"DIVIDEND PERIOD" is defined in SECTION 3(A).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated
thereunder.
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<PAGE>
"EXCLUDED STOCK" means (i) shares of Common Stock issued by the
Company as a stock dividend payable in shares of Common Stock, or upon any
subdivision or split-up of the outstanding shares of Capital Stock in each
case which is subject to SECTION 7(B), or upon conversion of shares of
Capital Stock (but not the issuance of such Capital Stock which will be
subject to the provisions of SECTION 7(A)(III)), (ii) shares of Common Stock
to be issued to employees, directors, consultants and advisors of the Company
pursuant to Stock Plans in accordance with their respective terms.
"GROUP" means a group as contemplated by Section 13(d)(3) of the
Exchange Act.
"HOLDER" means a holder of record of Series C Preferred Stock.
["HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR EXPIRATION DATE" shall mean the expiration or earlier termination
of the applicable waiting period under the HSR Act relating to the
transaction described in the filings referred to in Section 5.4 of the
Purchase Agreement.][Delete if not applicable]
"INITIAL CONVERSION DATE" means the first to occur of any of the
following: (i) _____________, 2002 [third anniversary of the Issue Date for
the Series B Preferred Stock], (ii) an agreement providing for a Business
Combination is approved by the Board or a Business Combination is consummated,
(iii) a Tender Offer for Common Stock is approved or recommended by the Board
or (iv) there is a redemption, repurchase or reacquisition by the Company of
Rights issued pursuant to the Rights Agreement or any waiver of the application
of the Rights Agreement to any Beneficial Owner other than Purchaser or its
Affiliates except in the case of this clause (iv) as approved by the
Purchaser's representative to the Board.
"ISSUE DATE" means with respect to any shares of Series C Preferred
Stock the original date of issuance of such shares of Series C Preferred
Stock.
"JUNIOR SECURITIES" means Capital Stock that, with respect to
dividends and distributions upon Liquidation, ranks junior to the Series C
Preferred Stock.
"LIQUIDATION" means the voluntary or involuntary liquidation,
dissolution or winding up of the Company; PROVIDED, HOWEVER, that a merger or
consolidation shall not be deemed a Liquidation nor shall the sale of assets
not requiring shareholder approval be deemed to be a Liquidation.
"LIQUIDATION PREFERENCE" is defined in SECTION 5.
"MANDATORY CONVERSION DATE" is defined in SECTION 6(B).
"MARKET PRICE" means, with respect to a particular security, on any
given day, the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the last closing bid
and asked prices regular way, in either case on the principal national
securities exchange on which the applicable security is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, (i) the closing sale price for such day reported by the Nasdaq
Stock Market if such security is traded over-the-counter and quoted in the
Nasdaq Stock
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Market, or (ii) if such security is so traded, but not so quoted, the average
of the closing reported bid and asked prices of such security as reported by
the Nasdaq Stock Market or any comparable system, or (iii) if such security
is not listed on the Nasdaq Stock Market or any comparable system but is
actively traded, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers, Inc.
selected from time to time by the Company for that purpose. If such security
is not listed and traded in a manner that the quotations referred to above
are available for the period required hereunder, the Market Price shall be
deemed to be the fair value per share of such security as determined by a
nationally recognized investment banking firm selected by the Board and
reasonably acceptable to the Holders of a majority of the outstanding shares
of Series C Preferred Stock.
"ORDINARY CASH DIVIDENDS" means any cash dividend or distribution
which, when combined on a per share of Common Stock basis with the per share
amounts of all other cash dividends and distributions paid on the Common
Stock during the 365-day period ending on the date of declaration of such
dividend or distribution (as adjusted to appropriately reflect any of the
events referred to in SECTION 7 and excluding cash dividends or distributions
that resulted in an adjustment to the Conversion Price), does not exceed 5%
of the Market Price of a share of Common Stock on the Trading Day immediately
preceding the date of declaration of such dividend or distribution.
"PARITY SECURITIES" means Capital Stock that, with respect to
dividends or distributions upon Liquidation, is PARI PASSU with the Series C
Preferred Stock.
"PERMITTED PARITY SECURITIES" means up to 35,000 shares of Preferred
Stock of the Company (less the number of shares of Series C Preferred Stock
issued in accordance the Purchase Agreement) constituting no more than one
series of Preferred Stock, each share of which (i) has a liquidation
preference of not more than $1,000 per share exclusive of accrued and unpaid
dividends, (ii) has a dividend rate of not more than one percent per annum,
(iii) has no more than one vote per share with respect to matters on which it
votes together with the Series C Preferred Stock and Series B Preferred Stock
and other Permitted Parity Securities as a single class and (iv) is PARI
PASSU with the Series C Preferred Stock and Series B Preferred Stock with
respect to the payment of dividends and distributions upon Liquidation.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PRO RATA REPURCHASE" means any purchase of shares of Common Stock by
the Company or any Affiliate thereof pursuant to any tender offer or exchange
offer subject to Section 13(e) of the Exchange Act, or pursuant to any other
offer available to substantially all holders of Common Stock, whether for
cash, shares of capital stock of the Company, other securities of the
Company, evidences of indebtedness of the Company or any other person or any
other property (including, without limitation, shares of capital stock, other
securities or evidences of indebtedness of a subsidiary of the Company), or
any combination thereof; PROVIDED, HOWEVER, that "Pro Rata Repurchase" shall
not include any purchase of shares by the Company or any Affiliate thereof
made in accordance with the requirements of Rule 10b-18 as in effect under
the Exchange Act. The "effective date" of a Pro Rata Repurchase shall mean
the date of acceptance of shares for purchase or exchange under any tender
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or exchange offer which is a Pro Rata Repurchase or the date of purchase with
respect to any Pro Rata Repurchase that is not a tender or exchange offer.
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of April
21, 1999 between the Company and the Purchaser providing for the purchase by
the Purchaser of 40,000 shares of Series B Preferred Stock and up to 15,000
shares of Series C Preferred Stock from the Company, including all schedules
and exhibits thereto.
"PURCHASER" means SCF-IV, L.P., a Delaware limited partnership.
"RECORD DATE" is defined in SECTION 3(A).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of May ___, 1999 between the Company and the Purchaser
providing for certain registration rights under the Securities Act with
respect to the Common Stock into which the Series B Preferred Stock and
Series C Preferred Stock may be converted.
"RIGHTS AGREEMENT" has the meaning set forth in SECTION 6(G).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"SENIOR SECURITIES" means Capital Stock that, with respect to
dividends or distributions upon Liquidation, ranks senior to the Series C
Preferred Stock.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock of the
Company issued to Purchaser pursuant to the Purchase Agreement.
"STATED VALUE" is an amount equal to $1,000.00 per share of Series C
Preferred Stock.
"STOCK PLANS" means the Company's stock option, stock incentive,
restricted stock, employee stock purchase or other similar plans, in each
case that have been approved by the Company's shareholders.
"SUBSIDIARY" of a Person means (i) a corporation, a majority of whose
stock with voting power, under ordinary circumstances, to elect directors is
at the time of determination, directly or indirectly, owned by such Person or
by one or more Subsidiaries of such Person, or (ii) any other entity (other
than a corporation) in which such Person or one or more Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof has a
majority ownership interest or, with respect to a limited partnership, is a
general partner of such limited partnership.
"TENDER OFFER" means any transaction to which Regulation 14D of the
Exchange Act applies.
"TRADING DAY" means a day on which the principal market with respect
to the security in question is regularly scheduled to be open for trading, or
if there is not such principal market, then a day on which the New York Stock
Exchange is regularly scheduled to be open for trading.
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"VOTING STOCK" of a Person means Capital Stock of such Person of the
class or classes pursuant to which the holders thereof have the general
voting power under ordinary circumstances to vote in the election of the
board of directors, managers or trustees of such Person.
The foregoing definitions will be equally applicable to both the
singular and plural forms of the defined terms.
3. DIVIDENDS AND DISTRIBUTIONS.
(A) The holders of Series C Preferred Stock shall be entitled
to receive out of the assets of the Company legally available for that
purpose, cumulative preferential cash dividends at a rate per annum of
one percent (1%) of the Stated Value (equivalent to $10 per annum or
$2.50 per quarter) for each share of Series C Preferred Stock, and,
except as provided in SECTION 3(B), no more, to be paid in accordance
with the terms of this SECTION 3. Such dividends shall be cumulative
from the Issue Date and shall be payable in arrears, when and as
declared by the Board, on March 31, June 30, September 30 and
December 31 of each year (each such date being herein referred to as a
"DIVIDEND PAYMENT DATE"), commencing on the first such Dividend Payment
Date following the Issue Date; PROVIDED that if any Dividend Payment
Date shall not be a Business Day, then the Dividend Payment Date shall
be on the next succeeding day that is a Business Day. The period from
the Issue Date to the next Dividend Payment Date and each quarterly
period between consecutive Dividend Payment Dates shall hereinafter be
referred to as "DIVIDEND PERIODS." Dividends for the initial Dividend
Period shall be pro rated on a daily basis commencing on and including
the Issue Date on the basis of a 360-day year. Each such dividend shall
be paid to the holders of record of the Series C Preferred Stock as
their names appear on the share register of the Company on the
corresponding Record Date. As used above, the term "RECORD DATE" means,
with respect to the dividend payable on March 31, June 30, September 30
and December 31, respectively, of each year, the preceding March 15,
June 15, September 15 and December 15, or such other record date
designated by the Board with respect to the dividend payable on such
respective Dividend Payment Date not exceeding 30 days preceding such
Dividend Payment Date. Dividends on account of arrears for any past
Dividend Periods may be declared and paid, together with any accrued but
unpaid interest thereon to and including the date of payment, at any
time, without reference to any Dividend Payment Date, to holders of
record on a date designated by the Board, not exceeding 30 days
preceding the payment date thereof, as may be fixed by the Board.
(B) If, on any Dividend Payment Date, the Company fails to
pay dividends, then until the dividends that were scheduled to be paid
on such date are paid, such dividends shall cumulate and shall accrue
additional dividends with respect to such unpaid dividends to and
including the date of payment thereof at the rate of one percent (1%)
per annum, compounded on a quarterly basis. Dividends for any period
less than a full quarterly Dividend Period or for a period commencing on
a Dividend Payment Date and ending on a Conversion Date shall cumulate
on a day-to-day basis and shall be computed on the basis of a 360-day
year.
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(C) So long as any shares of the Series C Preferred Stock
shall be outstanding, (i) the Company shall not declare or pay any
dividend whatsoever, whether in cash, property or otherwise, set aside
any cash or property for the payment of dividends, or make any other
distribution on any Junior Securities (except a dividend or distribution
payable solely in shares of Junior Securities), (ii) the Company shall
not declare or pay any dividend whatsoever, whether in cash, property or
otherwise, set aside any cash or property for the payment of dividends,
or make any other distribution on any Parity Securities ranking on
parity with the Series C Preferred Stock with respect to dividends or
distributions (except a dividend or distribution payable solely in
shares of Junior Securities), unless declared and paid PRO RATA with the
Series C Preferred Stock in proportion to the full amount to which they
would otherwise be respectively entitled, and (iii) the Company shall
not and shall cause its Subsidiaries not to repurchase, redeem or
otherwise acquire or set aside any cash or property for the repurchase
or redemption of any Junior Securities or Parity Securities, unless in
each such case all dividends to which the holders of the Series C
Preferred Stock shall have been entitled for all previous Dividend
Periods shall have been paid or declared and a sum of money sufficient
for the payment thereof shall have been set aside.
4. VOTING RIGHTS. The Holders shall have the following voting
rights with respect to the Series C Preferred Stock:
(A) Subject to applicable law, the shares of Series C
Preferred Stock shall have no voting rights other than as set forth in
this SECTION 4.
(B) [After the HSR Expiration Date, but only after the HSR
Expiration Date][delete if not applicable], Holders of shares of the
Series C Preferred Stock shall be entitled to vote upon all matters upon
which holders of Common Stock have the right to vote, and Holders shall
have that number of votes on all such matters as is equal to the
Conversion Ratio that would apply if such Holder's shares of Series C
Preferred Stock were to be converted pursuant to SECTION 6(A) (using the
calculation of such Conversion Ratio specified in SECTION 6(C)(i) and
not SECTION 6(C)(ii) for such purpose) as of the record date for the
determination of the shareholders entitled to vote on such matters, or,
if no such record date is established as of the date such vote is taken
or any written consent of shareholders is solicited, such votes to be
counted together with all other shares of capital stock having general
voting powers and not separately as a class. Fractional votes shall
not, however, be permitted and any fractional voting rights resulting
from the above formula (after aggregating all shares into which shares
of Series C Preferred Stock held by each Holder could be converted)
shall be rounded up to the nearest whole number.
(C) [After the HSR Expiration Date, but only after the HSR
Expiration Date, the Holders of the Series C Preferred Stock][delete if
not applicable], voting together with the Series B Preferred Stock and
any Permitted Parity Securities as a separate class with one vote per
share of Series C Preferred Stock, shall be entitled to elect one member
of the Board at each meeting or pursuant to each consent of the
Company's shareholders for the election of directors (unless the term of
the director previously elected by the Holders pursuant to this Section
4(C) would continue after such election). If the director so elected by
the Holders shall cease to serve as director before his term shall
expire, the Holders may, at a special
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meeting of such Holders, elect a successor to hold office for the
unexpired term of such director. The Secretary of the Company may
call, and upon written request of the Holders of ten percent (10%) or
more of the outstanding Series C Preferred Stock addressed to him at
the principal office of the Company shall call, such a special meeting
of the Holders for the election of such director as provided herein.
Such meeting shall be held within fifty (50) days after delivery of
such request to such Secretary, at the place and upon the notice
provided by law and in the Bylaws of the Company for the holding of
meetings of its shareholders. Any director who shall have been
elected pursuant to this SECTION 4(C), may be removed during the
aforesaid term of office, with or without cause, only by the
affirmative vote of a majority votes entitled to be cast by the
Holders of Series C Preferred Stock, the Series B Preferred Stock and
the holders of then outstanding Permitted Parity Securities.
(D) (i) The consent of the Holders of at least a majority
of the Series C Preferred Stock, voting together with the Series B
Preferred Stock and the Permitted Parity Securities as a single class
with one vote per share, in person or by proxy, either in writing
without a meeting or at an annual or a special meeting of shareholders
called for the purpose, shall be necessary to:
(A) amend, alter or repeal, by way of merger
or otherwise, any of the provisions of the Certificate,
so as to authorize, create or issue any shares of Parity
Securities (other than Permitted Parity Securities) or
Senior Securities (or amend the provisions of any
existing class of Capital Stock to make such class of
Capital Stock a class of Parity Securities or Senior
Securities),
(B) issue any Parity Securities (other than
Permitted Parity Securities) or Senior Securities,
or
(C) consummate any Business Combination.
(ii) The consent of the Holders of at least a majority
of the Series C Preferred Stock, voting separately as a single
class with one vote per share, in person or by proxy, either in
writing without a meeting or at an annual or a special meeting of
shareholders called for the purpose, shall be necessary to amend,
alter or repeal, by way of merger or otherwise, any of the
provisions of (x) the Certificate of Designation or any
certificate of designation of terms of any Parity Securities, or
(y) the Certificate, so as to affect adversely any of the rights,
preferences or privileges of Holders.
5. LIQUIDATION PREFERENCE. In the event of any Liquidation,
after payment or provision for payment by the Company of the debts and other
liabilities of the Company and the liquidation preference of any Senior
Securities that rank senior to the Series C Preferred Stock with respect to
distributions on Liquidation, each Holder shall be entitled to receive an
amount in cash for each share of the then outstanding Series C Preferred
Stock held by such Holder equal to the Stated Value per share, plus an amount
equal to all accrued but unpaid dividends thereon, whether or not earnings
are available in respect of such dividends or such dividends have been
declared, to and including the date
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full payment is tendered to the Holders with respect to such Liquidation, and
no more (such amount being referred to herein as the "LIQUIDATION
PREFERENCE"), before any distribution shall be made to the holders of any
Junior Securities upon the Liquidation of the Company. In case the assets of
the Company available for payment to the Holders upon a Liquidation are
insufficient to pay the full Liquidation Preference on all outstanding shares
of the Series C Preferred Stock and all outstanding Senior Securities or
Parity Securities, in each case ranking on parity with the Series C Preferred
Stock as to distributions on Liquidation, in the amounts to which the holders
of such shares are entitled, then the entire assets of the Company available
for payment to the Holders of Series C Preferred Stock and holders of such
Senior Securities or Parity Securities will be distributed ratably among the
Holders of the Series C Preferred Stock and the holders of such Senior
Securities or Parity Securities, based upon the aggregate amount due on such
shares upon Liquidation. Written notice of any Liquidation of the Company,
stating a payment date and the place where the distributable amounts shall be
payable, shall be given by mail, postage prepaid, not less than 30 days prior
to the payment date stated therein, to the Holders of record of the Series C
Preferred Stock at their respective addresses as the same shall appear on the
books of the Company.
6. CONVERSION RIGHTS. The Series C Preferred Stock shall be
convertible as follows:
(A) CONVERSION AT HOLDER'S OPTION. The Holder of any shares
of Series C Preferred Stock shall have the right at such Holder's
option, at any time after the Initial Conversion Date and prior to the
Mandatory Conversion Date and without the payment of any additional
consideration, to convert any or all of such shares of Series C
Preferred Stock into a number of fully paid and nonassessable shares of
Common Stock for each such share of Series C Preferred Stock equal to
the Conversion Ratio, upon the terms hereinafter set forth.
(B) MANDATORY CONVERSION. On _______________, 2004 [insert
fifth anniversary of the Issue Date for the Series B Preferred Stock]
(the "MANDATORY CONVERSION DATE"), each outstanding share of Series C
Preferred Stock shall, without any action on the part of the Holder of
such share, be converted automatically into a number of fully paid and
nonassessable shares of Common Stock equal to the Conversion Ratio, upon
the terms hereinafter set forth; PROVIDED, HOWEVER, that if the shares
of Common Stock issuable upon conversion of the Series C Preferred Stock
are not immediately freely transferrable under the Securities Act by the
Holders thereof, the Mandatory Conversion Date shall be delayed until
such time as the resale of the Common Stock issuable upon conversion of
such Series C Preferred Stock has been registered under the Securities
Act in accordance with the terms of the Registration Rights Agreement.
(C) CONVERSION RATIO. In the event of a conversion pursuant
to SECTION 6(A) OR 6(B), the Conversion Ratio shall be a number of
shares of Common Stock calculated using either of the following methods
at the option of the Holder as may be specified by the Holder at the
time of conversion, or, if no such specification is made, using the
method that results in the highest number:
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(i) the amount determined by dividing (a) the Stated
Value plus any accrued and unpaid dividends to and including the
applicable Conversion Date by (b) the Conversion Price in effect
on the applicable Conversion Date; or
(ii) the amount determined by dividing (a) the Adjusted
Stated Value as of the applicable Conversion Date by (b) the
Average Market Price determined as of the applicable Conversion
Date (but not less than the lesser of $.01 or the par value per
share of the Common Stock at the time of conversion).
(D) MECHANICS OF CONVERSION. The Holder of any shares of
Series C Preferred Stock may exercise the conversion right specified in
SECTION 6(A) by surrendering to the Company or any transfer agent of the
Company the certificate or certificates representing the shares of
Series C Preferred Stock to be converted, accompanied by written notice
specifying the number of such shares to be converted. If the
certificates representing shares of Common Stock issuable upon
conversion of shares of Series C Preferred Stock are to be issued in a
name other than the name on the face of the certificates representing
such shares of Series C Preferred Stock, such certificates shall be
accompanied by such evidence of the assignment and such evidence of the
signatory's authority with respect thereto as deemed appropriate by the
Company or its transfer agent. Conversion shall be deemed to have been
effected (i) with respect to conversions pursuant to SECTION 6(A), on
the date when the notice of an election to convert pursuant to
SECTION 6(A) and certificates representing the shares being converted
are actually received by the Company or any transfer agent of the
Company, or (ii) with respect to mandatory conversion pursuant to
SECTION 6(B), on the Mandatory Conversion Date. Such dates that the
conversion shall be deemed to be effective shall be referred to herein
as the "CONVERSION DATE." Subject to the provisions of SECTION 7(G), as
promptly as practicable after the Conversion Date, the Company shall
issue and deliver to or upon the written order of such Holder a
certificate or certificates for the number of shares of Common Stock to
which such Holder is entitled upon such conversion and a check or cash
with respect to any fractional interest in a share of Common Stock, as
provided in SECTION 6(E). The person in whose name the certificate or
certificates for shares of Common Stock are to be issued shall be deemed
to have become a holder of record of such shares of Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of the
shares covered by a certificate representing shares of Series C
Preferred Stock surrendered for conversion pursuant to SECTION 6(A), the
Company shall issue and deliver to or upon the written order of the
Holder of the certificate so surrendered for conversion, at the expense
of the Company, a new certificate representing the number of shares of
Series C Preferred Stock representing the unconverted portion of the
certificate so surrendered.
(E) FRACTIONAL SHARES. No fractional shares of Common Stock
or scrip shall be issued upon conversion of shares of Series C Preferred
Stock. If more than one share of Series C Preferred Stock shall be
surrendered for conversion at any one time by the same Holder, the
number of shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of Series C
Preferred Stock so surrendered. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series C Preferred Stock, the Company shall pay
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a cash adjustment in respect of such fractional interest in an amount
equal to that fractional interest of the Market Price of the Common
Stock on the Conversion Date.
(F) AUTHORIZATION AND ISSUANCE. The Company covenants and
agrees that:
(i) the shares of Common Stock issuable upon any
conversion of any shares of Series C Preferred Stock will be
deemed to have been issued to the Person exercising such
conversion rights set forth herein on the Conversion Date, and
the Person exercising such conversion rights will be deemed for
all purposes to have become the record holder of such shares of
Common Stock on the Conversion Date;
(ii) all shares of Common Stock which may be issued
upon any conversion of any Series C Preferred Stock will, upon
issuance, be fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof;
(iii) the Company will take all such action as may be
necessary to assure that all shares of Common Stock issuable upon
conversion of shares of Series C Preferred Stock may be issued
without violation of any applicable law or regulation or of any
requirements of any domestic securities exchange upon which
securities of the same class may be listed and shall endeavor to
list the shares of Common Stock required to be delivered upon
conversion of the shares of Series C Preferred Stock, prior to
such delivery, upon each national securities exchange, if any,
upon which the outstanding Common Stock is listed at the time of
such delivery;
(iv) the Company will not take any action which would
result in any adjustment of the Conversion Price if the total
number of shares of Common Stock issuable after such action upon
conversion of all shares of Series C Preferred Stock, together
with all shares of Common Stock then outstanding and all shares
of Common Stock then issuable upon the exercise of all
outstanding Common Stock Equivalents, would exceed the total
number of shares of Common Stock then authorized by the
Certificate of Incorporation;
(v) the Company will at all times reserve and keep
available, out of its authorized but unissued shares of Common
Stock or out of shares of Common Stock held in its treasury, the
full number of shares of Common Stock into which all shares of
the Series C Preferred Stock having conversion privileges from
time to time outstanding are convertible; and
(vi) the Company will at no time close its transfer
books against the transfer of the Series C Preferred Stock or of
any share of Common Stock issued or issuable upon the conversion
of the Series C Preferred Stock in any manner which interferes
with the timely conversion of the Series C Preferred Stock.
(G) RIGHTS. Whenever the Company issues shares of Common
Stock upon conversion of Series C Preferred Stock, the Company will
issue, together with each such share of Common Stock, one right to
purchase Series A Preferred Stock of the Company (or
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other securities in lieu thereof) pursuant to the Rights Agreement
dated as of January 17, 1997 by and between the Company and Harris
Trust and Savings Bank, as amended (the "RIGHTS AGREEMENT"), or any
similar rights, if any, issued to holders of Common Stock in addition
thereto or in the replacement therefor (such rights, together with any
additional or replacement rights, being collectively referred to as
the "RIGHTS"), whether or not such rights shall be exercisable at such
time, but only if such Rights are issued and outstanding and held by
other holders of Common Stock (or are evidenced by outstanding share
certificates representing Common Stock) at such time and have not
expired or been redeemed.
(H) CASH REDEMPTION OPTION. Notwithstanding the provisions
of SECTIONS 6(A) OR 6(B), in the event of a conversion of Series C
Preferred Stock pursuant to which the Conversion Ratio is determined
using SECTION 6(C)(ii) (rather than SECTION 6(C)(i)), then, provided
that full cumulative dividends shall have been paid or declared and set
apart for payment upon all outstanding shares of Series C Preferred
Stock for all past dividend periods, the Company may offer to redeem for
cash any or all of such shares of Series C Preferred Stock at a
redemption price per share equal to the Adjusted Stated Value (a
"REDEMPTION OFFER"), in lieu of effecting such conversion. To effect a
Redemption Offer, the Company must give notice of such election,
specifying the redemption price, (a "REDEMPTION OFFER NOTICE") to the
Holder of such shares of Series C Preferred Stock (i) with respect to
conversions pursuant to SECTION 6(A), within three Business Days after
the notice of an election to convert pursuant to SECTION 6(A) is
received by the Company or any transfer agent of the Company, or
(ii) with respect to mandatory conversion pursuant to SECTION 6(B), on
the Mandatory Conversion Date. If the Company fails to give a
Redemption Offer Notice within the foregoing time periods, it may not
make a Redemption Offer. If the Company has given a Redemption Offer
Notice with respect to more than 50% of the shares of Series C Preferred
Stock to be converted, then within three Business Days following receipt
of a Redemption Offer Notice, the Holder may give notice to the Company
declining the Company's offer to redeem up to 50% of the shares of
Series C Preferred Stock to be converted, in which event the Company
will not be entitled to redeem such shares as specified and must convert
such shares into Common Stock in accordance with the terms hereof
effective as of the Conversion Date. The Company shall be entitled to
redeem all of the shares subject to the Redemption Offer Notice at the
redemption price set forth above to the extent the Holder does not
properly decline such redemption in accordance with the prior sentence.
The Company shall make any such redemption payment by wire transfer to
an account specified by the Holder on the first Business Day following
the expiration of the three Business Day period after the Holder's
receipt of the Redemption Offer Notice, failing which payment the
Company shall not be entitled to redeem such shares but shall be
obligated to convert all of such Shares into Common Stock in accordance
with the terms hereof.
(I) LIMITATION ON NUMBER OF CONVERSION SHARES.
Notwithstanding the provisions of SECTIONS 6(A) OR 6(B), if the Company
ever issues Common Stock upon conversion of Series C Preferred Stock
pursuant to which the Conversion Ratio is calculated pursuant to SECTION
6(C)(ii) rather than SECTION 6(C)(i), the Company shall not be obligated
to issue, in the aggregate, a number of shares of Common Stock in excess
of the NYSE Limitation upon conversion of the Series C Preferred Stock.
The "NYSE Limitation" shall mean the maximum number of shares of Common
Stock that could be issued by the Company pursuant to the
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conversion of the Series B Preferred Stock, the Series C Preferred
Stock and any substantially similar series of Permitted Parity
Securities issued to the Holder pursuant to the terms of the Purchase
Agreement without triggering a requirement to obtain the approval of
the Company's shareholders of such issuance pursuant to Section
312.03(c) of the New York Stock Exchange Listed Company Manual as in
effect on the Issue Date. To the extent that any shares of Series C
Preferred Stock are submitted for conversion such that the NYSE
Limitation would be exceeded, such excess shares shall, in lieu of
being converted into Common Stock, be redeemed in exchange for a cash
payment equal to the Adjusted Stated Value per share. The Company
shall make any such redemption payment by wire transfer to an account
specified by the Holder on the second Business Day following the
Conversion Date on which the shares of Series C Preferred Stock would
otherwise be converted into Common Stock.
7. CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be
subject to adjustment from time to time as follows:
(A) COMMON STOCK ISSUED AT LESS THAN MARKET PRICE OR
CONVERSION PRICE. If the Company issues or sells any Common Stock other
than Excluded Stock without consideration or for a consideration per
share less than the Market Price per share of Common Stock, on the
Trading Day immediately preceding such issuance or sale or less than the
Conversion Price in effect immediately prior to such issuance or sale,
the Conversion Price in effect immediately prior to each such issuance
or sale will immediately (except as provided below) be reduced to the
price determined by multiplying the Conversion Price in effect
immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale plus (ii) the
number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such additional shares
of Common Stock so issued or sold would purchase at the higher of (x)
the Market Price per share of Common Stock on the Trading Day
immediately preceding such issuance or sale and (y) the Conversion Price
in effect immediately prior to such issuance or sale and (2) the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after such issue or sale. For the purposes of
any adjustment of the Conversion Price pursuant to this SECTION 7(A),
the following provisions shall be applicable:
(i) in the case of the issuance of Common Stock for
cash, the amount of the consideration received by the Company
shall be deemed to be the amount of the cash proceeds received by
the Company for such Common Stock before deducting therefrom any
discounts or commissions allowed, paid or incurred by the Company
for any underwriting or otherwise in connection with the issuance
and sale thereof;
(ii) in the case of the issuance of Common Stock
(otherwise than upon the conversion of shares of Capital Stock or
other securities of the Company) for a consideration in whole or
in part other than cash, including securities acquired in
exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed
to be the fair value thereof as reasonably determined by the
Board, irrespective of any accounting treatment;
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PROVIDED, HOWEVER, that such fair value as determined by the
Board shall not exceed the aggregate Market Price of the shares
of Common Stock being issued as of the date the Board authorizes
the issuance of such shares;
(iii) in the case of the issuance of (a) options,
warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (b) securities by their
terms convertible into or exchangeable for Common Stock (whether
or not at the time so convertible or exchangeable) or options,
warrants or rights to purchase such convertible or exchangeable
securities (whether or not at the time exercisable):
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of
such options, warrants or other rights to
purchase or acquire Common Stock shall be
deemed to have been issued at the time
such options, warrants or rights are
issued and for a consideration equal to
the consideration (determined in the
manner provided in SECTION 7(A)(i) AND
(ii)), if any, received by the Company
upon the issuance of such options,
warrants or rights plus the minimum
purchase price provided in such options,
warrants or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion
of or in exchange for any such convertible
or exchangeable securities, or upon the
exercise of options, warrants or other
rights to purchase or acquire such
convertible or exchangeable securities and
the subsequent conversion or exchange
thereof, shall be deemed to have been
issued at the time such securities were
issued or such options, warrants or rights
were issued and for a consideration equal
to the consideration, if any, received by
the Company for any such securities and
related options, warrants or rights
(excluding any cash received on account of
accrued interest or accrued dividends),
plus the additional consideration
(determined in the manner provided in
SECTION 7(A)(i) AND (ii)), if any, to be
received by the Company upon the
conversion or exchange of such securities,
or upon the exercise of any related
options, warrants or rights to purchase or
acquire such convertible or exchangeable
securities and the subsequent conversion
or exchange thereof;
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of
any such options, warrants or rights or
conversion or exchange of such convertible
or exchangeable securities or any change
in the consideration to be received by the
Company upon such exercise, conversion
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or exchange, but excluding changes
resulting from the anti-dilution provisions
thereof (to the extent comparable to the
anti-dilution provisions contained
herein), the Conversion Price as then in
effect shall forthwith be readjusted to
such Conversion Price as would have been
obtained had an adjustment been made upon
the issuance of such options, warrants or
rights not exercised prior to such change,
or of such convertible or exchangeable
securities not converted or exchanged
prior to such change, upon the basis of
such change;
(4) on the expiration or cancellation of any
such options, warrants or rights (without
exercise), or the termination of the right
to convert or exchange such convertible or
exchangeable securities (without
exercise), if the Conversion Price shall
have been adjusted upon the issuance
thereof, the Conversion Price shall
forthwith be readjusted to such Conversion
Price as would have been obtained had an
adjustment been made upon the issuance of
such options, warrants, rights or such
convertible or exchangeable securities on
the basis of the issuance of only the
number of shares of Common Stock actually
issued upon the exercise of such options,
warrants or rights, or upon the conversion
or exchange of such convertible or
exchangeable securities; and
(5) if the Conversion Price shall have been
adjusted upon the issuance of any such
options, warrants, rights or convertible
or exchangeable securities, no further
adjustment of the Conversion Price shall
be made for the actual issuance of Common
Stock upon the exercise, conversion or
exchange thereof;
PROVIDED, HOWEVER, that no increase in the Conversion Price shall
be made pursuant to subclauses (1) or (2) of this SECTION
7(A)(iii).
(B) STOCK SPLITS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Company shall (1) declare a dividend or make a
distribution on its Common Stock in shares of Common Stock, (2)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (3) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Price in
effect at the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Holder of
any shares of Series C Preferred Stock surrendered for conversion or
exchange after such date shall be entitled to receive the number of
shares of Common Stock which such holder would have owned or been
entitled to receive after such date had such Series C Preferred Stock
been converted or
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exchanged immediately prior to such date. Successive
adjustments in the Conversion Price shall be made whenever any event
specified above shall occur.
(C) OTHER DISTRIBUTIONS. In case the Company shall fix a
record date for the making of a distribution to all holders of shares of
its Common Stock (1) of shares of any class other than its Common Stock
or (2) of evidence of indebtedness of the Company or any Subsidiary or
(3) of assets (including cash but excluding Ordinary Cash Dividends, and
dividends or distributions referred to in SECTION 7(B)), or (4) of
rights or warrants, then in each such case the Conversion Price in
effect immediately prior thereto shall be reduced to the price
determined by multiplying the Conversion Price in effect immediately
prior to such record date by a fraction, (i) the numerator of which
shall be an amount equal to the difference resulting from (A) the number
of shares of Common Stock outstanding on such record date multiplied by
the Market Price per share of Common Stock on such record date, less (B)
the fair market value (as reasonably determined by the Board) of said
shares or evidences of indebtedness or assets or rights or warrants to
be so distributed, and (ii) the denominator of which shall be equal to
the number of shares of Common Stock outstanding on such record date
multiplied by the Market Price per share of Common Stock on such record
date. Such adjustment shall be made successively whenever such a record
date is fixed. In the event that such distribution is not so made, the
Conversion Price then in effect shall be readjusted, effective as of the
date when the Board determines not to distribute such shares, evidences
of indebtedness, assets, rights or warrants, as the case may be, to the
Conversion Price that would then be in effect if such record date had
not been fixed.
(D) CERTAIN REPURCHASES OF COMMON STOCK. In case the Company
effects a Pro Rata Repurchase of Common Stock, then the Conversion Price
shall be reduced to the price determined by multiplying the Conversion
Price in effect immediately prior to the effective date of such Pro Rata
Repurchase by a fraction of which (1) the numerator shall be (i) the
product of (x) the number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase and (y) the Market Price per
share of Common Stock on the Trading Day immediately preceding the first
public announcement of the intent to effect such Pro Rata Repurchase,
minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and
of which (2) the denominator shall be the product of (a) the number of
shares of Common Stock outstanding immediately prior to such Pro Rata
Repurchase minus the number of shares of Common Stock so repurchased and
(b) the Market Price per share of Common Stock on the Trading Day
immediately preceding the first public announcement of such Pro Rata
Repurchase.
(E) BUSINESS COMBINATIONS. In case of any Business
Combination in which the holders of shares of Common Stock are entitled
to receive stock, securities or property by virtue of their ownership of
Common Stock or a reclassification of Common Stock (other than a
reclassification of Common Stock referred to in SECTION 7(B)), each
share of Series C Preferred Stock shall after the date of such Business
Combination or reclassification be convertible into the number of shares
of stock or other securities or property (including cash) to which the
Common Stock issuable upon conversion of such share of Series C
Preferred Stock immediately prior to such Business Combination or
reclassification would have been entitled upon such Business Combination
or reclassification; and in any such case, if
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necessary, the provisions set forth herein with respect to the rights
and interests thereafter of the Holders of the shares of Series C
Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion
of the shares of Series C Preferred Stock. In determining the kind
and amount of stock, securities or the property receivable upon
consummation of such Business Combination, if the holders of Common
Stock have the right to elect the kind or amount of consideration
receivable upon consummation of such Business Combination, then the
Holder of the Series C Preferred Stock shall have the right to make a
similar election as of the Conversion Date with respect to the number
of shares of stock or other securities or property into which the
Series C Preferred Stock shall be convertible.
(F) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENTS. All
calculations under this SECTION 7 shall be made to the nearest one tenth
(1/10th) of a cent or to the nearest one hundredth (1/100th) of a share,
as the case may be. Any provision of this SECTION 7 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made if
the amount of such adjustment would be less than $0.01, but any such
amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.01 or more. In addition, in no
event shall be Conversion Price be adjusted to less than the lesser of
$.01 per share or the par value of the Common Stock.
(G) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON
CERTAIN ADJUSTMENTS. In any case in which the provisions of this SECTION
7 shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the
occurrence of such event (1) issuing to the Holder of any share of
Series C Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such Holder
any amount of cash in lieu of a fractional share of such Common Stock;
PROVIDED, HOWEVER, that the Company upon request shall deliver to such
Holder a due bill or other appropriate instrument evidencing such
Holder's right to receive such additional shares, and such cash, upon
the occurrence of the event requiring such adjustment.
(H) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion
Price shall be adjusted as provided in SECTION 7 the Company shall
forthwith file, at the office of any transfer agent for the Series C
Preferred Stock and at the principal office of the Company a statement
showing in reasonable detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment and the
Company shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each Holder at its address appearing in
the Company's records.
(I) NOTICES. In the event that the Company shall propose to
take any action of the type described in SECTION 7 (but only if the
action of the type described in SECTION 7 would result in an adjustment
in the Conversion Price or a change in the type of securities or
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property to be delivered upon a conversion or exchange of Series C
Preferred Stock), the Company shall give notice to each Holder, in the
manner set forth in SECTION 7(H), which notice shall specify the record
date, if any, with respect to any such action and the approximate date
on which such action is to take place. Such notice shall also set forth
the facts with respect thereto as shall be reasonably necessary to
indicate the effect on the Conversion Price and the number, kind or
class of shares or other securities or property which shall be
deliverable upon conversion of shares of the Series C Preferred Stock.
In the case of any action which would require the fixing or a record
date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at
least 15 days prior to the taking of such proposed action. Failure to
give such notice, or any defect therein, shall not affect the legality
or validity of any such action.
(J) NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying
out of all the provisions of SECTIONS 6 and 7 and in taking of all such
action as may be necessary or appropriate in order to protect the
conversion rights of the Holders of the Series C Preferred Stock against
impairment.
(K) NO DUPLICATION OF ADJUSTMENTS. If any action would
require adjustment of the Conversion Price pursuant to more than one of
the provisions of this SECTION 7, only one adjustment shall be made and
such adjustment shall be the adjustment that results in the lowest
Conversion Price after giving effect to such adjustment.
8. LIMITATIONS ON SERIES C PREFERRED STOCK. No share or shares of
Series C Preferred Stock the Company acquires through redemption, option,
exchange or otherwise will be reissued as Series C Preferred Stock, and all
such shares will be canceled, retired and eliminated from the shares of
Series C Preferred Stock which the Company will be authorized to issue, and
will be restored to the status of authorized but undesignated preferred stock
of the Company eligible for designation and reissuance subject to the terms
hereof and the Certificate. The Company will not issue any further shares of
Series C Preferred Stock.
9. WAIVERS. With the written consent of Holders of a Majority of
the Series C Preferred Stock, the obligations of the Company and the rights
of the Holders under this Certificate of Designation may be waived (either
generally or in a particular instance, either retroactively or prospectively
and either for a specified period of time or indefinitely). Upon the
effectuation of each such waiver, the Company will promptly give written
notice thereof to the Holders who have not previously consented thereto in
writing.
10. REDEMPTION. Except as expressly set forth herein, the Company
shall have no right or obligation to redeem the Series C Preferred Stock.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, this Certificate has been signed on behalf of the
Company by its President and attested to by its Secretary, all as of the
_____ day of _________, 1999.
INPUT/OUTPUT, INC.
By:
----------------------------
President
ATTEST:
By:
-------------------------
Secretary
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PURCHASE AGREEMENT
BY AND BETWEEN
INPUT/OUTPUT, INC.
AND
SCF-IV, L.P.
SERIES B PREFERRED STOCK
AND
SERIES C PREFERRED STOCK
APRIL 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.2 References and Titles . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II.
PURCHASE OF THE SHARES
Section 2.1 Purchase of the Initial Shares. . . . . . . . . . . . . . . . 8
Section 2.2 Option to Purchase Option Shares. . . . . . . . . . . . . . . 8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power. . . . . . . . . . . . . . . 9
Section 3.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .10
Section 3.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . .10
Section 3.4 Authority; No Violations; Approvals . . . . . . . . . . . . .11
Section 3.5 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . .12
Section 3.6 Absence of Certain Changes or Events. . . . . . . . . . . . .13
Section 3.7 No Undisclosed Material Liabilities . . . . . . . . . . . . .14
Section 3.8 No Default. . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 3.9 Compliance with Applicable Laws . . . . . . . . . . . . . . .15
Section 3.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 3.11 Certain Agreements. . . . . . . . . . . . . . . . . . . . . .16
Section 3.12 Status of Shares. . . . . . . . . . . . . . . . . . . . . . .16
Section 3.13 Intellectual Property; Year 2000. . . . . . . . . . . . . . .16
Section 3.14 Environmental Matters . . . . . . . . . . . . . . . . . . . .17
Section 3.15 No Brokers or Finders . . . . . . . . . . . . . . . . . . . .17
Section 3.16 Vote. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 3.17 Related Party Transactions. . . . . . . . . . . . . . . . . .18
Section 3.18 Certain Anti-Takeover Provisions; Rights Plan . . . . . . . .18
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Organization, Standing and Power. . . . . . . . . . . . . . .18
Section 4.2 Authority; Approvals. . . . . . . . . . . . . . . . . . . . .18
Section 4.3 Investment Intent . . . . . . . . . . . . . . . . . . . . . .19
Section 4.4 Purchaser Status. . . . . . . . . . . . . . . . . . . . . . .19
Section 4.5 No Brokers or Finders . . . . . . . . . . . . . . . . . . . .19
Section 4.6 Access to Information . . . . . . . . . . . . . . . . . . . .20
ARTICLE V.
COVENANTS
Section 5.1 Affirmative Covenants of the Company. . . . . . . . . . . . .20
Section 5.2 Negative Covenants of the Company . . . . . . . . . . . . . .20
</TABLE>
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Section 5.3 Cooperation; Approvals. . . . . . . . . . . . . . . . . . . .21
Section 5.4 HSR Act Notification. . . . . . . . . . . . . . . . . . . . .21
Section 5.5 Notification of Certain Matters . . . . . . . . . . . . . . .21
Section 5.6 Board of Directors. . . . . . . . . . . . . . . . . . . . . .22
Section 5.7 Registration Rights Agreement . . . . . . . . . . . . . . . .22
Section 5.8 Transfer Restrictions . . . . . . . . . . . . . . . . . . . .22
Section 5.9 Stock Exchange Listing. . . . . . . . . . . . . . . . . . . .24
Section 5.10 Access; Confidentiality . . . . . . . . . . . . . . . . . . .24
Section 5.11 Issuance of Additional Preferred Stock. . . . . . . . . . . .24
Section 5.12 Standstill Agreement. . . . . . . . . . . . . . . . . . . . .25
Section 5.13 Indemnification . . . . . . . . . . . . . . . . . . . . . . .26
Section 5.14 Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . .27
ARTICLE VI.
CONDITIONS PRECEDENT TO THE CLOSINGS
Section 6.1 Conditions Precedent to Each Party's Obligation . . . . . . .27
Section 6.2 Conditions Precedent to Obligation of Purchaser . . . . . . .27
Section 6.3 Conditions Precedent to Obligations of Company. . . . . . . .28
ARTICLE VII.
THE CLOSINGS
Section 7.1 The Closings. . . . . . . . . . . . . . . . . . . . . . . . .29
Section 7.2 Actions to Occur at the Initial Closing . . . . . . . . . . .29
Section 7.3 Actions to Occur at the Option Closing. . . . . . . . . . . .30
ARTICLE VIII.
TERMINATION
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . .31
ARTICLE IX.
RECOVERY OF FEES. . . . . . . . . . . . . . . . . . . . . . .31
ARTICLE X.
MISCELLANEOUS
Section 10.1 Survival of Provisions. . . . . . . . . . . . . . . . . . . .32
Section 10.2 No Waiver; Modification in Writing. . . . . . . . . . . . . .32
Section 10.3 Specific Performance. . . . . . . . . . . . . . . . . . . . .32
Section 10.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . .33
Section 10.5 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . .33
Section 10.6 Parties in Interest . . . . . . . . . . . . . . . . . . . . .33
Section 10.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 10.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .34
Section 10.9 Entire Agreement; Termination of Confidentiality Agreement. .34
Section 10.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .34
Section 10.11 Public Announcements. . . . . . . . . . . . . . . . . . . . .34
</TABLE>
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Section 10.12 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 10.13 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . .35
</TABLE>
<TABLE>
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Exhibit 1.1(a) Certificate of Designation relating to Series B
Preferred Stock
Exhibit 1.1(b) Certificate of Designation relating to Series C
Preferred Stock
Exhibit 5.7 Form of Registration Rights Agreement
Exhibits 6.2(e)(i) and (ii) Form of Company Counsel Opinions
</TABLE>
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of April 21, 1999, by and between
Input/Output, Inc., a Delaware corporation (together with its successors, if
any, the "COMPANY"), and SCF-IV, L.P., a Delaware limited partnership, (the
"PURCHASER").
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"AFFILIATE" means, with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person. For purposes of this
definition and this Agreement, the term "CONTROL" (and correlative terms
"CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means
possession of the power, whether by contract, equity ownership or otherwise,
to direct the policies or management of a Person.
"AGREEMENT" means this Purchase Agreement, as the same may be amended,
supplemented or modified from time to time in accordance with the terms
hereof.
"APPROVAL" means any approval, authorization, grant of authority,
consent, order, qualification, permit, license, variance, exemption,
franchise, concession, certificate, filing or registration or any waiver of
the foregoing, or any notice, statement or other communication required to be
filed with, delivered to or obtained from any Governmental Entity or any
other Person.
"BOARD" means the Board of Directors of the Company.
"BUSINESS COMBINATION" means (i) any consolidation, merger, share
exchange or similar business combination transaction involving the Company
with any Person or (ii) the sale, assignment, conveyance, transfer, lease or
other disposition by the Company of all or substantially all of its assets.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Houston,
Texas generally are authorized or required by law or other government actions
to close.
"BYLAWS" mean the Company's bylaws, as amended from time to time.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation or company, any and all shares, interests, participations or
other equivalents (however designated) of capital or capital
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stock of such Person and (ii) with respect to any Person that is not a
corporation or company, any and all partnership or other equity interests of
such Person.
"CERTIFICATES OF DESIGNATION" shall mean the Certificates of
Designation for the Series B Preferred Stock and the Series C Preferred Stock
in substantially the form attached hereto as EXHIBITS 1.1(a) AND 1.1(b), with
such changes as are contemplated by the terms thereof or this Agreement.
"CERTIFICATE OF INCORPORATION" means the Company's Certificate of
Incorporation, as amended from time to time.
"CHANGE OF CONTROL" means the occurrence of any event specified in
clauses (ii), (iii) or (iv) of the definition of "Initial Conversion Date"
set forth in the Certificate of Designation for the Series B Preferred Stock.
"CLOSING" has the meaning set forth in SECTION 7.1(b).
"CLOSING DATE" has the meaning set forth in SECTION 7.1(b).
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder as in effect on the date hereof.
"COMMON STOCK" means the Company's common stock, par value $.01 per
share, and any Capital Stock for or into which such Common Stock hereafter is
exchanged, converted, reclassified or recapitalized by the Company or
pursuant to an agreement or Business Combination to which the Company is a
party.
"COMPANY" has the meaning set forth in the introductory paragraph
hereof.
"COMPANY DISCLOSURE SCHEDULE" has the meaning set forth in Article III.
"COMPANY 1998 FORM 10-K" means the Report on Form 10-K filed by the
Company with the SEC for the year ended May 31, 1998.
"COMPANY OPTIONS" has the meaning set forth in SECTION 3.3(c).
"COMPANY SEC DOCUMENTS" has the meaning set forth in SECTION 3.5.
"CONTRACTS" means all agreements, contracts, or other binding
commitments, arrangements or plans, written or oral (including any amendments
and other modifications thereto), to which the Company or any of its
Subsidiaries is a party or is otherwise bound.
"CURRENT SEC REPORTS" means the Company 1998 Form 10-K, the proxy
statement for the Company's 1998 annual meeting of stockholders, and all
Company SEC Documents filed by the Company since the time of initial filing
of either documents.
"ENVIRONMENTAL LAWS" has the meaning set forth in SECTION 3.14.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"EXERCISE NOTICE" has the meaning set forth in SECTION 2.2(a).
"GAAP" has the meaning set forth in SECTION 3.5(b).
"GOVERNMENTAL ENTITY" means any agency, bureau, commission, court,
authority, department, official, political subdivision, tribunal or other
instrumentality of any government, whether (i) regulatory, administrative or
otherwise, (ii) federal, state or local, or (iii) domestic or foreign.
"HAZARDOUS MATERIALS" has the meaning set forth in SECTION 3.14.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INITIAL CLOSING" has the meaning set forth in SECTION 7.1(a).
"INITIAL CLOSING DATE" has the meaning set forth in SECTION 7.1(a).
"INITIAL PURCHASE PRICE" has the meaning set forth in SECTION 2.1(b).
"INITIAL SHARES" means the 40,000 shares of Series B Preferred Stock
to be purchased by Purchaser pursuant to this Agreement.
"INTELLECTUAL PROPERTY" has the meaning set forth in SECTION 3.13.
"KNOWLEDGE" of any Person means the actual knowledge of such Person's
executive and financial officers and directors, in each case after reasonable
inquiry of such other officers of such Person with direct responsibility for
the Person's business relating to such knowledge.
"LAW" means any constitutional provision, statute or other law,
ordinance, rule, regulation or interpretation of any thereof and any Order of
any Governmental Entity (including Environmental Laws) now in effect.
"LIEN" means any mortgage, lien, pledge, encumbrance, easement, charge
or security interest of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"LITIGATION" has the meaning set forth in SECTION 3.10.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any
effect, change, event or occurrence that is materially adverse to the
business, operations, properties, condition (financial or otherwise), results
of operations, assets, liabilities or prospects of the Company and its
Subsidiaries taken as a whole.
"MATERIAL CONTRACTS" has the meaning set forth in SECTION 3.11(a).
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"OPTION CLOSING" has the meaning set forth in SECTION 7.1(b).
"OPTION CLOSING DATE" has the meaning set forth in SECTION 7.1(b).
"OPTION PURCHASE PRICE" has the meaning set forth in SECTION 2.2(c).
"OPTION SHARES" means the up to 15,000 shares of Series C Preferred
Stock of the Company that may be purchased by Purchaser in accordance with
SECTION 2.2.
"ORDER" means any decree, injunction, judgment, settlement, order,
ruling, assessment or writ of a court.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PURCHASER" has the meaning set forth in the introductory paragraph
hereto.
"PURCHASER'S EXPENSES" means all reasonable out-of-pocket fees, costs
and expenses incurred by Purchaser in connection with the transactions
contemplated by this Agreement and the other Transaction Documents and its
due diligence efforts in connection therewith, including (i) fees, costs and
expenses of its accountants, counsel and other similar advisors (including a
$25,000 fee to be paid to a technical advisor) and (ii) fees paid to any
Governmental Entity (including fees payable in connection with filings under
the HSR Act pursuant to SECTION 5.4).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of EXHIBIT 5.7.
"RIGHTS PLAN" has the meaning set forth in SECTION 3.3(a).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SERIES B PREFERRED STOCK" means the Company's Series B Preferred
Stock, $.01 par value per share, which shall have the terms set forth in the
Certificate of Designation attached hereto as EXHIBIT 1.1(a).
"SERIES C PREFERRED STOCK" means the Company's Series C Preferred
Stock, $.01 par value per share, which shall have the terms set forth in the
Certificate of Designation attached hereto as EXHIBIT 1.1(b), except that the
initial "Conversion Price" set forth therein shall be equal to 125% of the
average Market Price (as defined in such Certificate of Designation) for the
ten Trading Days (as defined in such Certificate of Designation) ending on
and including the Trading Day prior to the Exercise Notice; PROVIDED,
HOWEVER, that if such average is less than $4.80, then the initial Conversion
Price shall be $6.00 and if such average is higher than $6.80, the initial
Conversion Price shall be
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$8.50 (which dollar amounts shall be adjusted for events or actions occurring
prior to the date of the Exercise Notice, and which Conversion Price shall be
adjusted for events or actions occurring after the date of the Exercise
Notice and prior to the Option Closing, in each case in the same manner as
the Conversion Price would be adjusted as set forth in such Certificate of
Designation for events occurring after the Option Closing).
"SHARES" means the Initial Shares and the Option Shares.
"STOCK PLANS" means the Company's stock option, stock incentive,
restricted stock, employee stock purchase or other similar plans.
"SUBSIDIARY" means, (i) a corporation, a majority of whose stock with
voting power, under ordinary circumstances, to elect directors is at the time,
directly or indirectly, owned by the Company, by a Subsidiary of the Company or
by the Company and another Subsidiary, or (ii) any other Person (other than a
corporation) in which the Company, a Subsidiary or the Company and a Subsidiary,
directly or indirectly, at the date of determination thereof has at least a
majority ownership interest.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificates of
Designation and the Registration Rights Agreement.
"TRANSFER" has the meaning set forth in SECTION 5.8.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Shares in accordance with the terms thereof.
"VOTING STOCK" of a Person means Capital Stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to vote in the election of the board of
directors, managers or trustees of such Person; provided that if such Person has
more than one class or series of Voting Stock, any calculation as to a
percentage of such Voting Stock shall be made with respect to the percentage of
aggregate votes entitled to be cast in respect of all such Voting Stock in such
circumstances.
Section 1.2 REFERENCES AND TITLES. All references in this Agreement
to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections,
and other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections, or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of such Articles, Sections, subsections or other subdivisions, and
shall be disregarded in construing the language contained therein. The words
"THIS AGREEMENT," "HEREIN," "HEREBY," "HEREUNDER," and "HEREOF," and words of
similar import, refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. The words "THIS SECTION," "THIS
SUBSECTION," and words of similar import, refer only to the Sections or
subsections hereof in which such words occur. The word "INCLUDING" (in its
various forms) means "including without limitation." Pronouns in masculine,
feminine, or neuter genders shall be construed to state and include any other
gender and words, terms, and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice
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versa, unless the context otherwise expressly requires. Unless the context
otherwise requires, all defined terms contained herein shall include the
singular and plural forms of such defined terms.
ARTICLE II.
PURCHASE OF THE SHARES
Section 2.1 PURCHASE OF THE INITIAL SHARES.
(a) Subject to the terms and conditions herein set forth, at the
Initial Closing, the Company will sell to Purchaser, and Purchaser will
purchase from the Company, the Initial Shares.
(b) The aggregate purchase price payable for the Initial Shares
shall be $40 million (the "INITIAL PURCHASE PRICE").
(c) Delivery of the Initial Shares shall be made at the Initial
Closing by delivery to Purchaser, against payment of the Initial Purchase
Price therefor as provided herein, of one or more share certificates,
registered in the name of Purchaser, representing the Initial Shares.
(d) Payment of the Initial Purchase Price for the Initial Shares
to be purchased hereunder shall be made by or on behalf of Purchaser by wire
transfer of immediately available funds to an account of the Company (the
number for which account shall have been furnished to Purchaser at least two
Business Days prior to the Initial Closing Date).
Section 2.2 OPTION TO PURCHASE OPTION SHARES.
(a) Purchaser may, at its sole option, at any time prior to the
expiration of 90 days after the Initial Closing, deliver a written notice of
its intention to purchase up to 15,000 Option Shares (the "EXERCISE NOTICE")
to the Company. The Exercise Notice shall specify the number of Option
Shares to be purchased and a Business Day between 10 and 20 calendar days
after such notice upon which the Option Closing shall occur.
(b) If Purchaser delivers the Exercise Notice in accordance with
Section 2.2(a), then, subject to the terms and conditions herein set forth,
at the Option Closing, the Company will sell to Purchaser, and Purchaser will
purchase from the Company, the number of Option Shares to be purchased by the
Purchaser as specified in the Exercise Notice.
(c) The purchase price payable for the Option Shares shall be
$1,000 per share (the aggregate amount of such purchase price being referred
to herein as the "OPTION PURCHASE PRICE").
(d) Delivery of the Option Shares shall be made at Option Closing
by delivery to Purchaser, against payment of the Option Purchase Price
therefor as provided herein, of one or more share certificates, registered
in the name of Purchaser, representing the Option Shares so purchased.
(e) Payment of the Option Purchase Price for the Option Shares to
be purchased hereunder shall be made by or on behalf of Purchaser by wire
transfer of immediately available funds
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to an account of the Company (the number for which account shall have been
furnished to Purchaser at least two Business Days prior to the Option Closing
Date).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as follows (in each
case as qualified by matters reflected on the disclosure schedule dated as of
the date of this Agreement by reference to the Section of this Agreement so
qualified and delivered by the Company to Purchaser prior to the date of this
Agreement (the "COMPANY DISCLOSURE SCHEDULE") and made a part hereof by
reference):
Section 3.1 ORGANIZATION, STANDING AND POWER. Each of the Company
and each of its Subsidiaries is a corporation or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated or organized and has the requisite corporate or
other such entity power and authority to own its properties and carry on its
business as now being conducted. Each of the Company and each of its
Subsidiaries is duly qualified or licensed to transact business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, has not had and could not reasonably be expected to have a
Material Adverse Effect. The Company has delivered to Purchaser prior to the
execution of this Agreement complete and correct copies of its Certificate of
Incorporation and Bylaws, each as amended to date, and, in the case of the
Company's Subsidiaries, made available similar organizational documents in
each case, as in effect on the date of this Agreement.
Section 3.2 SUBSIDIARIES. Except as set forth in the Current SEC
Reports, all the outstanding shares of Capital Stock of each Subsidiary of
the Company that would constitute a "significant subsidiary" within the
meaning of the SEC's Regulation S-X have been validly issued and are fully
paid and nonassessable (with respect to corporate Subsidiaries) and are owned
directly or indirectly by the Company, free and clear of all Liens other than
Liens securing obligations for money borrowed by the Company.
Section 3.3 CAPITAL STRUCTURE.
(a) The authorized Capital Stock of the Company consists of
100,000,000 shares of Common Stock and 5,000,000 shares of preferred stock,
$.01 par value, which may be divided into and issued in one or more series
upon the creation thereof by the Board. As of the date of this Agreement,
(A) 50,499,898 shares of Common Stock are issued and outstanding (including
the attached preferred share purchase rights issued pursuant to the Rights
Agreement dated as of January 17, 1997, as amended to date, between the
Company and Harris Trust and Savings Bank as rights agent (the "RIGHTS
PLAN")), (B) 7,991,161 shares of Common Stock have been authorized and
reserved for issuance under the Stock Plans, (C) 0 shares of Common Stock are
held by the Company in its treasury, (D) no shares of Common Stock are held
by any of the Company's Subsidiaries, and (E) an aggregate of 100,000 shares
of preferred stock have been designated as the Series A Preferred Stock.
Except as described in this SECTION 3.3, the Company has no authorized,
issued or outstanding shares or Capital Stock as of the date of this
Agreement.
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(b) There are no restrictions or limitations, contractual or
otherwise, binding upon the Company or any of its Subsidiaries or to which
the Company or any of its Subsidiaries is subject that prohibit or limit the
enforceability of the terms and provisions of the Certificates of Designation
or will prohibit or limit the right of a holder of Shares to convert the
Shares into shares of Common Stock in accordance with their terms; and the
conversion of any Shares into shares of Common Stock will not violate or
result in or constitute a default under any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
any other contract, agreement, arrangement or understanding to which the
Company or any of its Subsidiaries is a party or by which they or any of
their properties or assets are bound.
(c) There are no outstanding warrants, share or stock options,
share or stock appreciation rights or other rights to receive or purchase any
Capital Stock of the Company or any of its Subsidiaries granted under the
Stock Plans or otherwise except as set forth in SCHEDULE 3.3(c) of the
Company Disclosure Schedule (such warrants, share or stock options, shares or
stock appreciation rights or other rights disclosed thereon, collectively,
the "COMPANY OPTIONS"). Except for the Company Options and except as provided
in the Transaction Agreements, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its Subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, any Capital Stock of the Company or of any of its Subsidiaries or
obligating the Company or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are no outstanding obligations
of the Company or any of its Subsidiaries (contingent or otherwise) to
repurchase, redeem or otherwise acquire any Capital Stock of the Company or
any of its Subsidiaries or any security exchangeable for or convertible into
such Capital Stock.
(d) All outstanding Capital Stock of the Company and its
Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive or similar rights.
(e) Except as contemplated hereby or in the other Transaction
Documents or as set forth in the Current SEC Reports, there are not any
registration rights agreements, stockholder agreements, voting agreements or
trusts, proxies or other agreements or contractual obligations to which the
Company or any Subsidiary is a party or bound with respect to the
registration with any Government Entity, or the voting or disposition of any
Capital Stock of the Company or any of its Subsidiaries and, to the Company's
Knowledge there are no other shareholder agreements, voting agreements or
trusts, proxies or other agreements or contractual obligations among the
shareholders of the Company with respect to the voting or disposition of any
Capital Stock of the Company or any of its Subsidiaries.
Section 3.4 AUTHORITY; NO VIOLATIONS; APPROVALS.
(a) The Board has approved this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby, and declared
this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby to be in the best interests of the Company.
The Board has approved the acquisition of the Shares and, upon any conversion
of the Shares, the issuance of the Underlying Shares by Purchaser hereunder.
The Company has all requisite
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corporate power and authority to enter into this Agreement and each of the
other Transaction Documents and to consummate each of the transactions and
perform each of the obligations contemplated hereby and thereby. The
execution and delivery of this Agreement and each of the other Transaction
Documents and the consummation of each of the transactions and the
performance of each of the obligations contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been, and at or prior to the Initial Closing the
other Transaction Documents will be, duly executed and delivered by the
Company and the Certificates of Designation have been duly adopted by the
Board of Directors in accordance with applicable Law. Each of the
Certificates of Designation and, assuming this Agreement and each of the
other Transaction Documents to which Purchaser is a party constitute the
valid and binding obligations of Purchaser, this Agreement and each of the
other Transaction Documents constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(b) The execution and delivery of this Agreement and each of the
other Transaction Documents does not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the
provisions hereof and thereof will not, conflict with, require the consent of
any other Person to or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to
the loss of any material benefit under, or give rise to a right of purchase
under, result in the creation of any Lien upon any of the properties or
assets of the Company or any of its Subsidiaries under, any provision of (A)
the Certificate of Incorporation or Bylaws or any provision of the comparable
organizational documents of any of the Company's Subsidiaries, (B) any loan
or credit agreement, note, bond, mortgage, indenture, lease, instrument,
permit, concession, franchise, license or other contract or agreement,
arrangement or understanding to which the Company or any of its Subsidiaries
is a party or otherwise is bound or by which any of them or their respective
properties are bound or any existing Approval applicable to the Company or
any of its Subsidiaries, (C) any joint venture or other ownership arrangement
to which the Company or any of its Subsidiaries is a party or otherwise is
bound or by which any of them or their respective properties are bound or (D)
assuming the Approvals referred to in SECTION 3.4(c) are duly and timely
obtained or made, any Law or Order applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, other than, in
the case of clause (B) (other than with respect to any material loan or
credit agreement, note, bond, mortgage or indenture or any Material Contract
or any plan or agreement providing for the payment of any benefit to
directors, officers or employees of the Company or its subsidiaries), (C) or
(D), any such conflicts, violations, defaults, rights, Liens or detriments,
that, individually or in the aggregate, (x) have not had and could not
reasonably be expected to have a Material Adverse Effect, (y) have not
impaired and could not reasonably be expected to impair the ability of the
Company to perform its obligations under any of the Transaction Documents in
any material respect, and (z) have not and could not reasonably be expected
to delay in any material respect or prevent the consummation of any of the
transactions, or performance of the obligations, contemplated by any of the
Transaction Documents.
(c) No Approval from any Governmental Entity is required by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement
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or any other Transaction Document by the Company or the consummation by the
Company of the transactions contemplated hereby or thereby, except for: (A)
the filing of a notification report by the Company under the HSR Act and the
expiration or termination of the applicable waiting period with respect
thereto (which filing and expiration or termination are not required for the
Initial Closing), (B) the filing of the Certificates of Designation in
accordance with Section 103 of the Delaware General Corporation Law, and (C)
any such Approvals the failure of which to be made or obtained (1) has not
had and could not reasonably be expected to have a Material Adverse Effect,
(2) has not impaired and could not reasonably be expected to impair the
ability of the Company to perform its obligations under any of the
Transaction Documents in any material respect and (3) have not and could not
reasonably be expected to delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the
Transaction Documents.
Section 3.5 SEC DOCUMENTS.
(a) The Company has made available to Purchaser a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since May 31, 1997 (the
"COMPANY SEC DOCUMENTS") including the Company 1998 Form 10-K, which are all
the documents (other than preliminary materials) that the Company was
required to file with the SEC since May 31, 1997. As of their respective
dates, the Company SEC Documents complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Company SEC Documents, and none of the Company SEC Documents contained as of
their respective dates any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The financial statements of the Company included in the
Company SEC Documents, including the notes and schedules thereto, complied as
to form in all material respects with the rules and regulations of the SEC
with respect thereto, were prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule
10-01 of Regulation S-X of the SEC) and fairly present the consolidated
financial position of the Company and its consolidated Subsidiaries as of
their respective dates and the consolidated results of operations and the
consolidated cash flows of the Company and its consolidated Subsidiaries for
the periods presented therein in accordance with applicable requirements of
GAAP (subject, in the case of the unaudited statements, to normal, recurring
adjustments, none of which are material) applied on a consistent basis during
the periods presented.
Section 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as disclosed in the Current SEC Reports filed prior to
the date of this Agreement or SCHEDULE 3.6 of the Company Disclosure
Schedule, or except as contemplated by this Agreement, since May 31, 1998,
each of the Company and its Subsidiaries have conducted their business only
in the ordinary course of business consistent with past practice, and there
has not been: (i) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to
any Capital Stock of the Company; (ii) any split, combinations,
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reclassification or amendment of any term of any outstanding Capital Stock or
other security of the Company or any of its Subsidiaries or (other than
issuance of Common Stock upon the exercise of any Company Options) any
issuance or the authorization of the issuance of any securities of the
Company or any of its Subsidiaries, other than in connection with the
transactions contemplated hereby; (iii) any repurchase, redemption or other
acquisition by the Company or any Subsidiary of the Company of any
outstanding Capital Stock or other securities of the Company or any
Subsidiary of the Company, except as contemplated by the Stock Plans; (iv)
(A) any grant by the Company or any of its Subsidiaries to any officer of the
Company or any of its Subsidiaries of any increase in compensation, except
for increases in the ordinary course of business consistent with past
practice or as required under employment or other agreements or benefit
arrangements in effect as of May 31, 1998, or (B) any grant by the Company or
any of its Subsidiaries to any such officer of any increase in severance or
termination pay, except as was required or provided for under any employment,
severance, termination or other agreements or benefit arrangements in effect
as of May 31, 1998; (v) except as required by a change in GAAP, any material
change in accounting methods, principles or practices by the Company or any
of its Subsidiaries; and (vi) any material casualties affecting the Company
and its Subsidiaries, taken as a whole, or any material loss, damage or
destruction to any of their properties or assets, whether covered by
insurance or not.
(b) Except as disclosed in the Company's consolidated financial
statements included in the Company 1998 Form 10-K, and the notes thereto, or
as disclosed in the other Current SEC Reports, since May 31, 1998, there has
not been any event, circumstance or fact that (x) has had or could reasonably
be expected to have a Material Adverse Effect, (y) has impaired or could
reasonably be expected to impair the ability of the Company to perform its
obligations under any of the Transaction Documents in any material respect,
or (z) could reasonably be expected to delay in any material respect or
prevent the consummation of any of the transactions contemplated by any of
the Transaction Documents.
Section 3.7 NO UNDISCLOSED MATERIAL LIABILITIES. Except as
disclosed in SCHEDULE 3.7 of the Company Disclosure Schedule or the Company's
financial statements included in the Company 1998 Form 10-K, and the notes
thereto, or as disclosed in the other Current SEC Reports, there are no
liabilities or obligations of the Company or any of its Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than: (i) liabilities adequately provided
for on the balance sheet of the Company dated as of May 31, 1998 (including
the notes thereto) contained in the Company 1998 Form 10-K; (ii) liabilities
incurred in the ordinary course of business consistent with past practice
since May 31, 1998, which liabilities, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect; (iii)
liabilities arising under the Transaction Documents; and (iv) liabilities not
required by GAAP to be recognized or disclosed on a consolidated balance
sheet of the Company and its consolidated Subsidiaries or in the notes
thereto, which liabilities, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
Section 3.8 NO DEFAULT. Except as disclosed in SCHEDULE 3.8 of the
Company Disclosure Schedule or in the Current SEC Reports, neither the
Company nor any of its Subsidiaries is in default or violation (and no event
has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of (i)
the Certificate of Incorporation or Bylaws of the Company or the comparable
organizational documents of any of its
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Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease, instrument, permit, concession, franchise, license or any
other contract, agreement, arrangement or understanding to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties or assets is bound, or
(iii) any Order or Law applicable to the Company or any of its Subsidiaries,
except in the case of clause (ii) and (iii), for violations or defaults that,
individually or in the aggregate, (x) have not had and could not reasonably
be expected to have a Material Adverse Effect, (y) have not impaired and
could not reasonably be expected to impair the ability of the Company to
perform its obligations under any of the Transaction Documents in any
material respect, and (z) have not and could not reasonably be expected to
delay in any material respect or prevent the consummation of any of the
transactions contemplated by any of the Transaction Documents. Except as
disclosed in SCHEDULE 3.8 of the Company Disclosure Schedule or in the
Current SEC Reports, the Company and its Subsidiaries (i) are not in breach
of or default under any covenant, including financial covenants, under
agreements relating to money borrowed in excess of $5 million, and (ii) do
not believe that it is reasonably likely that they will be in breach of or
default under any covenant under any such agreement as of the next date on
which they are required to be in compliance with any such covenants.
Section 3.9 COMPLIANCE WITH APPLICABLE LAWS.
(a) The Company and each of its Subsidiaries has in effect all
Approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses, and there has occurred no default or violation
(and no event has occurred which, with notice or the lapse of time or both,
would constitute a default or violation) under any such Approval, except for
failures to obtain, or for defaults or violations under, Approvals which
failures, defaults or violations, individually or in the aggregate, (i) have
not had and could not reasonably be expected to have a Material Adverse
Effect, (ii) have not impaired and could not reasonably be expected to impair
the ability of the Company to perform its obligations under any of the
Transaction Documents in any material respect, and (iii) could not reasonably
be expected to delay in any material respect or prevent the consummation of
any of the transactions contemplated by any of the Transaction Documents.
(b) Except as otherwise disclosed in the Current SEC Reports, the
Company and its Subsidiaries are in compliance with all applicable Laws and
Orders, except for possible noncompliance which, individually or in the
aggregate, (i) has not had and could not reasonably be expected to have a
Material Adverse Effect, (ii) has not impaired and could not reasonably be
expected to impair the ability of the Company to perform its obligations
under any of the Transaction Documents in any material respect, and (iii)
could not reasonably be expected to delay in any material respect or prevent
the consummation of any of the transactions contemplated by any of the
Transaction Documents.
(c) No investigation or review by any Governmental Entity with
respect to the Company, any of its Subsidiaries or the transactions
contemplated by this Agreement and the other Transaction Documents is pending
or, to the Knowledge of the Company, threatened, nor has any Governmental
Entity notified the Company or any of its Subsidiaries in writing or, to the
Company's Knowledge, otherwise of any intention to conduct the same, other
than those the outcome of which, individually or in the aggregate, (i) have
not had and could not reasonably be expected to have a Material Adverse
Effect, (ii) have not impaired and could not reasonably be expected to impair
the ability of the
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Company to perform its obligations under any of the Transaction Documents in
any material respect, or (iii) could not reasonably be expected to delay in
any material respect or prevent the consummation of any of the transactions
contemplated by any of the Transaction Documents.
Section 3.10 LITIGATION. Except as disclosed in the Current SEC
Reports or SCHEDULE 3.10 of the Company Disclosure Schedule, there is no
suit, action, proceeding or indemnification claim, at law or in equity,
pending before any Governmental Entity or arbitrator, or, to the Knowledge of
the Company, threatened, against or affecting the Company, any Subsidiary of
the Company or any of its Material Contracts ("LITIGATION"), and neither the
Company nor any Subsidiary is a party to any Litigation, that (i) has had or
could reasonably be expected to have a Material Adverse Effect, (ii) has
impaired or reasonably could be expected to impair the ability of the Company
to perform its obligations under any of the Transaction Documents in any
material respect, or (iii) reasonably could be expected to delay in any
material respect or prevent the consummation of any of the transactions
contemplated by any of the Transaction Documents, nor is there any Order of
any Governmental Entity or arbitrator outstanding against or binding upon the
Company or any Subsidiary of the Company or any of its Material Contracts
which (i) has had or could reasonably be expected to have a Material Adverse
Effect, (ii) has impaired or reasonably could be expected to impair the
ability of the Company to perform its obligations under any of the
Transaction Documents in any material respect, or (iii) reasonably could be
expected to delay in any material respect or prevent the consummation of any
of the transactions contemplated by any of the Transaction Documents.
Section 3.11 CERTAIN AGREEMENTS.
(a) Except as disclosed in the Current SEC Reports and SCHEDULE
3.11(a) of the Company Disclosure Schedule, there are no, whether in oral or
written form, Contracts that are material to the Company and its
Subsidiaries, taken as a whole, or their respective business, (such Contracts
disclosed or required to be disclosed herein, in the Current SEC Reports or
in the Company Disclosure Schedule, the "MATERIAL CONTRACTS"). Each Material
Contract is a valid and binding obligation of the Company or one of its
Subsidiaries and, to the Company's Knowledge, of each other party thereto,
enforceable in accordance with its terms, and is in full force and effect.
(b) The Company or the relevant Subsidiary and, to the Company's
Knowledge, each other party to the Material Contracts has performed in all
material respects the obligations required to be performed by it under the
Material Contracts and is not (with or without lapse of time or the giving of
notice, or both) in breach or default thereunder. No party to any Material
Contract has given written or, to the Company's Knowledge, oral notice of any
action to terminate, cancel, rescind or procure a judicial reformation
thereof.
Section 3.12 STATUS OF SHARES. The issuance and sale of the Shares
and the reservation and issuance of the Underlying Shares have been duly
authorized by all necessary corporate action on the part of the Company
(other than the filing of the respective Certificates of Designation with the
Secretary of State of the State of Delaware) and the Shares, when delivered
to Purchaser at the Initial Closing or Option Closing, as applicable,
against payment therefor as provided herein, and the Underlying Shares, when
issued upon conversion of the Shares in accordance with the terms thereof,
will be validly issued, fully paid and non-assessable and the issuance and
sale of the Shares and the issuance of the Underlying Shares are not and will
not be subject to preemptive rights of any Person.
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Section 3.13 INTELLECTUAL PROPERTY; YEAR 2000. The Company and the
Subsidiaries own, possess or license, or, to the Company's Knowledge can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "INTELLECTUAL PROPERTY") necessary to
carry on the business now operated by them, and neither the Company nor any
of the Subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property (including Intellectual Property which is licensed)
or of any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of the
Subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. The Company and its Subsidiaries have reviewed the
areas within their business and operations and products (including computer
software and hardware) which could be adversely affected by, and have
developed or are developing programs to address on a timely basis, any "Year
2000 Problem" (that is, the risk that computer hardware or software used by
the Company and its Subsidiaries may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
date after December 31, 1999). Based on such review and program, the Company
reasonably believes that any such "Year 2000 Problem" caused by its products
or operations will not have a Material Adverse Effect.
Section 3.14 ENVIRONMENTAL MATTERS. Except for such matters as
could not, singly or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, (A) neither the Company nor any of the Subsidiaries
is in violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating to
the release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "HAZARDOUS MATERIALS") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "ENVIRONMENTAL LAWS"), (B) the
Company and the Subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or, to the Company's
Knowledge or any of the Subsidiaries, threatened administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices
of noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of the Subsidiaries and (D)
there are no events or circumstances known to the Company or any of the
Subsidiaries that might reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting the Company or any
of the Subsidiaries relating to Hazardous Materials or Environmental Laws.
Section 3.15 NO BROKERS OR FINDERS. No agent, broker, finder or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of the Company or its Subsidiaries in connection with the negotiation,
execution or performance of this Agreement is or will be entitled to
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any brokerage or finder's or similar fee or other commission as a result of
this Agreement, the other Transaction Documents or the transactions
contemplated hereby or thereby, other than any such fees or commissions that
have been disclosed to Purchaser and as to which the Company shall have full
responsibility.
Section 3.16 VOTE. There are no approvals required of the holders
of any class or series of shares or stock of the Company necessary to approve
this Agreement or any other Transaction Documents and the transactions
contemplated hereby or thereby.
Section 3.17 RELATED PARTY TRANSACTIONS. No relationship, direct or
indirect, exists between or among any of the Company, the Subsidiaries or any
affiliate of the Company, on the one hand, and any director, officer,
stockholder, customer or supplier of any of them, on the other hand, which
would be required by the Exchange Act or by the rules and regulations enacted
thereunder to be described in the Company's proxy statement for the election
of directors in 1999 which is not described in the Current SEC Reports or
SCHEDULE 3.17 of the Company Disclosure Schedule.
Section 3.18 CERTAIN ANTI-TAKEOVER PROVISIONS; RIGHTS PLAN. The
Board of Directors of the Company has duly approved the Purchaser and its
Affiliates becoming an "interested stockholder" within the meaning of Section
203 of the Delaware General Corporation Law and a "Related Person" within the
meaning of Article THIRTEENTH of the Certificate of Incorporation by reason
of the acquisition by Purchaser or any of its Affiliates of (i) the Shares,
(ii) the Underlying Shares, (iii) any shares of Common Stock permitted to be
acquired by Purchaser or any of its Affiliates in accordance with the
limitation set forth in SECTION 5.12(a) or (iv) any securities (including
shares of Common Stock issuable upon conversion, exercise or exchange thereof
pursuant to their terms) received by Purchaser or its Affiliates pursuant to
SECTION 5.11 (collectively, the "SHARE ACQUISITIONS"), and has otherwise
taken all action necessary to exempt the Share Acquisitions from the
application of Section 203 of the Delaware General Corporation Law, Article
THIRTEENTH of the Certificate of Incorporation, or any similar anti-takeover
provisions of Law or otherwise that could adversely affect the rights of the
Purchaser or its Affiliates with respect to their ownership of securities
acquired by means of such Share Acquisitions. In addition, the Company has
amended the Rights Plan to provide that neither Purchaser nor any of its
Affiliates will be deemed to be an Acquiring Person within the meaning of the
Rights Plan by reason of the Share Acquisitions.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company as follows:
Section 4.1 ORGANIZATION, STANDING AND POWER. Purchaser is a
limited partnership duly organized, validly existing, and in good standing
under the laws of Delaware and has all requisite partnership power and
authority to own, lease, and operate its properties and to carry on its
business as now being conducted and to execute and deliver this Agreement and
the other Transaction Documents to which Purchaser is a party and consummate
the transactions contemplated hereby and thereby.
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Section 4.2 AUTHORITY; APPROVALS.
(a) (i) The execution and delivery of this Agreement and the other
Transaction Documents to which it is a party and the purchase of the Shares
to be purchased by it have been duly and properly authorized by all necessary
partnership action on the part of Purchaser, (ii) this Agreement and the
other Transaction Documents to which it is a party have been duly executed
and delivered by it or on its behalf and, assuming the accuracy of the
representations and warranties of the Company in SECTION 3.4 hereof,
constitute the valid and legally binding obligations of Purchaser,
enforceable against it in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); (iii) the purchase of the
Shares to be purchased by it does not conflict with or violate (1) its
organizational documents or any other material agreement to which it is a
party or to which its properties are subject or (2) assuming the approvals
referred to in SECTION 4.2(b) are duly and timely made or obtained, any Law
applicable to it, in each case in a manner that could reasonably be expected
to materially hinder or impair the completion of any of the transactions
contemplated hereby; and (iv) the purchase of Shares to be purchased by it
does not impose any penalty or other onerous condition on Purchaser that
could reasonably be expected to materially hinder or impact the completion of
any of the transactions contemplated hereby.
(b) No Approval from any Governmental Entity is required by or
with respect to Purchaser in connection with the execution and delivery by
Purchaser of this Agreement or any other Transaction Document to which it is
a party or the consummation by Purchaser of the transactions contemplated
hereby or thereby, except for: (A) the filing of a notification report by
Purchaser under the HSR Act, and the expiration or termination of the
applicable waiting period with respect thereto (which filing and expiration
or termination are not required for the Initial Closing); and (B) any such
Approval the failure of which to be made or obtained (1) has not impaired and
could not reasonably be expected to impair the ability of Purchaser to
perform its obligations under any of the Transaction Documents in any
material respect and (2) could not reasonably be expected to delay in any
material respect or prevent the consummation of any of the transactions
contemplated by any of the Transaction Documents.
Section 4.3 INVESTMENT INTENT. The Shares to be acquired by it
hereunder and any Underlying Shares to be acquired upon the conversion of
such Shares are being, or in the case of the Underlying Shares, will be,
acquired for its own account for investment and with no intention of
distributing or reselling such Shares or Underlying Shares or any part
thereof or interest therein in any transaction which would be in violation of
the securities Laws of the United States of America or any applicable state
or any foreign country or jurisdiction.
Section 4.4 PURCHASER STATUS. Purchaser represents and warrants
to, and covenants and agrees with the Company that (i) at the time it was
offered the Shares, it was, (ii) at the date hereof, it is, and (iii) at the
Initial Closing Date and the Option Closing Date (if any), it will be, an
accredited investor as defined in Rule 501(a) under the Securities Act, and
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the Company and an investment in
the Shares, and is able to bear the economic risk of such investment.
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Section 4.5 NO BROKERS OR FINDERS. No agent, broker, finder or
investment or commercial banker, or other Person or firm engaged by or acting
on behalf of Purchaser in connection with the negotiation, execution or
performance of this Agreement is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement,
other than any such fees or commissions that have been disclosed to the
Company and as to which Purchaser shall have full responsibility.
Section 4.6 ACCESS TO INFORMATION. Purchaser represents and
acknowledges that it (a) has had access to and the opportunity to review the
Company's properties, assets, financial statements, contracts and other books
and records and has made such investigation with respect thereto as it deems
necessary to enter into the transactions contemplated hereby, (b) has been
afforded the opportunity to ask appropriate representatives of the Company
questions concerning the business, assets, financial condition and prospects
of the Company and (c) has been solely responsible for its own due diligence
investigation of the Company and its business, for its own analysis of the
merits and risks of an investment in the Shares, and for its own analysis of
the terms of the investment in the Shares. Anything herein to the contrary
notwithstanding, the provisions of this SECTION 4.6 shall not in any way
limit any of the representations and warranties of the Company set forth in
this Agreement or in any Schedule delivered pursuant hereto by the Company or
its authorized representatives or the rights of Purchaser with respect to any
breach of any such representations and warranties.
ARTICLE V.
COVENANTS
Section 5.1 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company
hereby covenants and agrees that, until the earlier of the Initial Closing or
the termination of this Agreement, unless otherwise expressly contemplated by
this Agreement or consented to in writing by Purchaser (such consent not to
be unreasonably withheld), the Company will and will cause each of its
Subsidiaries to operate its business in the usual and ordinary course
consistent with past practices except as contemplated by this Agreement and
except as set forth in SCHEDULE 5.1 of the Company Disclosure Schedule.
Section 5.2 NEGATIVE COVENANTS OF THE COMPANY.
(a) Except as expressly contemplated by this Agreement or
otherwise consented to in writing by Purchaser, from the date of this
Agreement until earlier of the Initial Closing or the termination of this
Agreement, the Company shall not do, and shall not permit any of its
Subsidiaries to do, any of the following:
(i) adopt or propose to adopt any amendments to the Company's
Certificate of Incorporation or Bylaws, adopt resolutions authorizing a
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization, or other reorganization of the Company or any
Subsidiary or make any other changes in the Company's capital structure;
(ii) declare or pay any dividend or make any other
distribution (whether in cash, stock or property) with respect to its
Capital Stock, other than dividends paid by any Subsidiary to the
Company or another Subsidiary in the ordinary and usual course of the
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Company's business, or take any other action that, if taken after the
issuance of the Shares, would result in an adjustment to the number of
shares acquirable upon conversion of the Shares;
(iii) take any action that will, or is reasonably likely to
cause, the condition in Section 6.2(a) not to be satisfied; or
(iv) agree in writing or otherwise to do any of the foregoing.
Section 5.3 COOPERATION; APPROVALS. The Company and Purchaser each
agrees to cooperate and use all commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement, including cooperating fully with
the other parties to obtain (and will promptly prepare all registrations,
filings and applications, requests and notices preliminary to) all Approvals
that may be necessary or which may be reasonably requested by the Company or
Purchaser to consummate the transactions contemplated by this Agreement and
the other Transaction Documents. In case at any time after the date hereof
any further action is necessary or desirable to carry out the purposes of
this Agreement, the parties shall take all such necessary action.
Section 5.4 HSR ACT NOTIFICATION. Each of the parties hereto shall
(a) file or cause to be filed, as promptly as practicable after the execution
and delivery of this Agreement, with the Federal Trade Commission and the
United States Department of Justice, all reports and other documents required
to be filed by such party under the HSR Act concerning the transactions
contemplated hereby and (b) promptly comply with or cause to be complied with
any requests by the Federal Trade Commission or the United States Department
of Justice for additional information concerning the transactions
contemplated by this Agreement, in each case so that the waiting period
applicable to this Agreement and the transaction contemplated hereby under
the HSR Act shall expire as soon as practicable after the execution and
delivery of this Agreement. Each party hereto agrees to request, and to
cooperate with the other party or parties in requesting, early termination of
any applicable waiting period under the HSR Act. If after the Initial
Closing or Option Closing and until the date on which the Shares are fully
converted in accordance with their terms, further filings are required under
the HSR Act so that Purchaser may acquire the Underlying Shares or otherwise
acquire securities pursuant to the Transaction Documents, the Company will
upon the written request of Purchaser, and Purchaser will upon the written
request of the Company, (i) file or cause to be filed, as promptly as
practicable after the receipt of such notice and in no event later than
fifteen Business Days after the receipt of such notice with the Federal Trade
Commission and the United States Department of Justice, all reports and other
documents required to be filed by such party under the HSR Act concerning the
transactions contemplated in such notice, (ii) promptly comply with or cause
to be complied with any requests by the Federal Trade Commission or the
United States Department of Justice for additional information so that the
waiting period applicable thereto under the HSR Act shall expire as soon as
practicable, and (iii) cooperate with the other Parties in requesting, early
termination of any applicable waiting period under the HSR Act. The Company
will reimburse Purchaser for any filing fees in connection with such filings
by Purchaser.
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Section 5.5 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Purchaser, and Purchaser shall give prompt notice to
the Company, of (a) the occurrence, or failure to occur, of any event that
causes any representation or warranty contained in any Transaction Document
to be untrue or inaccurate in any material respect at any time from the date
of this Agreement to the Initial Closing Date and (b) any failure of the
Company or Purchaser to comply with or satisfy, in any material respect, any
covenant, condition or agreement to be complied with or satisfied by it under
any Transaction Document. The provisions of this SECTION 5.5 shall survive
for so long as any representation, warranty, covenant, or agreement shall
survive hereunder.
Section 5.6 BOARD OF DIRECTORS. The Company shall use its best
efforts to take, or cause to be taken, such action as may be necessary or
advisable to ensure that immediately following the later of (i) the Initial
Closing and (ii) the expiration or termination of the applicable waiting
period under the HSR Act, the Board shall be increased by one (if necessary)
and the individual identified by Purchaser to the Company shall be elected as
a director of the Company in accordance with the terms of the Shares.
Section 5.7 REGISTRATION RIGHTS AGREEMENT. At the Closing, the
Company agrees to enter into a Registration Rights Agreement in substantially
the form attached hereto as EXHIBIT 5.7.
Section 5.8 TRANSFER RESTRICTIONS. (a) If Purchaser should decide
to dispose of any of the Shares to be purchased by it or any Underlying
Shares to be issued to it upon the conversion of such Shares, Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption
from registration under the Securities Act. In connection with any offer,
resale, pledge or other transfer (individually and collectively, a
"TRANSFER") of any Shares or Underlying Shares other than pursuant to an
effective registration statement, the Company may require that the transferor
of such Shares or Underlying Shares provide to the Company an opinion of
counsel which opinion shall be reasonably satisfactory in form and substance
to the Company, to the effect that such Transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and any applicable state or foreign
securities Laws. Purchaser agrees to the imprinting, so long as appropriate,
of substantially the following legend on certificates representing the Shares
and any Underlying Shares:
THE SECURITIES (THE "SECURITIES") EVIDENCED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF,
THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE OR OTHERWISE
TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A "TRANSFER") THE SECURITIES
EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, OR (B) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT. IF THE PROPOSED TRANSFER
IS TO BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER
AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY STATE OR
FOREIGN SECURITIES LAW.
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The legend set forth above may be removed if and when the Shares or
Underlying Shares, as the case may be, represented by such certificate are
disposed of pursuant to an effective registration statement under the
Securities Act or the opinion of counsel referred to above has been provided
to the Company. The Share certificates shall also bear any additional
legends required by applicable federal, state or foreign securities Laws,
which legends may be removed when, in the opinion of counsel to the Company,
the same are no longer required under the applicable requirements of such
securities Laws. Purchaser agrees that, in connection with any Transfer of
Shares by it pursuant to an effective registration statement under the
Securities Act, it will comply with all prospectus delivery requirements of
the Securities Act. The Company makes no representation, warranty or
agreement as to the availability of any exemption from registration under the
Securities Act with respect to any resale of Shares or Underlying Shares.
(b) Purchaser agrees that, without the prior written consent of
the Company, it will not sell or otherwise transfer any Shares to any other
person or entity other than a partner of Purchaser, who, in any event, shall
agree to be bound by this SECTION 5.8(b), it being understood that the
foregoing provision shall not apply to Underlying Shares. Purchaser agrees
to the imprinting of the following legend on certificates representing the
Shares to indicate the foregoing restriction:
THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THE PURCHASE AGREEMENT DATED AS
OF [DATE] AMONG THE COMPANY AND SCF-IV, L.P., A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICES OF THE COMPANY.
(c) Purchaser agrees that, without the prior written consent of
the Company, it will not, prior to the earlier of (i) the seventh anniversary
of the Initial Closing, or (ii) the occurrence of a Change of Control, sell
or otherwise transfer any Underlying Shares in a single transaction or series
of related transactions involving a number of shares in the aggregate
constituting in excess of 1% of the Company's issued and outstanding shares
of Common Stock at the time of such sale or transfer (based on the Company's
most recent Exchange Act report filed with the SEC prior to such sale or
transfer disclosing such number of outstanding shares) to any entity which
Purchaser knows competes to a material extent with the Company or is engaged
to a material extent in the energy services or equipment business (an
"Industry Party"), without first offering such shares to the Company on the
same terms; PROVIDED that if the Purchaser is selling such shares pursuant to
an underwritten offering, such sale shall be deemed to comply with the
foregoing limitation so long as the managing underwriter advises the
Purchaser and the Company that, based on a reasonable inquiry of all persons
to whom shares are being sold in an amount exceeding the 1% limitation
described above (other than financial or insurance institutions, pension
plans or funds or registered investment companies), no such proposed
purchaser is an Industry Party. If, upon receiving an offer pursuant to the
foregoing sentence, the Company does not notify Purchaser that it wishes to
purchase the offered shares within 20 Business Days of receiving such offer,
Purchaser may sell such shares on the terms set forth in the offer within six
months thereof, provided that the purchaser thereof agrees to a standstill
agreement substantially similar to that set forth in SECTION 5.12 with an 18
month term from the date of such purchaser's acquisition. If the Company
does notify Purchaser that it intends to purchase the offered shares, it
shall deliver payment for such shares (against delivery of the certificates
therefor) within five Business Days of giving such notice.
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Section 5.9 STOCK EXCHANGE LISTING. Prior to the time the Shares
become convertible in accordance with their terms, the Company shall, at its
expense, procure the listing of the Underlying Shares on all stock exchanges
on which the Common Stock is then listed.
Section 5.10 ACCESS; CONFIDENTIALITY.
(a) At all times during normal business hours from and after the
date hereof until all of the outstanding Shares have been converted in
accordance with their terms, the Company shall afford Purchaser and its
counsel and other authorized representatives reasonable access to the
properties, employees and officers of the Company and to all books, accounts,
tax returns, financial and other records, including audit work papers,
correspondence and contracts of every kind of the Company as Purchaser may
reasonably request.
(b) Purchaser shall, and shall cause its representatives to, hold
confidential all information relating to the Company or its Subsidiaries it
has received prior to the Initial Closing from the Company or any of its
representatives, or information, if any, it receives after the Initial
Closing from the Company or any of its representatives as a result of or in
connection with SECTION 5.10(a) hereof or Purchaser's ownership of the
Shares; PROVIDED, HOWEVER, that the foregoing shall not apply to (i)
information that is or becomes generally available to the public other than
as a result of a disclosure by Purchaser or any of its Affiliates or
representatives in violation of this SECTION 5.10(b), (ii) information that
is or becomes available to Purchaser or any of its representatives on a
nonconfidential basis from a source other than the Company or its Affiliates
or representatives, provided that such source is not known by Purchaser to be
bound by a confidentiality agreement with or other obligation of secrecy to
the Company or any other party, or (iii) information that is required to be
disclosed by Purchaser or any of its representatives as a result of any
applicable Law; PROVIDED FURTHER, however, that in the event information is
required to be disclosed pursuant to clause (iii), the Person proposing such
disclosure shall provide the Company to the extent practicable an
opportunity, reasonably in advance of any such disclosure, to review and
comment on the form and content of such proposed disclosure. The provisions
of this SECTION 5.10(b) shall terminate on the first anniversary of the date
that all of the outstanding Shares have been converted in accordance with
their terms.
Section 5.11 ISSUANCE OF ADDITIONAL PREFERRED STOCK.
(a) The Company agrees that, from and after the date of this
Agreement, it will not issue any Permitted Parity Securities (as defined in
the Certificate of Designation for the Series B Preferred Stock), except for
(i) the issuance of the Option Shares to Purchaser or its Affiliate pursuant
to this Agreement, or (ii) the issuance of a number of shares of Permitted
Parity Securities issued at a price of $1,000 cash per share in a single
series within eighteen months of the Initial Closing equal to 35,000 less the
number of Option Shares purchased hereunder (or, if the option period
referred to in SECTION 2.2(a) shall not yet have expired, less the full
15,000 Option Shares); PROVIDED that if such Permitted Parity Securities are
issued after the first anniversary of the Initial Closing, then Purchaser
shall be entitled to prior written notice of such proposed issuance and the
terms thereof and shall have a right of first refusal option to purchase any
or all of such securities on the same terms as offered to the proposed
purchaser, which option may be exercised by Purchaser by notice to the
Company at any time during the 20 Business Days following the receipt of the
Company's notice. If Purchaser elects to exercise such option, the closing
for such purchase shall be at a time to be mutually agreed
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between the Company and Purchaser but not later than the 15th day following
the receipt of any required regulatory approvals. If Purchaser does not
elect to exercise such option within the 20 Business Day period (or the
closing of the exercise of such option does not occur within the period
described in the previous sentence for any reason not caused by the Company),
the Company may sell such securities on the terms set forth in its notice,
but only until the expiration of the eighteen month period specified in
clause (ii) above.
(b) The Company agrees that if it issues any Permitted Parity
Securities (other than Option Shares) pursuant to the foregoing that have
terms that the Purchaser reasonably believes to be more favorable to the
purchaser thereof than the terms of the Initial Shares, then the Purchaser
shall have the right to exchange all of the Shares purchased hereunder (or,
if such issuance occurs prior to the expiration of the option period
specified in SECTION 2.2(a) and the Option Closing has not occurred, all of
the Shares that may be purchased hereunder if Purchaser agrees to pay the
applicable purchase price therefor upon such exchange) on a share for share
basis.
Section 5.12 STANDSTILL AGREEMENT. Purchaser hereby agrees that,
for a period commencing on the date hereof and ending on the earlier of the
third anniversary of the Initial Closing or the occurrence of a Change of
Control, it will not:
(a) directly or indirectly, take any action to acquire, in the
aggregate, beneficial ownership of more than 4% of the Company's outstanding
Common Stock or Voting Stock (based on the Company's most recent Exchange Act
report filed with the SEC prior to such acquisition disclosing such number of
outstanding shares), excluding from such ownership the Shares or the
Underlying Shares or any other Common Stock or Voting Stock acquired directly
from the Company;
(b) form or encourage the formation of a "group" within the
meaning of Section 13(d)(3) of the Exchange Act to acquire, change or
influence control of the Company;
(c) solicit, or participate in any "solicitation" of "proxies" or
become a "participant" in any "election contest" or consent solicitation (as
such terms are defined or used under Regulation 14A under the Exchange Act)
with respect to the Company in opposition to the recommendation of a majority
of the Board;
(d) initiate, propose or otherwise solicit stockholders for the
approval of, one or more stockholder proposals with respect to the Company or
induce any Person to initiate any stockholder proposal, in each case in
opposition to the recommendation of a majority of the Board;
(e) deposit any Voting Stock in a voting trust or subject them to
a voting agreement or other agreement or arrangement with respect to the
voting of such Voting Stock, other than any such trust, agreement or other
arrangement involving no Persons other than the Purchaser, its partners or
Affiliates of Purchaser; or
(f) solicit, propose or negotiate with any other Person (including
the Company) with respect to any form of Business Combination or other
extraordinary transaction with the Company or any of its Subsidiaries, in
each case which would result in a Change of Control, or solicit, make or
propose or negotiate with any other Person with respect to or announce an
intent to make, any
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tender offer or exchange offer for any securities of the Company, in each
case in opposition to the recommendation of a majority of the Board, or
publicly disclose an intent, purpose, plan or proposal with respect to the
Company, any of its Subsidiaries, or any securities or assets of the Company,
that would violate the provisions of this SECTION 5.12(f);
PROVIDED, however, that nothing in this SECTION 5.12 shall be deemed to limit
in any way (i) the right of Purchaser to exercise its voting rights in any
manner it sees fit with respect to the Shares, the Underlying Shares or any
other shares of Voting Stock acquired by Purchaser in accordance with this
Agreement, or (ii) the right of any director elected to the Board as a
representative of the holders of the Shares to take any action he believes
necessary to fulfill his fiduciary duties.
Section 5.13 INDEMNIFICATION.
(a) The Company agrees to indemnify the Purchaser and its
Affiliates and hold the Purchaser and its Affiliates harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind (including, without limitation, the reasonable fees and disbursements of
Purchaser's counsel in connection with any investigative, administrative or
judicial proceeding), which may be incurred by Purchaser or such Affiliates
as a result of any claims made against Purchaser or such Affiliates by any
Person that relate to or arise out of (i) any breach by the Company of any of
its representations, warranties or covenants contained in this Agreement or
in the Transaction Documents, or (ii) any litigation, investigation or
proceeding instituted by any Person with respect to this Agreement or the
Shares or Underlying Shares (excluding, however, any such litigation,
investigation or proceeding which arises solely from the acts or omissions of
Purchaser or its Affiliates). Notwithstanding anything to the contrary
above, it is expressly understood between the parties hereto that the Company
pursuant to this SECTION 5.13 shall not be responsible for or assume any of
the investment risk associated with any securities purchased hereunder.
(b) Any Person entitled to indemnification hereunder will (i)
give prompt notice to the Company of any claim with respect to which it seeks
indemnification (but omission of such notice shall not relieve the Company
from liability hereunder except to the extent it is actually prejudiced by
such failure to give notice) and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest may exist between such indemnified
party and the Company with respect to such claim, permit the Company to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is not assumed by the Company, the
Company will not be subject to any liability for any settlement made without
its consent (but such consent will not be unreasonably withheld). The
Company will not consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of an unconditional
release from all liability in respect to such claim or litigation. If the
Company elects not to or is not entitled to assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel
for all parties indemnified with respect to such claim, unless an actual
conflict of interest exists between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
Company will be obligated to pay the fees and expenses of such additional
counsel or counsels.
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Section 5.14 RIGHTS PLAN. The Company will not further amend the
Rights Plan, or adopt any similar rights plan or rights agreement, in a
manner that conflicts with, or restricts the Purchaser to a greater extent
than, the provisions hereof, including the representation set forth in
SECTION 3.18.
ARTICLE VI.
CONDITIONS PRECEDENT TO THE CLOSINGS
Section 6.1 CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION. The
respective obligations of Purchaser and the Company to effect the
transactions contemplated hereby at each Closing are subject to the
satisfaction on or prior to the applicable Closing Date of the following
conditions:
(a) APPROVALS. All Approvals of, or expirations of waiting
periods imposed by, any Governmental Entity necessary for the consummation of
the transactions contemplated by this Agreement at such Closing shall have
been filed, occurred, or been obtained, as applicable.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect.
(c) NO ACTION. No action shall have been taken nor any statute,
rule, or regulation shall have been enacted by any Governmental Entity that
makes the consummation of the transactions contemplated hereby illegal.
Section 6.2 CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER. The
obligation of Purchaser to effect the transactions contemplated by this
Agreement at each Closing is subject to the satisfaction of the following
conditions unless waived, in whole or in part, by Purchaser:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement that are qualified by a
materiality standard or a Material Adverse Effect qualification shall be true
and correct in all respects and the representations and warranties of the
Company set forth in this Agreement that are not so qualified shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the applicable Closing Date as though made on and as of
the applicable Closing Date, and Purchaser shall have received a certificate
to the foregoing effect signed on behalf of the Company and its Subsidiaries
by the chief executive officer or by the chief financial officer of the
Company.
(b) PERFORMANCE OF OBLIGATIONS. The Company and its Subsidiaries
shall have performed in all material respects all obligations required to be
performed by it or them under this Agreement prior to the applicable Closing
Date, and Purchaser shall have received a certificate to such effect signed
on behalf of the Company and its Subsidiaries by the chief executive officer
or by the chief financial officer of the Company.
(c) NO ADVERSE ACTION OR DECISION. There shall be no action,
suit, investigation or proceeding, pending or threatened, against or
affecting the Company or any of its Subsidiaries or any of their respective
properties or rights, or any of their Affiliates, officers or directors,
before any
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court, arbitrator or administrative or governmental body which (i) seeks to
restrain, enjoin or prevent the consummation of or otherwise affect the
transactions contemplated by this Agreement or the other Transaction
Documents or (ii) questions the validity or legality of any such transaction
or seeks to recover damages or to obtain other relief in connection with any
such transaction.
(d) CONSENTS UNDER AGREEMENTS. Purchaser shall have been
furnished with evidence of all consents or approvals required to be obtained
by the Company or any of its Subsidiaries with respect to the consummation of
each of the transactions contemplated by this Agreement the failure of which
to obtain reasonably could be expected to result in a Material Adverse
Effect, and each such consent or approval shall be unconditional.
(e) LEGAL OPINIONS. At the Initial Closing, Purchaser shall have
received from Haynes and Boone, LLP an opinion dated the Initial Closing
Date, in the form of EXHIBIT 6.2(e)(i) and, at the Option Closing, Purchaser
shall have received from Haynes and Boone, LLP, an opinion dated the Option
Closing Date, in the form of EXHIBIT 6.2(e)(ii).
(f) HSR FILINGS. The Company shall have filed all reports
required to be filed by the Company under the HSR Act concerning the
transactions contemplated hereby.
(g) CLOSING DELIVERIES. All documents, instruments, certificates
or other items required to be delivered by the Company pursuant to SECTION
7.2(b), in the case of the Initial Closing, or SECTION 7.3(b), in the case of
the Option Closing, shall have been delivered.
(h) CERTIFICATE OF DESIGNATION. The Certificate of Designation
relating to the Series B Preferred Stock, in the case of the Initial Closing,
and the Series C Preferred Stock, in the case of the Option Closing, shall
have been filed with the Delaware Secretary of State.
Section 6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY. The
obligation of the Company to effect the transactions contemplated by this
Agreement at each Closing is subject to the satisfaction of the following
conditions unless waived, in whole or in part, by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
applicable Closing Date as though made on and as of the applicable Closing
Date, and the Company shall have received a certificate to the foregoing
effect signed on behalf of Purchaser by its general partner.
(b) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser shall have
performed in all material respects the obligations required to be performed
by it under this Agreement prior to the applicable Closing Date, and the
Company shall have received a certificate to such effect signed on behalf of
Purchaser by its general partner.
(c) CLOSING DELIVERIES. All documents, instruments, certificates or
other items required to be delivered by Purchaser pursuant to SECTION 7.2(a), in
the case of the Initial Closing, or SECTION 7.3(a), in the case of the Option
Closing, shall have been delivered.
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(d) HSR FILINGS. The Purchaser shall have filed all reports required
to be filed by the Purchaser under the HSR Act concerning the transactions
contemplated hereby.
ARTICLE VII.
THE CLOSINGS
Section 7.1 THE CLOSINGS.
(a) Subject to the satisfaction or waiver of the conditions set
forth in Article VI, the purchase and sale of the Initial Shares to be
purchased by Purchaser hereunder (the "INITIAL CLOSING") will take place at
the offices of Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas, 77002, at
10:00 a.m., local time, on the later of the May 7, 1999 or the third Business
Day following the satisfaction or waiver (subject to applicable Law) of each
of the conditions to the obligations of the parties to effect the
transactions to occur at the Initial Closing as set forth in Article VI, or
on such other date as mutually agreed to by the parties hereto. The date on
which the Initial Closing occurs is herein referred to as the "INITIAL
CLOSING DATE." All closing transactions at the Initial Closing shall be
deemed to have occurred simultaneously.
(b) Subject to the satisfaction or waiver of the conditions set
forth in Article VI, the purchase and sale of the Option Shares to be
purchased by Purchaser hereunder (the "OPTION CLOSING") will take place at
the offices of Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas, 77002, at
10:00 a.m., local time, on the Business Day specified in the Exercise Notice,
or on such other date as mutually agreed to by the parties hereto. The date
on which the Option Closing occurs is herein referred to as the "OPTION
CLOSING DATE". All closing transactions at the Option Closing shall be deemed
to have occurred simultaneously. The Initial Closing and the Option Closing
are sometimes referred to herein as the "CLOSINGS" or individually as a
"CLOSING" and the Initial Closing Date and the Option Closing Date are
sometimes referred to herein as the "CLOSING DATES" or individually as a
"CLOSING DATE".
Section 7.2 ACTIONS TO OCCUR AT THE INITIAL CLOSING.
(a) At the Initial Closing, Purchaser shall deliver to the Company
the following:
(i) PURCHASE PRICE. An amount equal to the Initial Purchase
Price for the Initial Shares in accordance with Article II.
(ii) CERTIFICATES. The certificates described in SECTIONS
6.3(a) and 6.3(b).
(iii) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement, duly executed by Purchaser.
(b) At the Initial Closing, the Company shall deliver to Purchaser
the following:
(i) SHARE CERTIFICATES. Certificates representing the
Initial Shares.
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(ii) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement, duly executed.
(iii) CERTIFICATES. The certificates described in SECTIONS
6.2(a) and 6.2(b).
(iv) CONSENTS UNDER AGREEMENTS. The original of each consent
or approval, if any, pursuant to SECTION 6.2(d).
(v) LEGAL OPINIONS. The opinion of counsel referred to in
SECTION 6.2(e).
Section 7.3 ACTIONS TO OCCUR AT THE OPTION CLOSING.
(a) At the Option Closing, Purchaser shall deliver to the Company
the following:
(i) PURCHASE PRICE. An amount equal to the Option Purchase
Price for the Option Shares being purchased in accordance with
Article II.
(ii) CERTIFICATES. The certificates described in SECTIONS
6.3(a) and 6.3(b).
(b) At the Option Closing, the Company shall deliver to Purchaser
the following:
(i) SHARE CERTIFICATES. Certificates representing the Option
Shares being purchased.
(ii) CERTIFICATES. The certificates described in SECTIONS
6.2(a) and 6.2(b).
(iii) LEGAL OPINIONS. The opinion of counsel referred to in
SECTION 6.2(e).
ARTICLE VIII.
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated prior to
the Initial Closing:
(a) by mutual consent of Purchaser and the Company;
(b) by either Purchaser or the Company:
(i) in the event of a breach by the other party of any
representation, warranty, covenant or agreement contained in this
Agreement which (A) would give rise to the failure of a condition set
forth in SECTION 6.2 or 6.3, and (B) cannot be cured or, if curable, has
not been cured within 20 days following receipt by the breaching party
of written notice of such breach;
(ii) if a court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree, or ruling
or taken any other action (which order, decree, or ruling
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Purchaser and the Company shall use all commercially reasonable efforts
to lift), in each case permanently restraining, enjoining, or otherwise
prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling, or other action shall have become final and
nonappealable; rovided, however, that the right to terminate this
Agreement under this clause (ii) shall not be available to any party
whose breach of this Agreement has been the cause of, or resulted in,
such order, decree, ruling or other action; or
(iii) if the Initial Closing shall not have occurred by May 14,
1999, provided, however, that the right to terminate this Agreement
under this clause (iii) shall not be available to any party whose breach
of this Agreement has been the cause of, or resulted in, the failure of
the Initial Closing to occur on or before such date.
The right of any party hereto to terminate this Agreement pursuant to
this SECTION 8.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers,
directors, employees, accountants, consultants, legal counsel, agents, or
other representatives whether prior to or after the execution of this
Agreement.
Section 8.2 EFFECT OF TERMINATION. In the event of the termination
of this Agreement, written notice thereof shall forthwith be given to the
other party specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void,
except for liability of a party arising out of a willful breach of, or
misrepresentation under, this Agreement prior to such termination (but in no
event shall any party hereto be entitled to recover punitive, consequential,
special or exemplary damages).
ARTICLE IX.
RECOVERY OF FEES
Any party who shall obtain a final judgment in a court of competent
jurisdiction for the payment of damages by another party for a breach of this
Agreement or any other Transaction Document shall be entitled to recover
reasonable attorneys' fees and court costs incurred in connection with the
obtaining of such judgment.
ARTICLE X.
MISCELLANEOUS
Section 10.1 SURVIVAL OF PROVISIONS.
(a) The representations and warranties of the Company and
Purchaser made herein or in any other Transaction Document and the covenants
of the Company and Purchaser to be complied with on or prior to the Closings
shall remain operative and in full force and effect pursuant to their terms,
regardless of (x) any investigation made by or on behalf of Purchaser or the
Company, as the case may be, or (y) acceptance of any of the Shares and
payment by Purchaser therefor, until the date which is 18 months following
the Initial Closing; provided that the representations and warranties
contained in SECTIONS 3.1, 3.3, 3.4, 3.12 AND 3.18 shall survive until the
sixth anniversary of the Initial Closing; and provided, further, that such
representations and warranties shall survive as to any claim
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or demand made prior to their termination date until such claim or demand is
fully paid or otherwise resolved by the parties hereto in writing or
otherwise.
(b) The covenants and agreements of the Company and Purchaser
contained in this Agreement that, by their terms, are to be performed or
complied with after either Closing Date will survive until the period
specified herein with respect to such covenant or agreement; and PROVIDED,
FURTHER, that such covenants and agreements shall survive as to any claim or
demand made prior to their termination date until such claim or demand is
fully paid or otherwise resolved by the parties hereto in writing or
otherwise.
Section 10.2 NO WAIVER; MODIFICATION IN WRITING. No failure or
delay on the part of the Company or Purchaser in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The provisions of this Agreement, including the provisions of this sentence,
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given without the written
consent of the Company and Purchaser. Any amendment, supplement or
modification of or to any provision of this Agreement, or any waiver of any
provision of this Agreement, shall be effective only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on any party
hereto in any case shall entitle the other party to any other or further
notice or demand in similar or other circumstances.
Section 10.3 SPECIFIC PERFORMANCE. The parties recognize that in
the event the Company or Purchaser should refuse to perform under the
provisions of this Agreement or any other Transaction Document, monetary
damages alone will not be adequate. Purchaser or the Company, as the case
may be, shall therefore be entitled, in addition to any other remedies which
may be available, including money damages, to obtain specific performance of
the terms of this Agreement. In the event of any action to enforce this
Agreement or any other Transaction Document specifically, the Company and
Purchaser hereby waive the defense that there is an adequate remedy at law.
Section 10.4 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of
applicable law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated herein are not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties
as closely as possible in a mutually acceptable manner in order that the
transactions contemplated herein are consummated as originally contemplated
to the fullest extent possible.
Section 10.5 FEES AND EXPENSES. Within 30 days after the Initial
Closing, the Company shall pay to Purchaser an amount equal to Purchaser's
Expenses through the Initial Closing Date (the amount of such costs and
expenses shall have been furnished to the Company at least within 25 days
after the Initial Closing Date), and within 30 days after the Option Closing,
the Company shall pay to Purchaser an amount equal to Purchaser's Expenses
through the Option Closing Date that have
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not been reimbursed pursuant to the preceding sentence (the amount of such
costs and expenses shall have been furnished to the Company at least within
25 days after the Option Closing Date); PROVIDED, HOWEVER, that all such
Purchaser's Expenses to be paid by the Company pursuant to the foregoing
(other than fees payable in connection with filings under the HSR Act
pursuant to SECTION 5.4) shall not in the aggregate exceed $150,000.
Section 10.6 PARTIES IN INTEREST. This Agreement shall be binding
upon and, except as provided below, inure solely to the benefit of each party
hereto and their successors and assigns, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.7 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally or by facsimile or mailed by registered or certified mail (return
receipt requested) or Federal Express or another recognized overnight courier
to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to Purchaser, to:
SCF-IV, L.P.
600 Travis, Suite 6600
Houston, Texas 77002
Attention: David C. Baldwin
Facsimile: (713) 227-7850
(b) If to the Company, to:
Input/Output, Inc.
11104 West Airport Boulevard
Stafford, Texas 77477
Attention: Chairman
Facsimile: (281) 879-3652
Any of the above addresses may be changed at any time by notice given
as provided above; provided, however, that any such notice of change of
address shall be effective only upon receipt. All notices, requests or
instructions given in accordance herewith shall be deemed received on the
date of delivery, if hand delivered, on the date of receipt, if telecopied,
three Business Days after the date of mailing, if mailed by registered or
certified mail, return receipt requested, and one Business Day after the date
of sending, if sent by Federal Express or other recognized overnight courier.
Section 10.8 COUNTERPARTS. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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Section 10.9 ENTIRE AGREEMENT; TERMINATION OF CONFIDENTIALITY
AGREEMENT. This Agreement (which term shall be deemed to include the
Exhibits and Schedules hereto and the other certificates, documents and
instruments delivered hereunder) and the other Transaction Documents
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements, letters
of intent and understandings, both written and oral, among the parties with
respect to the subject matter hereof and thereof. There are no
representations or warranties, agreements, or covenants of the parties with
respect to the subject matter hereof and thereof other than those expressly
set forth in this Agreement and the other Transaction Documents. The parties
hereby agree that the terms of this Agreement supersede and terminate the
provisions of the Confidentiality and Standstill Agreement dated as of
February 24, 1999 between the Company and SCF Partners, provided that if this
Agreement is terminated prior to the Initial Closing, such agreement shall be
reinstated pursuant to its terms.
Section 10.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
Section 10.11 PUBLIC ANNOUNCEMENTS. The Company and Purchaser shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or the transactions
contemplated hereby, except for statements required by Law or by any listing
agreements with or rules of any national securities exchange or made in
disclosures reasonably determined as required to be filed pursuant to the
Securities Act or the Exchange Act.
Section 10.12 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto, whether by operation of Law or otherwise.
Section 10.13 HEADINGS. The headings of this Agreement are for
convenience of reference only and are not part of the substance of this
Agreement.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officer as of the date first
written above.
INPUT/OUTPUT, INC.
By: /s/ W. J. Zeringue
-----------------------------------------
Name: W. J. Zeringue
Title: Chief Executive Officer
SCF-IV, L.P.
By: SCF-IV, G.P., Limited Partnership,
its General Partner
By: L. E. Simmons & Associates, Incorporated,
its General Partner
By: /s/ David C. Baldwin
-----------------------------------------
Name: David C. Baldwin
Title: Managing Director
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REGISTRATION RIGHTS AGREEMENT
by and between
INPUT/OUTPUT, INC.
and
SCF-IV, L.P.
Dated as of May 7, 1999
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into this 7th day of May 1999, by and between Input/Output Inc., a
Delaware corporation (the "COMPANY") and SCF-IV, L.P., a Delaware limited
partnership (the "PURCHASER").
RECITALS:
This Agreement is made pursuant to the Purchase Agreement, dated April
21, 1999 between the Company and the Purchaser (the "PURCHASE AGREEMENT").
In order to induce the Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution of this Agreement is a condition to the closing
under the Purchase Agreement.
AGREEMENT:
The parties hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms will have the
following meanings:
"DEMAND REGISTRATION" has the meaning set forth in Section 3(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"INITIAL REGISTRATION DATE" has the meaning set forth in Section 3(a).
"MAJORITY" means 51% or more.
"PERSON" means any individual, partnership, corporation, limited
liability company, trust or unincorporated organization or association, or a
government or agency or political subdivision thereof.
"PIGGYBACK REGISTRATION" has the meaning set forth in Section 4(a).
"REGISTRATION EXPENSES" has the meaning set forth in Section 8(a).
"REGISTRABLE SECURITIES" means the Underlying Shares and any other
securities issued or issuable with respect to the Underlying Shares by way of
stock dividend or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger, consolidation or other
reorganization; PROVIDED, HOWEVER, that a Registrable Security shall cease to
be a Registrable Security to the extent provided in Section 2(a).
<PAGE>
"RULE 144" means Rule 144 under the Securities Act (or any similar
provisions then in force).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SERIES B PREFERRED STOCK" means shares of the Company's Series B
Preferred Stock, par value $.01 per share.
"SERIES C PREFERRED STOCK" means shares of the Company's Series C
Preferred Stock, par value $.01 per share.
"SHARES" means all shares of Series B Preferred Stock or Series C
Preferred Stock that are issued and sold pursuant to the Purchase Agreement.
"SHELF REGISTRATION" has the meaning set forth in Section 5.
"UNDERLYING SHARES" means all Underlying Shares (as defined in the
Purchase Agreement) issuable upon conversion of the Shares.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" means any
registration in which securities of the Company are sold pursuant to a firm
commitment underwriting.
(b) All undefined capitalized terms used herein shall have the
meaning set forth in the Purchase Agreement.
2. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) REGISTRABLE SECURITIES. The securities entitled to the
benefits of this Agreement are the Registrable Securities but, with respect
to any particular Registrable Security, only so long as such security
continues to be a Registrable Security. A Registrable Security shall cease
to be a Registrable Security when (i) it has been disposed of in a
transaction effectively registered under the Securities Act, (ii) has been
sold pursuant to Rule 144, (iii) it is held by a Person not entitled to the
benefits of registration rights under this Agreement by virtue of Section
12(f) hereof, (iv) if the holder thereof is an "affiliate" of the Company
within the meaning of Rule 144, at such time as the Registrable Securities
held by such holder constitute less than 1% of the then outstanding shares of
Common Stock of the Company and such Registrable Securities could be sold
without registration pursuant to Rule 144, (v) if the holder thereof is not
an "affiliate" of the Company within the meaning of Rule 144, at such time as
the Registrable Securities held by such holder constitute less than 4% of the
then outstanding shares of Common Stock of the Company and such Registrable
Securities could be sold freely pursuant to paragraph (k) of Rule 144, or
(vi) it has otherwise been transferred and a new certificate or other
evidence of ownership for it not bearing the legend set forth in Section
5.8(a) of the Purchase Agreement (or other legend of similar import) has been
delivered (not subject to any stop transfer order) by or on behalf of the
Company and no other restriction on transfer exists.
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(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities (whether
upon conversion, exercise or exchange of other securities or otherwise),
disregarding any legal restrictions upon the exercise of such right, whether
or not such acquisition has actually been effected.
3. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Subject to the provisions of
Section 3(b), at any time on or after the earlier of (i) the Initial
Conversion Date as defined in the Certificate of Designation for the Series B
Preferred Stock, or (ii) the date 60 days prior to the third anniversary of
the date of the original issuance of the Series B Preferred Stock pursuant to
the Purchase Agreement (such earlier date being referred to herein as the
"INITIAL REGISTRATION DATE"), any holder or holders of at least 25% of the
then outstanding Registrable Securities may request at any time a
registration by the Company under the Securities Act of all or part of their
Registrable Securities (a "DEMAND REGISTRATION"); PROVIDED, HOWEVER that the
number of Registrable Securities to be included in such Demand Registration
must be at least 1,000,000 (such number of shares to be appropriately
adjusted in the event of any stock dividend or stock split or in connection
with a combination of shares, recapitalization, reclassification, merger,
consolidation or other reorganization) or such lesser number of Registrable
Securities as have an aggregate Market Price (as defined in the Certificate
of Designation for the Series B Preferred Stock) of at least $10,000,000 as
of the date of such request. Within ten days after receipt of such request,
the Company will serve written notice by overnight courier of such
registration request to all holders of Registrable Securities and will,
subject to the provisions of Section 3(b), include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 business days after distribution to
the applicable holder of the Company's notice. All requests made pursuant to
this Section 3(a) will specify the amount of Registrable Securities to be
registered and will also specify the intended method of disposition thereof;
PROVIDED, HOWEVER, that such method of disposition will be limited to an
underwritten offering if requested by the holders of a Majority of the
Registrable Securities requested to be included in such registration.
(b) NUMBER OF REGISTRATIONS. The holders of Registrable
Securities will be entitled to request an aggregate of two Demand
Registrations. A registration initiated as a Demand Registration will not
constitute a Demand Registration for the purposes of the foregoing (i) unless
such registration has been declared effective by the SEC and remains
effective for the period set forth in Section 7(a)(iii); PROVIDED, HOWEVER,
that, if more than 15% of the Registrable Securities requested to be included
in a Demand Registration which is an underwritten registration can be
excluded therefrom by reason of the provisions of Section 3(e), the holders
of Registrable Securities will be entitled to one additional Demand
Registration or (ii) if after such registration has been declared effective
by the SEC it is subject to any stop order, injunction or other adverse order
or action of the SEC or other governmental authority.
(c) INTENTIONALLY OMITTED.
(d) NO RIGHTS OF COMPANY OR OTHER SECURITYHOLDERS TO PIGGYBACK ON
DEMAND REGISTRATIONS. Neither the Company nor any of its securityholders
(other than the holders of
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Registrable Securities in such capacity) has any right to include any of the
Company's securities in a registration statement initiated as a Demand
Registration under this Section 3, unless (i) such securities are of the same
class as the Registrable Securities being registered, (ii) the holders of a
Majority of the Registrable Securities being registered in such registration
consent to such inclusion in writing, subject to Section 3(e), (iii) if such
Demand Registration is an underwritten offering, the managing underwriters
agree that some or all of such securities can be included without adversely
affecting such offering or offering price and (iv) the Company or the selling
securityholders, as applicable, agree to sell their securities on the same
terms and conditions as apply to Registrable Securities and the holders of
such Registrable Securities. If any securityholders of the Company (other
than the holders of Registrable Securities in such capacity) register
securities of the Company pursuant to a Demand Registration hereunder in
accordance with the provisions of this Section 3(d), such securityholders
will pay the fees and expenses of counsel to such securityholders and their
PRO RATA share of the Registration Expenses if such PRO RATA share of the
Registration Expenses for such registration are not paid by the Company for
any reason.
(e) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is
an underwritten offering and the managing underwriters advise the Company and
the selling holders of the Registrable Securities in writing that in their
opinion the number of Registrable Securities requested to be included exceeds
the number of securities which can be sold in such offering without adversely
affecting the proposed offering or the offering price, the Company will
include in such registration the number of Registrable Securities which in
the opinion of such underwriters can be sold without adversely affecting the
proposed offering or the offering price, and such securities will be
allocated PRO RATA among the holders of Registrable Securities on the basis
of the number of the Registrable Securities requested to be included in such
registration by their respective holders. If securities (other than
Registrable Securities) are proposed to be included by the Company or its
other securityholders in a Demand Registration which is an underwritten
offering (subject to and in accordance with the provisions of Section 3(d))
and the managing underwriters advise the Company and the selling holders of
Registrable Securities in writing that fewer than all of said other
securities can be sold, in addition to all of the Registrable Securities
being registered, without adversely affecting the proposed offering or the
offering price in such underwritten offering, those other securities which
are permitted to be included will be allocated among the Company and the
other securityholders in such proportions as such securityholders and the
Company may agree.
(f) SELECTION OF UNDERWRITERS. If any Demand Registration is an
underwritten offering, or a best efforts underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Company; PROVIDED, HOWEVER,
such investment bankers and managers must be reasonably satisfactory to the
holders of a Majority of the Registrable Securities requested to be included
in such offering.
(g) OTHER REGISTRATION RIGHTS AGREEMENTS. Without the prior
written consent of the holders of a Majority of the Registrable Securities,
the Company will not enter into any new registration rights agreements that
affect in any material respect the rights of the holders of the
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Registrable Securities.
4. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. On or after the Initial Registration
Date, whenever the Company proposes to register any securities under the
Securities Act (excluding registrations on Form S-4 or S-8 or equivalent
forms), other than pursuant to a Demand Registration under Section 3 (a
"PIGGYBACK REGISTRATION"), the Company will give written notice to all
holders of Registrable Securities of its intention to effect such a
registration not later than the earlier to occur of (i) the tenth day
following receipt by the Company of notice of exercise of other demand
registration rights or (ii) 30 days prior to the anticipated filing date.
Subject to the provisions of Sections 4(c) and (d), the Company will include
in such Piggyback Registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within
ten business days after the receipt by the applicable holder of Registrable
Securities of the Company's notice. The holders of Registrable Securities
will be permitted to withdraw all or any part of such holder's Registrable
Securities from a Piggyback Registration at any time prior to the date such
Piggyback Registration becomes effective with the SEC, PROVIDED THAT, in the
case of an underwritten offering, such withdrawal is consistent with
customary and reasonable restrictions agreed upon by the managing
underwriter. If a Piggyback Registration is an underwritten offering
effected under (i) Section 4(c), all Persons whose securities are included in
the Piggyback Registration will be obligated to sell their securities on the
same terms and conditions as apply to the securities being issued and sold by
the Company or (ii) Section 4(d), all Persons whose securities are included
in the Piggyback Registration will be obligated to sell their securities on
the same terms and conditions as apply to the securities being sold by the
Person or Persons who initiated the Piggyback Registration under Section
4(d). Notwithstanding the foregoing, if, at any time after giving written
notice of a Piggyback Registration but prior to the effective date of the
registration statement filed in connection therewith, the Company shall
determine for any reason not to register such securities, the Company may, at
its election give written notice of such determination to the holders of
Registrable Securities and thereupon shall be relieved of its obligation to
register any Registrable Securities in such registration.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the holders
of Registrable Securities included in a Piggyback Registration will be paid
by the Company.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten registration on behalf of the Company, and
the managing underwriters advise the Company in writing that in their opinion
the total number or dollar amount of securities requested to be included in
such registration exceeds the number or dollar amount of securities which can
be sold in such offering without adversely affecting the offering or the
offering price, the Company will include in such registration: (i) first, all
securities the Company proposes to sell, (ii) second, up to the full number
or dollar amount of Registrable Securities requested to be included in such
registration in excess of the number or dollar amount of securities the
Company proposes to sell which, in the opinion of such underwriters, can be
sold without adversely affecting the offering or the offering price
(allocated PRO RATA among the holders of such Registrable Securities on the
basis of the dollar amount or number of Securities requested to be included
therein by each such holder) and (iii) third, such other securities (provided
such securities are of the same class as the securities being sold by the
Company) as are requested to be included in such registration equal to the
balance, if any, allocated among the holders
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of such securities in such proportions as the Company and such holders may
agree.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders
of the Company's securities (other holders of Registrable Securities in their
capacity as such), and the managing underwriters advise the Company in
writing that in their opinion the dollar amount or number of securities
requested to be included in such registration exceeds the dollar amount or
number of securities which can be sold in such offering without adversely
affecting the offering or the offering price, the Company will include in
such registration (i) first, the number or dollar amount of securities which
in the opinion of such underwriters can be sold without adversely affecting
the offering or the offering price of the securities intended to be included
therein on behalf of the other holders of the Company's securities, allocated
among the holders of such securities in such proportions as the Company and
such holders may agree, and (ii) to the extent of the balance, if any, the
Registrable Securities requested to be included in such registration,
allocated PRO RATA among the holders of such Registrable Securities on the
basis of the dollar amount or number of securities requested to be included
therein by each such holder.
(e) UNDERWRITTEN OFFERING OF DIFFERENT CLASSES OF SECURITIES.
Notwithstanding anything to the contrary in this Section 4, if a Piggyback
Registration is an underwritten offering of a class of securities of the
Company different from the Registrable Securities proposed to be included in
such offering and the managing underwriters advise that in their opinion
Registrable Securities of a different class cannot be included in such
offering without adversely affecting the offering or the offering price, then
the holders of the Registrable Securities shall not be entitled to include
Registrable Securities in such registration.
(f) SELECTION OF UNDERWRITERS. If any Piggyback Registration is
an underwritten offering, as between the Company and the holders of
Registrable Securities, the Company will have the right to select the
investment banker or investment bankers and manager or managers to administer
the offering.
5. SHELF REGISTRATION.
On or prior to the 60th day prior to the fifth anniversary of the date
of original issuance of the Series B Preferred Stock pursuant to the Purchase
Agreement, the Company shall file a registration statement on Form S-3 (or
any similar short form registration), if the Company and the transaction then
qualify for the use of such short form registration, to register for resale
from time to time pursuant to Rule 415 under the Securities Act (or any
similar or successor rule) (the "SHELF REGISTRATION") all then outstanding
Registrable Securities (unless any holder thereof instructs the Company
otherwise with respect to his Registrable Securities) and shall use its
reasonable best efforts to cause such Shelf Registration to become effective
as soon as practicable after such filing and to maintain the effectiveness of
such Shelf Registration until the first anniversary of the Mandatory
Conversion Date as defined in the Certificate of Designation for the Series B
Preferred Stock or such earlier date when all the Registrable Securities
covered by such registration statement are sold or cease to be Registrable
Securities. All Registration Expenses in connection with the Shelf
Registration shall be borne by the Company. The Company and other holders of
securities of the Company may not register securities under a registration
statement filed pursuant to this Section 5, without the consent of at least a
Majority of the Registrable Securities included in such Shelf
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<PAGE>
Registration.
6. DEFERRAL OF FILING; SUSPENSION OF SHELF REGISTRATION STATEMENT.
Notwithstanding anything to the contrary in this Agreement:
(a) The Company may defer the filing (but not the preparation) of
a registration statement required by Section 3 or Section 5 until a date not
later than 60 days (less the number of days during the previous twelve months
that the use of a prospectus was suspended pursuant to this Section 6 or
Section 12(a)) after the date of receipt by the Company of a request for a
Demand Registration (or after the required filing date in the case of a
registration required to be filed pursuant to Section 5) if at the time the
Company receives such request it is engaged in confidential negotiations or
other confidential business activities, disclosure of which would be required
in such registration statement (but would not be required if such
registration statement were not filed) and the Company determines in good
faith that such disclosure would be materially detrimental to the Company and
its shareholders. Any registration statement the filing of which is deferred
pursuant to the foregoing shall be filed forthwith if the negotiations or
other activities are disclosed or terminated. In order to defer the filing of
a registration statement pursuant to this Section 6, the Company shall
promptly, upon determining to seek such deferral, deliver to each requesting
holder (or, in the case of a registration pursuant to Section 5, each holder)
a certificate signed by the President or Chief Financial Officer of the
Company stating that the Company is deferring such filing in accordance with
this Section 6(a). Within 20 days after receiving such certificate, the
requesting holder may withdraw such request by giving notice to the Company,
and, if withdrawn, the request for a Demand Registration shall be deemed not
to have been made for all purposes of this Agreement, PROVIDED THAT the
Company may defer the filing of a registration statement pursuant to the
foregoing not more than once during any twelve month period; and
(b) If the Company has effected the Shelf Registration pursuant to
Section 5, the Company may, at any time following the 30th day after the
effectiveness thereof and subject to the last sentence of this Section 6,
give notice to the holders of Registrable Securities directing that all sales
under such shelf registration statement must be deferred and not made for up
to 30 days (less the number of days during the previous twelve months that
the use of a prospectus was suspended pursuant to this Section 6 or Section
12(a)) if at the time the Company gives such notice, the Company is engaged
in confidential negotiations or other confidential business activities,
disclosure of which would be required to be made in the prospectus included
in such shelf registration statement (but would not be required if such sale
were not made) in order to prevent such prospectus from containing any untrue
statement of a material fact or omitting to state any material fact necessary
to make the statements therein not misleading and the Company determines in
good faith that such disclosure would be materially detrimental to the
Company. Any such notice given pursuant to this Section 6(b) shall be
accompanied by a certificate signed by the President or Chief Financial
Officer of the Company stating that the Company is deferring such filing in
accordance with this Section 6(b). A suspension of the Shelf Registration
pursuant to this Section 6(b) shall be lifted immediately if the negotiations
or other activities are disclosed or terminated. The Company may suspend the
use of the Shelf Registration pursuant to this Section 6(b) not more than
once during any twelve month period.
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7. REGISTRATION PROCEDURES.
(a) Whenever the Company is obligated to register any Registrable
Securities in accordance with the terms and conditions of this Agreement, the
Company will use its best efforts to effect the registration and to permit the
sale of such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and file with the SEC, not later than 60 days
after receipt of a request to file a registration statement with respect
to such Registrable Securities (or on or prior to the required filing
date specified in Section 5 with respect to the Shelf Registration), a
registration statement with respect to such Registrable Securities, and
use its best efforts to cause such registration statement to become
effective; PROVIDED, HOWEVER, that before filing a registration
statement or prospectus or any amendments or supplements thereto, the
Company will furnish to the counsel selected by the holders of a
Majority of the Registrable Securities being registered in such
registration statement copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel;
each such registration statement will be on a form for which the Company
then qualifies, which is available for the sale of the Registrable
Securities in accordance with the intended method of disposition thereof
and which is reasonably satisfactory to the holders of a Majority of the
Registrable Securities being registered (or the managing underwriters in
the case of a firm or best efforts underwriting offering);
(ii) notify each seller of Registrable Securities of any stop
order issued by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it at the earliest
possible time if entered;
(iii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 90 days, or such
shorter period as may be required if all Registrable Securities covered
by such registration statement are sold prior to the expiration of such
90-day period (except in connection with an underwritten offering, in
which case such registration statement shall be kept effective as long
as the underwriters reasonably request in the underwriting agreement and
except in the case of the Shelf Registration, which shall be kept
effective for the applicable period specified in Section 5), and comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(iv) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
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(v) use all commercially reasonable efforts to register or
qualify such Registrable Securities under such other securities or blue
sky laws of such jurisdictions as any seller reasonably requests and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller;
PROVIDED, HOWEVER, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 7(a)(v), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(vi) use all commercially reasonable efforts to cause the
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities;
(vii) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement or any
document incorporated therein by reference contains an untrue statement
of a material fact or omits to state any material fact necessary to make
the statements therein not misleading, and prepare and file promptly
with the SEC a supplement or amendment to such prospectus or any such
document incorporated therein by reference so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein
not misleading;
(viii) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the
Company are then listed;
(ix) provide a transfer agent and registrar for all
Registrable Securities and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such
registration statement;
(x) enter into such customary agreements (including an
underwriting agreement in customary form with customary lock-up
provisions not to exceed 180 days) and take all such other actions in
connection therewith as the holders of a Majority of the Registrable
Securities being registered or the managing underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(xi) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or
other agent retained by any such seller or underwriter, all financial
and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement;
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(xii) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the
holders of a Majority of the Registrable Securities being registered or
the managing underwriters reasonably request; and
(xiii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first month after the effective
date of the Registration Statement, which earnings statement will
satisfy the provisions of Section 11(a) of the Securities Act.
(b) The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request.
8. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger, telephone and delivery expenses,
and fees and disbursements of counsel for the Company and of all independent
certified public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance), fees and
expenses of underwriters customarily paid by the issuer of securities
(excluding discounts and commissions), the reasonable fees and expenses of
any special experts retained by the Company or at the request of the managing
underwriters in connection with such registration and fees and expenses of
other Persons retained by the Company (all such expenses being herein called
"REGISTRATION EXPENSES"), will be borne by the Company; provided; however,
that all out of pocket Registration Expenses incurred by the Company pursuant
to Section 3 shall be borne by the Sellers of Registrable Securities and
other persons (including the Company) selling Common Stock pursuant to the
applicable registration statement on a pro rata basis based on the number of
shares of Common Stock to be sold pursuant to such registration statement.
(b) In connection with each registration hereunder, the holders of
the Registrable Securities included therein shall be responsible for all fees
and expenses of their counsel and for all underwriting discounts and
commissions payable in respect of any sales of Registrable Securities.
9. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY COMPANY. In the event of any registration
of Registrable Securities hereunder, the Company agrees to indemnify to the
full extent permitted by law, each holder of Registrable Securities, its
officers, directors and partners and each Person who controls such holder
(within the meaning of the Securities Act and the Exchange Act) against all
losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arising out of or based upon any untrue or alleged untrue statement
of a material fact contained in any registration statement, prospectus or
preliminary prospectus relating to the registration of such Registrable
Securities or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary
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to make the statements therein not misleading, except insofar as the same are
contained in any information furnished in writing to the Company by such
holder expressly for use therein. The Company will reimburse each holder of
Registrable Securities, its officers, directors, constituent partners and
controlling Persons for any legal and other expenses as incurred in
connection with investigating or defending any such losses, claims, damages,
liabilities, expenses or actions. In connection with a firm commitment or
best efforts underwritten offering, the Company will indemnify the
underwriters or agents, their officers, directors, partners and each Person
who controls such underwriters (within the meaning of the Securities Act and
the Exchange Act) or agents to the same extent as provided above (or such
greater extent as may be customarily required by the managing underwriters)
with respect to the indemnification of the holders of Registrable Securities.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any registration statement in which a holder of Registrable
Securities is participating, each such holder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests
for use in connection with any such registration statement or prospectus and
agrees to indemnify, to the extent permitted by law, the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act and the Exchange Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in
any written information or affidavit furnished by such holder specifically
for such registration statement and then only to the extent of the net
proceeds received by such holder from the sale of Registrable Securities
pursuant to such registration statement in reliance upon such information.
The holders of Registrable Securities will reimburse, to the extent of the
net proceeds received by the holders of Registrable Securities, the Company,
its officers, directors and controlling persons for any legal and other
expenses as incurred in connection with investigation or defending any such
losses, claims, damages, liabilities, expenses or actions.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled
to indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification (but
omission of such notice shall not relieve the indemnifying party from
liability hereunder except to the extent such indemnifying party is actually
prejudiced by such failure to give notice) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist
between such indemnified and indemnifying parties with respect to such claim,
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense is
not assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of an unconditional release from all
liability in respect to such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless an actual conflict of interest exists between such indemnified party
and any other of such indemnified parties with respect to such claim, in
which event the indemnifying party will be obligated to pay the fees and
expenses of such
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<PAGE>
additional counsel or counsels.
(d) CONTRIBUTION. If the indemnification provided for in Section
9(a) is unavailable or insufficient to hold harmless each of the indemnified
parties against any losses, claims, damages, liabilities and expenses (or
actions in respect thereof) to which such persons may become subject under
the Securities Act, then the indemnifying party shall, in lieu of
indemnifying each party entitled to indemnification hereunder, contribute to
the amount paid or payable by such party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and such
indemnified persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses. The relative fault of such persons
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact, or omission or alleged
omission to state a material fact, relates to information supplied by or
concerning the indemnifying party on the one hand, or by such indemnified
person on the other, and such person's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9(d) were determined by PRO RATA
allocation or by any other allocation that does not take into account the
equitable considerations referred to in this Section 9(d). No person guilty
of fraudulent misrepresentation within the meaning of the Act shall be
entitled to contribution from any person that is not guilty of such
fraudulent misrepresentation.
10. RULE 144.
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required
to file such reports, it will, upon the request of any holder of Registrable
Securities, make publicly available such information), and it will take such
further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
any holder of Registrable Securities, the Company will deliver to such holder
a written statement that it has complied with such requirements.
11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS; LOCKUP.
No Person may participate in any underwritten registration hereunder
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
customary questionnaires, powers of attorney, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
If a holder of Registrable Securities is participating in a Piggyback
Registration that is an underwritten registration, such holder will (if
requested by the managing underwriter) enter into an agreement not to sell or
otherwise transfer or dispose of any Registrable Securities or other
securities of the Company held by such holder for a specified period of time
(not to exceed 120 days) following the effective date of the registration
statement. Such agreement shall be in writing in a form reasonably
satisfactory to the
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<PAGE>
holder, the Company and the managing underwriter. The Company may impose
stop transfer instructions with respect to the Registrable Securities or
other securities subject to the foregoing restriction until the end of the
lock-up period.
12. MISCELLANEOUS.
(a) RIGHT TO SUSPEND. The Company may, by notice in writing to
each holder of Registrable Securities, require the holder of Registrable
Securities to suspend use of any prospectus included in a registration
statement filed hereunder if the Company reasonably determines that it
contains an untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not misleading or that
any transaction in which the Company is engaged or proposes to engage would
require an amendment to such registration statement or a supplement to such
prospectus (including any such amendment or supplement made through
incorporation by reference to a report filed under Section 13 of the Exchange
Act). Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in this Section 12(a), such holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of a
properly supplemented or amended prospectus, and, if so directed by the
Company, such holder will deliver to the Company all copies, other than
permanent file copies, then in such holder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event the Company gives any such notice, the time period
mentioned in Section 7(a)(iii), if applicable, will be extended by the number
of days during the period from and including the date of the giving of such
notice to and including the date when each seller of Registrable Securities
covered by such registration statement has received the copies of such
supplemented or amended prospectus. The Company agrees to use its reasonable
best efforts to cause any suspension of use of any prospectus pursuant to
this paragraph to be as short a period of time as possible.
(b) REMEDIES. Each holder of Registrable Securities, in addition
to being entitled to exercise all rights granted by law, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of at least a Majority of the outstanding
Registrable Securities.
(d) REGISTRABLE SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES.
Whenever the consent or approval of holders of all or any specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company or any of its affiliates (other than a
Purchaser if it is such an affiliate) will not be counted in determining
whether such consent or approval was given by such holders.
(e) NOTICES. All notices hereunder shall be in writing and shall
be effective (a) on the day on which delivered if delivered personally or
transmitted by telex or telegram or telecopier with evidence of receipt, (b)
one business day after the date on which the same is delivered to a
nationally
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<PAGE>
recognized overnight courier service with evidence of receipt, or (c) five
business days after the date on which the same is deposited, postage prepaid,
in the U.S. mail, sent by certified or registered mail, return receipt
requested, and addressed to the party to be notified at the address set forth
in the Purchase Agreement for the Company, or at the address for the holder
of the Registrable Securities set forth in a registry maintained by the
Company, or at such other address and/or telecopy or telex number and/or to
the attention of such other person as the Company or the holder of the
Registrable Securities may designate by ten-day advance written notice.
(f) SUCCESSORS AND ASSIGNS; TRANSFER OF REGISTRATION RIGHTS. This
Agreement will inure to the benefit of and be binding upon the successors and
assigns of each of the parties; PROVIDED HOWEVER that the registration rights
granted by this Agreement may be transferred only (i) by operation of law, or
(ii) to any Person to whom the Purchaser sells or otherwise transfers
Registrable Securities who (x) upon such transfer, will hold 1,000,000 or
more Registrable Securities (such number of shares to be appropriately
adjusted in the event of any stock dividend or stock split or in connection
with a combination of shares, recapitalization, reclassification, merger,
consolidation or other reorganization) and (y) agrees to be bound by the
terms and conditions of this Agreement and signs an addendum to this
Agreement to such effect.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and will not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW; JURISDICTION. This Agreement will be governed
by and construed in accordance with the laws of the State of Texas, without
giving effect to conflict of law principles. Any holder of Registrable
Securities may bring any action or proceeding to enforce or arising out of
this Agreement or in the instruments and agreements annexed hereto in any
court of competent jurisdiction.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein will not be affected or impaired
thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the registration rights granted
by the Company with respect to the securities sold pursuant to the Purchase
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
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<PAGE>
(l) ATTORNEY'S FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof or thereof is
validly asserted as a defense, the successful party will be entitled to recover
reasonable attorney's fees in addition to any other available remedy.
(m) EXCHANGE SECURITIES. If any securities are issued in exchange
for the Shares pursuant to the provisions of Section 5.11 of the Purchase
Agreement, this Agreement shall be interpreted to provide for registration
rights equivalent to those provided hereunder with respect to any shares of
common stock (or any securities into which such common stock is exchanged,
converted, reclassified or recapitalized) of the Company issuable upon
conversion, exercise or exchange of such securities.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INPUT/OUTPUT INC.
By: /s/ W.J. Zeringue
-----------------------------------------
Name: W. J. Zeringue
Title: Chief Executive Officer
SCF-IV, L.P.
By: SCF-IV, G.P., Limited Partnership,
its General Partner
By: L. E. Simmons & Associates, Incorporated,
its General Partner
By: /s/ David C. Baldwin
-----------------------------------------
Managing Director
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<PAGE>
FIRST AMENDMENT TO RIGHTS AGREEMENT
BY AND BETWEEN INPUT/OUTPUT, INC.
AND HARRIS TRUST AND SAVINGS BANK AS RIGHTS AGENT
This First Amendment to Rights Agreement ("First Amendment"), dated
effective as of April 21, 1999, evidences the amendment of that certain
Rights Agreement (herein so called) by and between Input/Output, Inc. (the
"Company") and Harris Trust and Savings Bank as Rights Agent dated as of
January 17, 1997.
RECITALS
WHEREAS, Section 27 of the Rights Agreement provides that the Board of
Directors of the Company may from time to time supplement or amend the Rights
Agreement in such manner as the Board of Directors deems necessary or
desirable; and
WHEREAS, the Company and SCF-IV, L.P., a Delaware limited partnership,
intend to enter into that certain Purchase Agreement (the "Purchase
Agreement") pursuant to which the Company will, among other things, issue
shares of its Series B Preferred Stock, and upon exercise of an option by
SCF-IV, L.P. as provided for therein, shares of its Series C Preferred Stock,
each of which is convertible into the Company's Common Stock; and
WHEREAS, the Board of Directors of the Company has approved this First
Amendment by action taken at a meeting duly held on April 21, 1999;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree, at the direction of
the Company, as follows:
1. Section 1(a) of the Rights Agreement is hereby amended to modify the
definition of "Acquiring Person" by adding a sentence to the end of such
definition to read as follows:
"Notwithstanding any provision to the contrary contained herein,
neither SCF nor any of its Affiliates shall be deemed to be an
Acquiring Person as a result of any combination of the following
actions: (i) the execution and delivery of the Purchase Agreement,
(ii) the acquisition of shares of Series B Preferred Stock and/or
Series C Preferred Stock of the Company in accordance with the terms
of the Purchase Agreement, (iii) the acquisition of shares of Common
Stock of the Company upon conversion of the shares of Series B
Preferred Stock or Series C Preferred Stock, (iv) the acquisition of
securities of the Company in accordance with the terms of Section 5.11
<PAGE>
of the Purchase Agreement (including any Common Stock issuable upon
conversion, exercise or exchange thereof), or (v) an acquisition of
additional shares of Common Stock of the Company to the extent
permitted by the terms of Section 5.12(a) of the Purchase Agreement."
2. Section 1 of the Rights Agreement shall be further revised by
adding the following additional definitions thereto:
"PURCHASE AGREEMENT" shall mean that certain Purchase Agreement to be
entered into by and between SCF and the Company.
"SCF" shall mean SCF-IV, L.P., a Delaware limited partnership.
"SERIES B PREFERRED STOCK" shall mean the Company's Series B Preferred
Stock, $.01 par value per share, to be issued pursuant to the terms of the
Purchase Agreement.
"SERIES C PREFERRED STOCK" shall mean the Company's Series C Preferred
Stock, $.01 par value per share, which may be issued pursuant to the terms of
the Purchase Agreement.
3. The first sentence of Section 3(a) of the Rights Agreement is
hereby amended by adding the following sentence following the end of such
sentence:
"PROVIDED HOWEVER, that in no event shall a Stock Acquisition Date or
a Distribution Date be deemed to occur as a result of (i) the
execution and delivery of the Purchase Agreement by SCF and the
Company, (ii) the acquisition by SCF of shares of Series B Preferred
Stock and/or Series C Preferred Stock of the Company in accordance
with the terms of the Purchase Agreement, (iii) the acquisition by SCF
of shares of Common Stock of the Company upon conversion of the shares
of Series B Preferred Stock or Series C Preferred Stock, (iv) the
acquisition by SCF of securities of the Company in accordance with the
terms of Section 5.11 of the Purchase Agreement (including any Common
Stock issuable upon conversion, exercise or exchange thereof), or (v)
the acquisition by SCF of additional shares of Common Stock of the
Company to the extent permitted by the terms of Section 5.12(a) of the
Purchase Agreement."
4. This First Amendment shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts to be made and performed entirely within the State of Delaware.
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<PAGE>
5. This First Amendment may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
6. Except to the extent expressly amended by the First Amendment, the
Rights Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
INPUT/OUTPUT, INC.
Attest:
By: /s/ Chris Wolfe By: /s/ W.J. Zeringue
------------------------------- -------------------------------
Title: Vice President Title: Chief Executive Officer
---------------------------- ----------------------------
HARRIS TRUST AND SAVINGS BANK,
as Rights Agent
Attest:
By: /s/ Lorraine Rodewald By: /s/ Ray Rosenbaum
------------------------------- -------------------------------
Title: Assistant Vice President Title: Vice President
---------------------------- ----------------------------
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