<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
Amendment No. 7
PRECISION SYSTEMS, INC.
-----------------------
(Name of Issuer)
Common Stock ($.01 par value)
------------------------------
(Title of Class of Securities)
740329-10-7
-----------
(CUSIP Number)
Thomas J. Egan, Jr., Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
(202) 452-7000
--------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 30, 1997
------------------
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
Check the following box if a fee is being paid with the statement [ ].
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent of
the class of securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent or less of
such class.) (See Rule 13d-7.)
Page 1 of 8 Pages
<PAGE> 2
CUSIP No. 740329-10-7
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(1) Name of Reporting Persons
S.S. or I.R.S. Identification No. of Above Persons
RMS Limited
Partnership Crystal Diamond, Inc. Roy M. Speer
88-0224372 88-0223159 ###-##-####
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(2) Check the Appropriate Box if a Member (a) [X]
of a Group (See Instructions) (b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
PF
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(5) Check Box if Disclosure of Legal Proceedings [ ]
is Required Pursuant to Items 2(d) or 2(e)
N/A
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(6) Citizenship or Place of Organization
RMS Limited Partnership -- Nevada limited partnership
Crystal Diamond, Inc. -- Nevada corporation
Roy M. Speer -- individual citizen of the United States
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Number of Shares (7) Sole Voting Power
Beneficially Owned 0
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
3,634,432 by each person
--------------------------------------------------
(9) Sole Dispositive Power
0
--------------------------------------------------
(10) Shared Dispositive Power
3,634,432 by each person
- ------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
RMS Limited Partnership -- 3,634,432 shares
Crystal Diamond, Inc. -- 3,634,432 shares
Roy M. Speer -- 3,634,432 shares
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(12) Check Box if the Aggregate Amount in Row (11) [X]
Excludes Certain Shares
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(13) Percent of Class Represented by Amount in Row (11)
RMS Limited Partnership -- 19.84%
Crystal Diamond, Inc. -- 19.84%
Roy M. Speer -- 19.84%
- ------------------------------------------------------------------------------
(14) Type of Reporting Person
RMS Limited Partnership -- PN
Crystal Diamond, Inc. -- CO
Roy M. Speer -- IN
<PAGE> 3
Securities and Exchange Commission
Washington, D.C.
Schedule 13D
RMS Limited Partnership, a Nevada limited partnership ("RMS"), Crystal
Diamond, Inc., a Nevada corporation, and Roy M. Speer hereby amend their
Schedule 13D as filed on July 31, 1992 and as amended by that Amendment No. 1
to the Schedule 13D dated December 17, 1993, by that Amendment No. 2 to the
Schedule 13D dated January 5, 1995, by that Amendment No. 3 to the Schedule 13D
dated April 5, 1995, by that Amendment No. 4 to the Schedule 13D dated June 10,
1996 and by that Amendment No. 5 to the Schedule 13D dated June 27, 1996 and by
that Amendment No. 6 to the Schedule 13D dated April 7, 1997 (as amended the
"Schedule 13D"), with respect to the Common Stock, par value $.01 per share, of
Precision Systems, Inc., a Delaware corporation.
ITEM 1. SECURITY AND ISSUER
Item 1 of the Schedule 13D is hereby amended to read as follows:
This report relates to the common stock, par value $.01 per share (the
"Common Stock") of Precision Systems, Inc., a Delaware corporation (the
"Company" or PSI").
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Item 3 of the Schedule 13D is hereby amended by adding the following
to the disclosure contained therein:
On September 30, 1997, RMS loaned to PSI $2,000,000 (the "Loan") and,
in connection with such Loan, was granted a warrant to purchase 275,000 shares
of Common Stock (the "Warrant"). The source of the funds used was the working
capital of RMS.
ITEM 4. PURPOSE OF TRANSACTION.
Item 4 of the Schedule 13D is amended to read as follows:
The Common Stock and Class B Common Stock issued to RMS and Mr. Speer
in the distribution were received as part of a tax-free distribution of the
capital stock of PSI to all of the shareholders of Home Shopping Network, Inc.
On June 27, 1996, RMS converted all of the issued and outstanding shares of
Class B Common Stock into shares of Common Stock.
On December 13, 1993, RMS purchased from PSI 10,000 shares of
non-voting Series A Preferred Stock pursuant to the terms and
Page 3 of 8 Pages
<PAGE> 4
conditions of a stock purchase agreement of the same date (the "Agreement").
The Series A Preferred Stock has a liquidation preference of $580 per share
(the "Liquidation Preference") and each share of Series A Preferred Stock is
convertible at the option of the holder into that number of shares of Common
Stock determined by dividing the Liquidation Preference by the Conversion
Price. The initial Conversion Price was set at $5.16 and is subject to
adjustment in certain circumstances pursuant to the antidilution provisions of
the Series A Preferred Stock. The Series A Preferred Stock is redeemable at the
option of the Company. The redemption price for the Series A Preferred Stock
will equal 110% of the Liquidation Preference plus any accrued and unpaid
dividends (and interest accrued thereon). While the Series A Preferred Stock is
outstanding, PSI is precluded from changing the rights and preferences of the
Series A Preferred Stock, issuing a class of equity securities that has rights
senior to those of holders of Series A Preferred Stock or incurring additional
indebtedness (except as permitted in the Certificate of Designations relating
to the Series A Preferred Stock) without the approval of holders of a majority
of Series A Preferred Stock. The Series A Preferred Stock bears a cumulative
annual dividend of 6% with interest accumulating on unpaid dividends at an
annual rate of 6%.
The Agreement grants RMS and Mr. Speer registration rights with
respect to the Common Stock held by them and the Common Stock into which the
Class B Common Stock and Series A Preferred Stock may be converted.
On April 7, 1997, RMS purchased for $1.5 million (the "Purchase
Price") 1,500 shares of non-voting Series B Preferred Stock and a warrant to
purchase up to 150,000 shares of the Company's Common Stock (the "Series B
Warrant"). The Series B Preferred Stock may be converted at the option of the
Company and at any time prior to December 31, 1997 into new securities which
may be issued by the Company. In the event shares of Series B Preferred Stock
remain outstanding on December 31, 1998, such shares shall become convertible
at the option of the holder thereof into that number of shares of Common Stock
equal to the quotient realized by dividing (i) the sum of the Purchase Price
and any accumulated and unpaid dividends plus interest thereon (the "Conversion
Amount") by (ii) the Conversion Price in effect on the date of conversion. The
initial Conversion Price for the Series B Preferred stock was set at $4.47
which equaled the average bid closing price for the Company's Common Stock
during the ten trading days prior to the closing date of the issuance of the
Series B Preferred Stock. The conversion price is subject to adjustment for
certain deemed issuances of additional shares of Common Stock. The Series B
Preferred Stock bears a cumulative annual dividend of 8% with interest
accumulating on unpaid dividends at an annual rate of 8%. The Series B
Preferred Stock carries no voting rights (other than as may be required under
the Delaware General Corporation Law).
Page 4 of 8 Pages
<PAGE> 5
The Series B Warrant has an exercise price equal to $6.0938 which
represents: (i) the current market price of the Common Stock as determined by
the closing price of the Common Stock on the Nasdaq Stock Market on the day
prior to the date of closing; plus (ii) a 25% premium. The Series B Warrant
will be exercisable at any time during the five-year period commencing twelve
(12) months after the date of issuance. The exercise price and number of shares
issuable upon exercise of Warrants are subject to adjustment in certain
circumstances. In connection with the issuance and sale of the Series B
Preferred Stock, the Company granted RMS registration rights with respect to
shares of Common Stock held by RMS or which may be acquired by RMS upon the
conversion of any convertible securities.
On September 30, 1997, RMS loaned to PSI $2,000,000 pursuant to the
terms and conditions of a Loan Agreement between RMS, the Company, Vulcan
Ventures Incorporated and Didier Primat. In connection with making such loan,
PSI granted RMS a warrant to purchase up to 275,000 shares of the Company's
Common Stock. The Loan is evidenced by an unsecured promissory note which is
due and payable on January 1, 1999. Interest will accrue on the Loan at an
annual rate of 8% payable on September 30, 1998 and on the maturity date of the
Loan. The Company may prepay the Loan at any time prior to maturity without
penalty.
The Warrant has an exercise price equal to $4.00 which represents: (i)
the average closing price of the common stock on the Nasdaq Stock Market for
the ten day period prior to the date of closing; plus (ii) a 25% premium. The
Warrant will be exercisable at any time during the five-year period commencing
twelve (12) months after the date of issuance. The exercise price and number of
shares issuable upon exercise of the Warrant will be subject to adjustment in
certain circumstances.
Other than as described in this Item 4, neither RMS, Crystal Diamond,
Mr. Speer, nor, to the best of Crystal Diamond's knowledge, any executive
officer, director or controlling person of Crystal Diamond has any present
plans or proposals which relate to or would result in: (1) the acquisition by
any person of additional securities of the Company, or the disposition of
securities of the Company; (2) an extraordinary corporate transaction, such as
a merger, reorganization or liquidation, involving the Company or any of its
subsidiaries; (3) a sale or transfer of a material amount of the assets of the
Company or of any of its subsidiaries; (4) any material change in the
capitalization or dividend policy of the Company; (5) any other material change
in the Company's business or corporate structure; (6) changes to the Company's
charter, bylaws
Page 5 of 8 Pages
<PAGE> 6
or instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any person; (7) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in any inter-dealer quotation system of
a registered national securities association; (8) a class of equity securities
of the Company to become eligible for termination of registration pursuant to
Section 12(g)(4) of the Act; or (9) any action similar to any of those
enumerated above.
Notwithstanding the foregoing, RMS, Crystal Diamond and Mr. Speer
reserve the right to purchase additional securities of the Company, dispose of
all or a portion of their holdings of securities of the Company, or change
their intentions with respect to any of the matters referred to in this Item 4.
Because the Warrant may not be exercised prior to September 30, 1998
and the Series B Warrant may not be exercised prior to April 7, 1998, RMS,
Crystal Diamond, Inc. and Mr. Speer disclaim beneficial ownership of the
securities underlying the Warrant and the Series B Warrant. In addition,
because the Series B Preferred Stock may not be converted into shares of Common
Stock by the holders thereof prior to January 1, 1999, RMS, Crystal Diamond and
Mr. Speer disclaim beneficial ownership of the securities underlying the Series
B Preferred Stock held by RMS.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Item 5(a) of the Schedule 13D is amended by adding the following to
the disclosure contained therein:
(a) RMS is the beneficial owner of (i) 2,415,945 shares of the
Company's Common Stock, (ii) 10,000 shares of the Company's Series A Preferred
Stock, which shares represent all of the issued and outstanding shares of the
Series A Preferred Stock, and (iii) 1,500 shares of the Company's Series B
Preferred Stock, which shares represent 33.33% of the outstanding Series B
Preferred Stock. In addition, RMS holds warrants to purchase an aggregate of
425,000 shares of Common Stock. Such warrants currently are not exercisable.
Neither Mr. Speer nor Crystal Diamond, Inc. directly hold any shares of Common
Stock.
The 2,415,945 shares of Common Stock held by RMS represent
approximately 14.13% of the Company's Common Stock. The Series A Preferred
Stock, which carries no voting rights (other than as required under the
Delaware General Corporation Law), may be converted into shares of Common Stock
at a conversion price of $4.76 per share. The Series A Preferred stock may be
converted into 1,218,487 shares of Common Stock or approximately 7.13% of the
Page 6 of 8 Pages
<PAGE> 7
Common Stock after giving effect to the conversion.(1) Thus, RMS is deemed to be
the beneficial owner of 3,634,432 shares or 19.84% of the Company's Common
Stock. The Series B Preferred Stock will become convertible into that number of
shares of the Company's Common Stock determined by dividing the Conversion
Amount by the Conversion Price in effect on the date of conversion. The
conversion price for the Series B Preferred Stock is currently set at $4.47.
The Series B Preferred Stock may be converted into Common Stock commencing
January 1, 1999. As a result of the relationship described in Item 2, Crystal
Diamond and Mr. Speer may also be deemed for securities law purposes to own
3,634,432 shares or 19.84% of the Company's Common Stock each.
Item 5(b) of the Schedule 13D is amended to read as follows:
(b) RMS shares with Crystal Diamond and Mr. Speer the power to dispose
or direct the disposition of 2,415,945 shares of Common Stock owned by RMS,
10,000 shares of Series A Preferred Stock owned by RMS, and 1,500 shares of
Series B Preferred Stock owned by RMS and warrants to purchase 425,000 shares
of Common stock held by RMS. The Series A Preferred Stock has no voting rights,
but is convertible into 1,218,487 shares of Common Stock. The Series B
Preferred has no voting rights, but will become convertible into shares of
Common Stock beginning January 1, 1999.
Item 5(c) of the Schedule 13D is amended to read as follows:
(c) On September 30, 1997, RMS made the Loan and acquired the Warrants
from PSI. See Item 4 above for a description of the transaction.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Item 6 of the Schedule 13D is hereby amended by adding the following
paragraph thereto:
All contracts, arrangements, understandings or relationships with
respect to the Loan and the Warrant between RMS, Crystal
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(1) Number of shares issuable upon conversion of Series A Preferred Stock
is determined based upon the conversion price for such securities
reported in the Company's Form 10-K for the transition period ended
December 31, 1996. Such conversion price and the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock
are subject to change based on the anti-dilution provisions relating
to the Series A Preferred Stock contained in the Certificate of
Designations.
Page 7 of 8 Pages
<PAGE> 8
Diamond or Mr. Speer and any other person are described in Item 4 above and in
the Loan Agreement, Subscription Agreement and Warrant which are attached
hereto as exhibits and which are incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit A Loan Agreement dated as of September 30,
1997 by and among Precision Systems,
Inc., RMS Limited Partnership, Vulcan
Ventures Incorporated and Didier Primat
Exhibit B Subscription Agreement dated as of
September 30, 1997 by and between
Precision Systems, Inc. and RMS Limited
Partnership
Exhibit C Warrant Certificate
</TABLE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 10, 1997
/s/ Roy M. Speer
----------------------------------
Roy M. Speer
RMS LIMITED PARTNERSHIP,
a Nevada limited partnership
/s/ C. Thomas Burton
----------------------------------
C. Thomas Burton
President
of Crystal Diamond, Inc.,
the Managing General Partner of
RMS Limited Partnership
CRYSTAL DIAMOND, INC.,
a Nevada corporation
/s/ C. Thomas Burton
----------------------------------
C. Thomas Burton
President
Page 8 of 8 Pages
<PAGE> 1
EXHIBIT A
LOAN AGREEMENT
By and Among
PRECISION SYSTEMS, INC.,
A DELAWARE CORPORATION,
RMS LIMITED PARTNERSHIP,
A NEVADA LIMITED PARTNERSHIP,
VULCAN VENTURES INCORPORATED,
A WASHINGTON CORPORATION
and
MR. DIDIER PRIMAT
Dated as of September 30, 1997
-------------------------
$6,000,000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Definitions.................................................................. 1
ARTICLE 2 Loans........................................................................ 3
2.1 Unsecured Loans............................................................... 3
2.2 Interest...................................................................... 3
2.3 Payments...................................................................... 4
ARTICLE 3 [INTENTIONALLY OMITTED]...................................................... 4
ARTICLE 4 Covenants.................................................................... 4
4.1 Accounting Records............................................................ 4
4.2 Corporate Existence........................................................... 5
4.3 Qualification to Do Business.................................................. 5
4.4 Compliance with Laws.......................................................... 5
4.5 Taxes and Other Liabilities................................................... 5
4.6 Maintenance of Property....................................................... 5
4.7 Notification of Events of Default and Adverse Developments.................... 5
ARTICLE 5 Events of Default............................................................ 6
5.1 Events of Default............................................................. 6
5.2 Acceleration.................................................................. 6
ARTICLE 6 Miscellaneous................................................................ 7
6.1 Successors and Assigns........................................................ 7
6.2 Sale of Interests............................................................. 7
6.3 Lost Promissory Note.......................................................... 7
6.4 No Implied Waiver............................................................. 7
6.5 Amendments; Waivers........................................................... 7
6.6 Severability.................................................................. 8
6.7 Notices....................................................................... 8
6.8 Interpretation................................................................ 9
6.9 No Right of Set Off........................................................... 9
6.10 Governing Law................................................................. 9
6.11 Counterparts.................................................................. 9
6.12 Headings and Sections......................................................... 9
</TABLE>
Exhibit
Exhibit A -- Promissory Note
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<PAGE> 3
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement"), dated as of September 30,
1997, is made and entered into by and between Precision Systems, Inc., a
Delaware corporation ("Borrower"), RMS Limited Partnership, a Nevada limited
partnership ("RMS"), Vulcan Ventures Incorporated, a Washington corporation
("Vulcan") and Mr. Didier Primat ("Primat").
WITNESSETH:
WHEREAS, RMS, Vulcan and Primat (each a "Lender" and collectively
the "Lenders") have each agreed to loan $2,000,000 to Borrower pursuant to the
terms and conditions of a Subscription Agreement dated as of September 30, 1997
(the "Subscription Agreement");
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE 1
DEFINITIONS
In addition to any terms defined elsewhere in this Agreement, the
following terms have the meanings indicated for purposes of this Agreement (such
definitions being equally applicable to the singular and plural forms of the
defined term):
"Acceleration" means that the Loans (i) shall not have been paid at
the Maturity Date, or (ii) shall have become due and payable prior to the
Maturity Date pursuant to Section 5.2.
"Affiliate" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under common control with such
Person; provided, however, that neither party to this Agreement shall be deemed
to be an Affiliate of the other party.
"Agreement" or "Loan Agreement" means this Loan Agreement, as
amended from time to time.
- 1 -
<PAGE> 4
"Borrower" shall have the meaning set forth in the heading of
this Agreement.
"Business Day" means a day when national banks located in New
York City are open for business.
"Closing Date" means September 30, 1997.
"Event of Default" shall have the meaning set forth in Article 5
hereof.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Governmental Authority" means any nation or government, any
state, province or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Indebtedness" of any Person means all liabilities, obligations
and reserves, contingent or otherwise of such Person.
"Loan" and "Loans" shall have the meanings set forth in Section
2.1 hereof.
"Material Adverse Effect" means a material adverse effect on the
business, assets, operations or financial condition of Borrower or on the
ability of Borrower to pay the Loans in accordance with the terms of this
Agreement.
"Maturity" means any date on which the Loans become due and
payable, whether as stated on the Maturity Date or by virtue of mandatory
prepayment, by Acceleration or otherwise.
"Maturity Date" means January 1, 1999.
"Maximum Rate" shall have the meaning set forth in Section 2.2
hereof.
"Note" means the promissory notes executed by Borrower in the
form of Exhibit A hereto and evidencing the Loans.
"Obligations" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing to Lenders by Borrower, of any kind or
nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, arising under this
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<PAGE> 5
Agreement, the Note and all extensions, amendments, modifications,
restructurings and refinancings of any of the above.
"Person" means any individual, corporation, partnership, trust,
association or other entity or organization, including any government, political
subdivision, agency or instrumentality thereof.
Any accounting term not defined herein shall have the meaning
given to it under GAAP.
ARTICLE 2
THE LOANS
2.1 Unsecured Loans. Subject to the terms and conditions of
this Agreement and in reliance on the representations and warranties of
Borrower set forth in this Agreement and the Subscription Agreement, each of
the Lenders agrees to loan (each a "Loan" and collectively the "Loans") to
Borrower on the Closing Date $2,000,000. Borrower's obligation to repay the
Loans shall be evidenced by promissory notes of Borrower to each of the Lenders
in the form attached hereto as Exhibit A.
2.2 Interest.
(a) Interest. Each Loan shall bear interest from the
Closing Date on the unpaid principal amount thereof until such amount is paid
(whether upon Maturity, by Acceleration or otherwise) at a rate per annum equal
to 8%. Interest will be compounded quarterly at the end of each calendar
quarter.
(b) Computation of Interest. Interest shall accrue daily
and shall be computed for the actual number of days elapsed on the basis of a
year consisting of 360 days.
(c) Post-Maturity Interest. After Maturity (whether by
acceleration or otherwise) of the Loans, the Loans shall bear interest, payable
on demand, at a rate per annum equal to 12%.
(d) Maximum Interest Rate. Nothing in this Agreement
shall require Borrower to pay interest at a rate exceeding the maximum amount
permitted by applicable law to be charged by Lenders (the "Maximum Rate"). If
the amount of interest payable for the account of Lenders on any day in respect
of the immediately preceding interest computation period, computed pursuant to
this Article 2, would exceed the Maximum Rate, the amount of interest payable
for its account on such interest payment date shall automatically be reduced to
the Maximum Rate.
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<PAGE> 6
2.3 Payments.
(a) Payments of Loans. On the Maturity Date, Borrower
shall pay to Lenders the unpaid principal on the Loans.
(b) Payments of Interest. On September 30, 1998 and on the
Maturity Date, Borrower shall pay to Lenders all interest accrued and unpaid by
Borrower with respect to the Loans through and including the date of payment.
(c) Optional Prepayment. Borrower may at any time, and
from time to time, prepay the Loans in whole or in part, without penalty or
premium; provided that any such prepayment (if less than the prepayment of
all unpaid principal and interest on the Loans) shall be made in equal amounts
to each of the Lenders. Any prepayment shall be applied first to accrued and
unpaid interest and thereafter to the outstanding principal balance of the
Loans.
(d) Payments. All payments of interest and principal shall
be in United States dollars and immediately available funds to Lenders at the
addresses for notices set forth in this Agreement and shall be made prior to
1:00 P.M. Eastern Time on the date of the scheduled payment. All payments
received after such time shall be credited the next succeeding Business Day,
and interest shall continue to accrue.
ARTICLE 3
[INTENTIONALLY OMITTED]
ARTICLE 4
COVENANTS
Unless each Lender shall agree to waive compliance with the
following covenants, Borrower shall comply with the following provisions so long
as the Loans are outstanding:
4.1 Accounting Records. Borrower shall maintain adequate books
and accounts in accordance with GAAP consistently applied. Borrower shall
deliver to a Lender any information regarding the business or the finances of
Borrower as such Lender may reasonably request.
4.2 Corporate Existence. Borrower shall preserve and maintain
its corporate existence in good standing in the jurisdiction of its formation
and all of its licenses,
-4-
<PAGE> 7
privileges and franchises and other rights necessary or desirable in the
ordinary course of its businesses, except to the extent that the failure to do
so would not have a Material Adverse Effect.
4.3 Qualification to Do Business. Borrower shall qualify to do
business and shall be and remain in good standing in each jurisdiction in which
the nature of its business requires it to be so qualified, except to the extent
that the failure to be so qualified and in good standing would not have a
Material Adverse Effect.
4.4 Compliance with Laws. Borrower will observe and comply in
all material respects with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time may be
applicable to Borrower, a violation of which could be reasonably expected to
have a Material Adverse Effect.
4.5 Taxes and Other Liabilities. Borrower will pay and
discharge prior to the date on which penalties attach thereto all taxes,
assessments and governmental charges, license fees and levies upon or with
respect to Borrower, and upon the income, profits and property of Borrower,
unless and to the extent that such taxes, assessments, charges, license fees and
levies are being contested in good faith and by appropriate proceedings
diligently conducted by Borrower, and provided that such reserve or other
appropriate provisions as are required in accordance with GAAP will have been
made therefor except to the extent that the failure to do so would not have a
Material Adverse Effect.
4.6 Maintenance of Property. Borrower shall (i) maintain, keep
and preserve all of its material properties in good repair, working order and
condition and from time to time make all necessary and proper repairs, renewals,
replacement and improvements thereto, and (ii) maintain, preserve and protect
all franchises, licenses, copyrights, patents and trademarks material to its
Business.
4.7 Notification of Events of Default and Adverse Developments.
Borrower shall promptly notify Lenders of the occurrence of (i) any Event of
Default or any event which, upon the lapse of time or the giving of notice or
both, would constitute an Event of Default hereunder; (ii) any event,
development or circumstance whereby any financial statements most recently
furnished to Lenders fail in any material respect to present fairly, in
accordance with GAAP, the financial condition and operating results of Borrower
as of the date of such financial statements; and (iii) each and every event
which would be an Event of Default (or an event which with the giving of notice
or lapse of time or both would be an Event of Default) under any Indebtedness of
Borrower, such notice to include the names and addresses of the holders of such
indebtedness and the amount thereof.
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<PAGE> 8
ARTICLE 5
EVENTS OF DEFAULT
5.1 Events of Default. Each of the following shall constitute
an Event of Default under this Agreement:
(a) Borrower shall fail to pay when due any payment of
principal or interest or any other sum payable hereunder;
(b) Borrower shall default in the performance of any of
its material agreements under any provision of this Agreement;
(c) Any warranty or representation made by Borrower in the
Subscription Agreement shall be untrue in any material respect as of the Closing
Date;
(d) Borrower shall institute a voluntary case seeking
liquidation or reorganization under Chapter 7 or Chapter 11, respectively, of
the United States Bankruptcy Code, or shall consent to the institution of an
involuntary case thereunder against it; or Borrower shall file a petition
initiating or shall otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or Borrower shall
apply for, or by consent or acquiescence there shall be an appointment of a
receiver, liquidator, sequestrator, trustee or other officer with similar
powers; or Borrower shall make an assignment for the benefit of creditors; or
Borrower shall admit in writing its inability to pay its debts generally as they
become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of Borrower under Chapter 7 or Chapter 11,
respectively, of the United States Bankruptcy Code, or any similar proceeding
shall be commenced against Borrower under any other applicable federal or state
law, and (i) the petition commencing the involuntary case is not timely
controverted; or (ii) the petition commencing the involuntary case is not
dismissed within 30 days of its filing; or (iii) an interim trustee is appointed
to take possession of all or a portion of the property, to operate all or any
part of the business of Borrower, or both; or (iv) an order for relief shall
have been issued or entered therein; or a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer;
5.2 Acceleration. If any Event of Default described in Section
5.l(a) or (d) shall occur, all Loans shall become immediately due and payable,
all without notice of any kind. If any other Event of Default described in
Section 5.1 (other than an Event of Default described in Section 5.1(a) or (d))
shall occur, upon ten (10) days notice, any Lender may declare all Loans to be
due and payable, whereupon all Loans shall immediately become due and payable
provided that Borrower shall not have cured such Event of Default prior to the
expiration of such period. Any such declaration made
-6-
<PAGE> 9
pursuant to this Section 5.2 may be rescinded by the Lender or Lenders making
such declaration.
ARTICLE 6
MISCELLANEOUS
6.1 Successors and Assigns. The terms and provisions of this
Agreement shall be binding upon, and the benefits thereof shall inure to, the
parties hereto and their respective permitted successors and assigns.
6.2 Sale of Interests. Lenders agree that they shall not be
entitled to sell, assign, transfer, negotiate or grant participations in all or
any part of or any interest in, its rights and obligations under this Agreement
without the prior written consent of Borrower.
6.3 Lost Promissory Note. Upon receipt of evidence reasonably
satisfactory to Borrower of the ownership of and the loss, theft, destruction or
mutilation of a Note and indemnification reasonably satisfactory to Borrower or,
in the case of any mutilation, upon the surrender of such Note for cancellation
to Borrower at its principal office, Borrower at its expense (except as provided
below) will execute and deliver to a Lender, in lieu thereof a new Note of like
tenor, dated so that there will be no loss of interest on such lost, stolen,
destroyed or mutilated Note. Borrower may require payment by Lender of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any such replacement. Any Note in lieu of which any such new Note has been so
executed and delivered by Borrower shall not be deemed to be an outstanding Note
for any purpose of this Agreement.
6.4 No Implied Waiver. No delay or omission to exercise any
right, power or remedy accruing to Lenders upon any breach or default of
Borrower under this Agreement shall impair any such right, power or remedy of
Lenders, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default occurring
thereafter, nor shall any waiver of any single breach or default be deemed a
wavier of any other breach or default occurring theretofore or thereafter.
6.5 Amendments; Waivers. No amendments, modification or waiver
of or consent with respect to, any provision of this Agreement, shall be
effective unless the same shall be in writing and signed and delivered by
Lenders and Borrower. Any amendment, modification, waiver or consent hereunder
shall be effective only in the specific instance and for the specific purpose
for which given.
-7-
<PAGE> 10
6.6 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be, only as to such
jurisdiction, ineffective to the extent of such prohibition or unenforceability,
but all the remaining provisions of this Agreement shall remain valid.
6.7 Notices. Any notice which a Lender or Borrower may be
required or may desire to give to the other parties under any provision of this
Agreement shall be in writing by overnight delivery service, certified mail,
telex or electronic facsimile transmission and shall be deemed to have been
given or made when received and addressed as follows:
To Lenders:
RMS Limited Partnership
50 West Liberty Street
Suite 650
Reno, Nevada 89501
Vulcan Ventures Incorporated
110 110th Avenue, N.E.
Suite 550
Bellevue, Washington 98004
Didier Primat
Collonges Bellerive, Switzerland
If to Borrower, at:
Precision Systems, Inc.
11800 30th Court North
St. Petersburg, Florida 33716
With a copy similarly addressed to:
Thomas J. Egan, Jr., Esquire
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006
Any party may change the address to which all notices, requests
and other communications are to be sent to it by giving written notice of such
address change to the
-8-
<PAGE> 11
other parties in conformity with this paragraph, but such change shall not be
effective until notice of such change has been received by the other parties.
6.8 Interpretation. This Agreement, together with the Exhibit
to this Agreement and the Subscription Agreement, is intended by Lender and
Borrower as a final expression of their agreement with respect to the subject
matter hereof and is intended as a complete statement of the terms and
conditions of such agreement.
6.9 No Right of Set Off. Borrower will not be entitled to
offset against any of its financial obligations to Lenders under this Agreement,
any obligation owed to it or any of its Affiliates by or for Lender or any
Affiliates of Lender.
6.10 Governing Law. THE VALIDITY, CONSTRUCTION AND EFFECT OF
THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. AT THE OPTION OF LENDER, AN ACTION
MAY BE BROUGHT TO ENFORCE THE OBLIGATIONS AND THIS AGREEMENT IN ANY COURT
LOCATED IN THE STATE OF DELAWARE, U.S.A. OR IN ANY OTHER COURT IN WHICH VENUE
AND JURISDICTION ARE PROPER.
6.11 Counterparts. This Agreement may be executed in any number
of counterparts each of which shall be an original with the same effect as if
the signatures thereto and hereto were upon the same instrument.
6.12 Headings and Sections. Captions, headings and the table of
contents in this Agreement are for convenience only, and are not to be deemed
part of this Agreement. Unless otherwise specified, references in this Agreement
to Sections, Articles, Exhibits or Schedules are references to sections and
articles of and Exhibits and Schedules to, this Agreement.
-9-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
LENDERS: RMS Limited Partnership,
a Nevada limited partnership
By: Crystal Diamond, Inc.
Its: General Partner
By:
-----------------------------------
C. Thomas Burton, Jr.
Its: President
Vulcan Ventures Incorporated,
a Washington corporation
By:
-----------------------------------
Its:
----------------------------------
--------------------------------------
By: Mr. Didier Primat
BORROWER: Precision Systems, Inc.,
a Delaware corporation
By:
-----------------------------------
Its:
----------------------------------
<PAGE> 1
EXHIBIT B
SUBSCRIPTION AGREEMENT
By and Between
PRECISION SYSTEMS, INC.,
A DELAWARE CORPORATION,
and
RMS LIMITED PARTNERSHIP,
A NEVADA LIMITED PARTNERSHIP,
Dated as of September 30, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Purchase of Securities............................................................ 1
1.1 Subscription ................................................................. 1
1.2 Purchase Price................................................................ 1
ARTICLE 2 Closing........................................................................... 2
2.1 Closing of Subscription....................................................... 2
ARTICLE 3 Representations and Warranties.................................................... 2
3.1 Investor Representations and Warranties....................................... 2
3.2 Company Representations and Warranties........................................ 7
ARTICLE 4 Registration Rights...............................................................10
4.1 Registration..................................................................10
4.2 [Intentionally Omitted].......................................................10
4.3 Precedence of Registration Rights.............................................10
4.4 Registration Procedures.......................................................10
ARTICLE 5 Miscellaneous.....................................................................17
5.1 Indemnity.....................................................................17
5.2 Modification..................................................................17
5.3 Notices.......................................................................17
5.4 Counterparts..................................................................18
5.5 Binding Effect................................................................18
5.6 Entire Agreement..............................................................18
5.7 Assignability.................................................................18
5.8 Governing Law; Jurisdiction and Choice of Forum...............................18
5.9 Pronouns......................................................................18
5.10 Severability..................................................................18
5.11 Waiver........................................................................19
5.12 Further Assurances............................................................19
</TABLE>
Exhibit
Exhibit A -- Form of Note
Exhibit B -- Warrant Certificate
Exhibit B-1 -- Loan Agreement
- i -
<PAGE> 3
Exhibit C -- SEC Filings
Exhibit D -- Risk Factors
- ii -
<PAGE> 4
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered into as
of the 30th day of September, 1997 by and among Precision Systems, Inc., a
Delaware corporation (the "Company"), with its principal office at 11800 30th
Court North, St. Petersburg, Florida 33716 and RMS Limited Partnership, a Nevada
limited partnership ("Subscriber"), with its principal office at 50 West Liberty
Street, Suite 650, Reno, Nevada 89501.
WITNESSETH
WHEREAS the Company desires to issue units (the "Units") each consisting of
a $2,000,000 principal amount 8% unsecured promissory note of the Company due
and payable on January 1, 1999 (each a "Note" and collectively the "Notes") and
a warrant (the "Warrant") to purchase up to 275,000 shares of Common Stock, $.01
par value per share ("Common Stock"), all on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and in further
consideration of the mutual covenants, promises and agreements hereinafter set
forth, it has been and IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
PURCHASE OF SECURITIES
1.1 Subscription. The Subscriber, intending to be legally bound, hereby
irrevocably subscribes for and agrees to purchase one Unit consisting of a Note
and a Warrant. The Note shall be evidenced by a promissory note in the form of
Exhibit A attached hereto and the Subscriber shall have the rights of a Lender
as such term is defined in the Loan Agreement attached hereto as Exhibit B-1.
The Warrant shall entitle the holder thereof to the rights set forth in that
certain Warrant Certificate attached hereto as Exhibit B. For the purpose of
this Agreement, shares of Common Stock issuable upon the exercise of the Warrant
shall hereinafter be referred to as the "Warrant Shares" and the Notes, the
Warrant and the Warrant Shares shall hereinafter be referred to as the
"Securities."
1.2 Purchase Price. The Company agrees to issue and sell to the Subscriber
the Unit for a purchase price of two million dollars ($2,000,000) (the
"Subscription Price"). Payment of the Subscription Price shall be made by wire
transfer or check payable to and delivered to the Company or, if by wire
transfer in accordance with the instructions of the Company,
1
<PAGE> 5
together with an executed copy of this Agreement and any other documents
required to be executed under this Agreement.
ARTICLE II
CLOSING
2.1 Closing of Subscription. The closing of the purchase and sale of the
Unit (the "Closing") shall take place at the offices of the Company on such date
as is mutually agreed to by the Company and the Subscriber. At the Closing, the
Company shall deliver to the Subscriber the Note and the Warrant, duly
registered in the Subscriber's name against payment in full by the Subscriber of
the Subscription Price against execution by the Subscriber of this Agreement and
the Loan Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Investor Representations and Warranties. The Subscriber hereby
acknowledges, represents and warrants to the Company as follows:
(a) The Subscriber is acquiring the Securities for its own account
as principal, not as a nominee or agent, for investment purposes only, and not
with a view to, or for, resale, distribution or fractionalization thereof in
whole or in part and no other person has a direct or indirect beneficial
interest in the Securities. Further, the Subscriber does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person with respect to any of the
Securities for which it is subscribing.
(b) The Subscriber has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and legally
binding obligation of the Subscriber.
(c) The Subscriber acknowledges its understanding that the offering
and sale of the Securities is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section
4(2) of the Securities Act and the provisions of Regulation D promulgated
thereunder ("Regulation D"). In furtherance thereof, the Subscriber represents
and warrants to, and agrees with, the Company and its affiliates as follows:
2
<PAGE> 6
(i) The Subscriber realizes that the basis for the exemption
may not be present if, notwithstanding any representations and/or
warranties to the contrary herein contained, the Subscriber has in mind
merely acquiring the Securities for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise;
(ii) The Subscriber has the financial ability to bear the
economic risk of its investment, has adequate means for providing for its
current needs and personal contingencies and has no need for liquidity with
respect to its investment in the Company; and
(iii) The Subscriber has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of an investment in the Securities. If other than an individual,
the Subscriber also represents it has not been organized for the purpose of
acquiring the Securities.
(d) The Subscriber is an "accredited investor," as that term is
defined in Rule 501 of Regulation D.
(e) The Subscriber:
(i) Has been furnished with those documents identified on
Exhibit C which have been filed by the Company with the Securities and
Exchange Commission (the "SEC Filings") and any and all documents which may
have been made available upon request for a reasonable time prior to the
date hereof, and the Subscriber has carefully read and understands and has
evaluated the risks set forth under "Risk Factors" attached hereto as
Exhibit D and the considerations described in subsections (ii) and (iii)
below relating to the information contained in the SEC Filings.
(ii) Has been provided an opportunity for a reasonable time
prior to the date hereof to obtain additional information concerning the
offering of the Securities, the Company and all other information to the
extent the Company possesses such information or can acquire it without
unreasonable effort or expense;
(iii) Has been given the opportunity for a reasonable time prior
to the date hereof to ask questions of, and receive answers from, the
Company or its representatives concerning the terms and conditions of the
offering of the Securities and other matters pertaining to an investment in
the Securities, and has been given the opportunity for a reasonable time
prior to the date hereof to obtain such additional information necessary to
verify the accuracy of the information which was provided in order for them
to evaluate the merits and risks of a purchase of the Securities to the
extent the Company possesses such information or can acquire it without
unreasonable
3
<PAGE> 7
effort or expense and has agreed that it will keep confidential any
non-public information received as part of its investigation referred to in
subsections (i) and (ii) and this subsection (iii);
(iv) Has not been furnished with any oral representation or
oral information in connection with the offering of the Securities
which is not contained in the SEC Filings; and
(v) Has determined that the Securities are a suitable
investment for the Subscriber and that at this time the Subscriber
could bear a complete loss of such investment.
(f) The Subscriber is not relying on any statements or
representations made by the Company or its affiliates with respect to economic
considerations involved in an investment in the Securities. Each Subscriber is
capable of evaluating the merits and risks of an investment in the Securities on
the terms and conditions set forth herein.
(g) The Subscriber will not sell or otherwise transfer the
Securities without registration under the Securities Act or an exemption
therefrom and the Subscriber fully understands and agrees that it must bear the
economic risk of its purchase because, among other reasons, the Securities have
not been registered under the Securities Act or under the securities laws of any
state and, therefore, cannot be resold, pledged, assigned or otherwise disposed
of unless they are subsequently registered under the Securities Act and under
the applicable securities laws of such states or unless exemptions from such
registration requirements are available. In particular, the Subscriber is aware
that the Securities are "restricted securities," as such term is defined in Rule
144 promulgated under the Securities Act ("Rule 144"), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Subscriber also understands that, except as otherwise provided herein, the
Company is under no obligation to register the Securities on its behalf or to
assist him in complying with any exemption from the registration requirements of
the Securities Act or applicable state securities laws. The Subscriber further
understands that sales or transfers of the Securities are further restricted by
state securities laws and the provisions of this Agreement.
(h) No representations or warranties have been made to the
Subscriber by the Company, or any officer, employee, agent, affiliate or
subsidiary of the Company, other than the representations of the Company
contained herein, and in subscribing for Securities the Subscriber is not
relying upon any representations other than those contained herein or in the SEC
Filings.
(i) Any information which the Subscriber has heretofore furnished or
is simultaneously herewith furnishing to the Company with respect to its
financial position and business experience is correct and complete as of the
date of this Agreement and, if there
4
<PAGE> 8
should be any material change in such information prior to the Closing, it will
immediately furnish revised or corrected information to the Company.
(j) The Subscriber understands and agrees that the certificates
representing the Warrant and the Warrant Shares shall bear the following legend
until (i) such securities shall have been registered under the Securities Act
and effectively been disposed of in accordance with the registration statement;
or (ii) in the opinion of counsel for the Company such securities may be sold
without registration under the Securities Act as well as any applicable "Blue
Sky" or similar state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE
AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON
A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION,
THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS
OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR OTHER STATE
SECURITIES LAW.
(k) The Subscriber, if an individual, is a citizen of the United
States, and is at least 21 years of age, or if a partnership, corporation or
trust, the members, shareholders or beneficiaries thereof are all citizens of
the United States and each is at least 21 years of age. The address set forth
below is the Subscriber's correct principal home address, or if the Subscriber
is other than an individual, the Subscriber's correct principal office and the
Subscriber has no present intention of changing such address.
(1) The Subscriber understands that an investment in the Securities
is a speculative investment which involves a high degree of risk of loss of its
entire investment.
(m) The Subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to the Subscriber's net worth, and an
investment in the Securities will not cause such overall commitment to become
excessive.
(n) The Subscriber has not retained any finder, broker, agent,
financial advisor or other intermediary in connection with the transactions
contemplated by this Agreement and agrees to indemnify and hold harmless the
Company from liability for any compensation to any such intermediary retained by
the Subscriber and the fees and expenses of defending against such liability or
alleged liability.
5
<PAGE> 9
(o) The Subscriber acknowledges that this offering of Securities may
involve tax consequences and that the contents of the SEC Filings do not contain
tax advice or information. The Subscriber acknowledges that it must retain its
own professional advisors to evaluate the tax and other consequences of an
investment in the Securities.
(p) The Subscriber is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of formation, is duly qualified to
conduct business under the laws of each jurisdiction in which the nature of the
business transacted by it requires such qualification or where failure to so
qualify would have a material adverse effect upon it or its assets or
properties, and has all requisite corporate power and authority to own and
operate its assets and properties and carry on its business as is being or is
contemplated to be conducted.
(q) The execution and delivery of this Agreement and the performance
of the Subscriber's obligations hereunder, including without limitation the
payment of the purchase price in the manner contemplated herein has been duly
and validly authorized by the taking of all requisite corporate action of the
Subscriber, and does not constitute a breach of or violate, nor create an event
of default under, any indenture, mortgage, deed of trust, fiduciary duty toward
any other person or entity, contract, agreement, certificate of incorporation,
bylaw, order, judgment, or decree to which the Subscriber or any of its
principals is a party or by which the Subscriber or any of its principals or
assets are bound. When executed and delivered by the Subscriber, this Agreement
will constitute a valid and binding obligation of the Subscriber, enforceable
against the Subscriber in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity.
(r) To the Subscriber's best knowledge, no consents, approvals,
authorizations, expiration of any statutory waiting periods, or orders of any
court or government agency relating to the Subscriber or its business is
required as a condition of the Subscriber's purchase of the Securities in the
manner contemplated herein, and receipt of the Securities in exchange therefor,
or the execution and deliver of this Agreement or consummation of the
transactions contemplated herein.
(s) To the Subscriber's best knowledge, there is no pending or
threatened litigation, injunction, action, investigation, or other proceeding
against it or to which it is a party or by which it or any of its principals,
properties, or assets is or may be affected seeking to enjoin its execution,
delivery, or performance of its obligations under this Agreement or which, if
adversely determined, either individually or in the aggregate, would have a
material adverse effect upon the Subscriber, the Subscriber's ability to conduct
its business as it is being or contemplated to be conducted, or the Subscriber's
ability to perform its obligations hereunder; and there is no judgment, decree,
injunction, rule, or order of any governmental
6
<PAGE> 10
authority or arbitrator outstanding against the Subscriber having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
(t) The foregoing representations, warranties and agreements shall
survive the execution of this Agreement.
3.2 Company Representations and Warranties. The Company hereby
represents and warrants to the Subscriber as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has or will have
on or prior to Closing all requisite corporate power and authority (i) to own
and operate its properties and assets and to carry on its business as now
conducted; (ii) to execute and deliver this Agreement; (iii) to issue and sell
the Shares and the Warrant; (iv) upon the conversion of the Warrant to issue
shares of Common Stock; and (v) to carry out the provisions of this Agreement.
(b) All corporate action on the part of the Company, its officers
and directors necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder at the
Closing, and the authorization, issuance (or reservation for issuance, as
applicable), sale, and delivery of the Note and Warrant being sold hereunder and
the Common Stock to be issued upon the exercise of the Warrant has been taken or
will be taken prior to the Closing. This Agreement constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, or as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies.
(c) The authorized capital stock of the Company consists of (i)
30,000,000 shares of Common Stock, of which 17,696,367 shares (including shares
held in treasury) are issued and outstanding as of June 30, 1997; (ii) 2,415,946
shares of Class B Common Stock, of which no shares are issued and outstanding as
of the date hereof; (iii) 50,000 shares of preferred stock, of which 10,000 have
been designated Series A Preferred Stock and are issued and outstanding and
convertible at the election of the holder thereof into 1,218,487 shares of
Common Stock (subject to adjustment pursuant to certain anti-dilution
provisions); and (iv) 4,500 shares of preferred stock which have been designated
Series B Preferred Stock, all of which are issued and outstanding as of the date
hereof and which are not presently convertible into shares of Common Stock of
the Company (such conversion right being exercisable only after December 31,
1998). In addition, the Company has granted options to acquire up to 2,399,488
shares of Common Stock to certain former and current employees, consultants and
directors of the Company pursuant to stock option plans whereby the Company has
reserved for issuance up to 4,000,000 shares of Common Stock. Except as set
forth in this subsection (c) or otherwise provided in this Agreement, there are
no options,
7
<PAGE> 11
warrants or other rights to purchase any of the Company's authorized but
unissued capital stock.
(d) The Warrant Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the purchase price, will be duly
and validly issued, fully paid, non-assessable, not subject to any preemptive
rights, and free and clear of all liens, claims and encumbrances. Shares of
Common Stock have been duly and validly reserved for issuance upon exercise of
the Warrant into Common Stock. When issued upon the exercise of the Warrant or
upon the conversion of the Shares, the Warrant Shares will be duly and validly
issued, fully paid, non-assessable, not subject to any preemptive rights, and
free and clear of all liens, claims and encumbrances.
(e) To the best of the Company's knowledge, no consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of this
Agreement, the offer, sale or issuance of the Securities, except for the consent
of RMS Limited Partnership to the incurrence of indebtedness by the Company
which consent shall be delivered at or prior to the Closing and except to the
extent that a pre-merger notification under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the expiration of any applicable
waiting period without action having been taken to prevent the consummation of
the transactions contemplated may be required in connection with the exercise of
the Warrant and the delivery of the Warrant Shares.
(f) Subject in part to the truth and accuracy of the Company's
representations and warranties set forth in this Agreement, the offer, sale and
issuance of the Securities, as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act of 1933, as amended
("Securities Act"). Neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
(g) [Intentionally Omitted]
(h) The Company is not in violation or default of any provision of
its Certificate of Incorporation, Bylaws, or any mortgage, indenture, agreement,
instrument, or contract to which it is a party or by which it is bound or, to
the best of its knowledge, of any federal or state judgment, order, writ,
decree, statute, rule or regulation applicable to the Company, except to the
extent that the failure to do so would not have a material adverse effect on the
Company. The execution, delivery, and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such violation or be in material conflict with or constitute, with
or without the passage of time or giving of notice, either a material default
under any such provision or an event that results in the creation of any
material lien, charge, or encumbrance upon any assets of the
8
<PAGE> 12
Company or the suspension, revocation, impairment, forfeiture, or non-renewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations, or any of its assets or properties.
(i) No representation or warranty of the Company contained in this
Agreement or any other such document furnished to the Subscriber by or on behalf
of the Company, including without limitation, the SEC Filings contains an untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading. The SEC Filings conformed in all material respects as
of the date each was filed with the SEC to the disclosure requirements
applicable to such filing.
(j) The Company has filed the required federal, state and local tax
returns required of it and has paid all material taxes shown on such returns as
they become due. No claim has been assessed and is unpaid with respect to such
taxes.
(k) Except as described in the SEC filings, there is no action or
proceeding pending or, to the knowledge of the Company, currently threatened
against the Company in any court or before any arbitration panel or before or by
any federal, state or other governmental department or agency which may
substantially affect the validity of this Agreement or the right of the Company
to enter into it, or to consummate the transactions contemplated hereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company.
(l) The Company owns its property and assets free and clear of all
mortgages, liens, claims, and encumbrances other than liens arising by operation
of law which do not affect the Company's use of such property and assets. With
respect to the property and assets it leases, the Company is in compliance with
such leases and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims, or encumbrances.
(m) Except as otherwise disclosed in the audited financial
statements at and for the year ended August 31, 1996, or the audited financial
statements at December 31, 1996, and for the four-month period then ended,
copies of which have been previously delivered by the Company to the Subscriber
(the "Financial Statements"), since December 31, 1996 there has not been (i) any
changes in the assets, liabilities, financial condition or operations of the
Company from that reflected in the Financial Statements except changes in the
ordinary course of business which have not been, either in any individual case
or in the aggregate, materially adverse; (ii) any material change, except in the
ordinary course of business, in the contingent obligations of the Company,
whether by way of guaranty, endorsement, indemnity, warranty or otherwise; (iii)
any damage, destruction or loss, whether or not covered by insurance, materially
and adversely affecting the properties or business of the Company; (iv) any
declaration or payment of a dividend or other distribution of the assets
9
<PAGE> 13
of the Company; or (v) to the best of the Company's knowledge, any other event
or condition of any character which materially and adversely affected the
Company's assets, liabilities, financial condition or operations.
(n) The foregoing representations, warranties and agreements shall
survive the execution of this Agreement.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Registration
(a) The Company shall use its best efforts to effect the
registration under the Securities Act of the Warrant Shares prior to September
30, 1998 to the extent required to permit the disposition (in accordance with
the intended methods as specified in writing by the Subscriber at any time prior
to September 30, 1998) of the Warrant Shares; provided, however, that the
Company shall not be required to maintain the effectiveness of such registration
at any time when an exemption from registration is otherwise available to the
Subscriber affording the Subscriber the right to dispose of the Warrant Shares.
Any registration requested pursuant to this Section 4.1 shall be effected by the
filing of a registration statement on Form S-1, S-2 or S-3 (or any other form
that includes substantially the same information as would be required to be
included in a registration statement on such forms as presently constituted,
other than a registration statement relating to offers to employees pursuant to
plans or of securities to be issued in business combinations).
4.2 [Intentionally Omitted]
4.3 Precedence of Registration Rights.
The Subscriber and the Company agree that the registration rights contained
in this Article IV are in addition to any and all registration rights which
Subscriber is entitled to under any other agreement with the Company.
4.4 Registration Procedures.
(a) If, whenever and to the extent that the Company is required to
use its best efforts to register shares of Common Stock pursuant to this Article
IV, the Company shall as promptly as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such shares, and cause such registration statement to comply as
to form and content
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<PAGE> 14
in all material respects with the SEC's forms, rules and regulations and use its
reasonable best efforts to cause such registration statement to become
effective;
(ii) 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 and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until such
time as all of such shares have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement;
(iii) Furnish to the Subscriber such number of conformed copies
of such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits, except that the Company shall not be
obligated to furnish the Subscriber with more than three copies of such
exhibits), and such number of copies of the prospectus that is a part of such
registration statement (including each preliminary prospectus and any summary
prospectus), as the Subscriber may reasonably request in order to facilitate the
disposition of the Warrants Shares;
(iv) Use its best efforts to register or qualify the Warrant
Shares for sale under the securities or blue sky laws of such jurisdictions in
the United States as the Subscriber shall reasonably request in writing, and to
keep such registration or qualification in effect for so long as the period of
distribution contemplated thereby, and do any and all other acts and things
which may be necessary or advisable to enable the disposition in such
jurisdictions of the Warrant Shares, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;
(v) [Intentionally Omitted];
(vi) Notify the Subscriber, at any time when a prospectus
relating to a registration statement 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, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the request
of the Subscriber prepare and furnish to the Subscriber a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
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<PAGE> 15
(vii) Use its best efforts to list the Warrant Shares so
registered on any securities exchange (including NASDAQ) on which the Common
Stock of the Company is then listed, if such shares are not already so listed
and if such listing is then permitted under the rules of such exchange; and
(viii) Make available for inspection by the Subscriber, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by 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 the Subscriber,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(b) Required Actions by the Subscriber. In connection with the
registration of Warrant Shares pursuant to this Article IV, the Subscriber
hereby agrees as follows:
(i) the Subscriber shall cooperate with the Company and any
underwriters to facilitate the timely preparation and filing of the registration
statement, and for so long as the Company is obligated to file and keep
effective the registration statement, shall provide to the Company, in writing,
for use in the registration statement, all such information regarding the
Subscriber and their plan of distribution of the Warrant Shares as may be
necessary to enable the Company to prepare the registration statement and
prospectus covering such Warrant Shares, to maintain the currency and
effectiveness thereof and otherwise to comply with all applicable requirements
of law in connection therewith;
(ii) the Subscriber shall timely complete and execute all
questionnaires, powers of attorney, indemnities, hold-back agreements,
underwriting agreements and other documents required under the terms of any
underwriting arrangements or by the SEC or by any state securities regulatory
body;
(iii) during such time as the Subscriber may be engaged in a
distribution of Warrant Shares registered pursuant to this Article IV, the
Subscriber shall comply with Regulation M promulgated under the Exchange Act
(the "Rules"), to the extent applicable, and pursuant thereto it shall, among
other things: (w) not engage in any stabilization activity in connection with
the securities in contravention of the Rules; (x) distribute the shares solely
in the manner described in the registration statement; (y) cause to be furnished
to each broker through whom the shares may be offered, if any, or to the offeree
if an offer is not made through a broker, such copies of the prospectus and any
amendment or supplement thereto and documents incorporated by reference therein
as may be required by law; and (z) not bid for or purchase any securities of the
Company or attempt to induce any person to purchase any securities of the
Company other than as permitted under the Exchange Act;
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<PAGE> 16
(iv) upon receipt of a notice from the Company, promptly
discontinue any distribution of shares until notified by the Company that the
distribution of shares may re-commence;
(v) upon written notice from the Company that the Company
intends to proceed with a distribution of any of its shares and that in
connection therewith it requires the suspension by the Subscriber of the
distribution of its shares, to cease distributing such shares until such time as
the distribution by the Company has been completed; and
(vi) at least five (5) days prior to any distribution of
registered shares other than in an underwritten offering, the Subscriber will
(y) advise the Company in writing of the dates on which the distribution will
commence and terminate, the number of the shares to be sold and the terms and
the manner of sale; and (z) inform the Company and any broker/dealers through
whom sales of the shares may be made when each distribution of such shares is
completed.
(c) Registration Expenses. The registration expenses incurred in
connection with any registration pursuant to this Article IV shall be paid in
full by the Company except that the Subscriber shall pay its own legal expenses
and all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of any Warrant Shares owned by the
Subscriber and sold pursuant to a registration statement effected pursuant to
this Article IV.
(d) Postponement. The Company shall be entitled to postpone the
filing of a registration statement otherwise required to be prepared and filed
by it pursuant to Section 4.1, for a reasonable period of time not to exceed (x)
with respect to clause (i) of this sentence, the date which is five (5) days
after the filing with the SEC of the Company's next regularly required quarterly
or annual report and (y) with respect to clauses (ii) and (iii) of this
sentence, 60 days, if, at the time it receives a registration request from
Subscriber, (i) such registration would require the public disclosure of
material non-public information concerning any transaction or negotiations
involving the Company or any affiliate (as defined in Rule 12b-2 under the
Exchange Act) that, in the opinion of counsel to the Company, is not yet
required to be publicly disclosed and the Board of Directors of the Company, in
good faith, determines that such disclosure would materially interfere with such
transaction or negotiations, (ii) such registration would interfere, in the good
faith judgment of the Board of Directors, with bona fide financing plans of the
Company or would otherwise require premature disclosure of information which
would adversely affect or otherwise be detrimental to the Company, or (iii) the
Company proposes to file a registration statement under the Securities Act for
the offering and sale of securities for its own account in an underwritten
offering and the managing underwriter therefor shall advise the Company in
writing that in its opinion the filing or effectuation of a registration
requested pursuant to Section 4.1 herein would materially adversely affect the
success of the offering of the securities proposed to be registered for the
account of the Company.
13
<PAGE> 17
(e) Holdback Agreements. If any registration of Shares pursuant to
this Article IV shall be in connection with an underwritten public offering, the
Subscriber agrees not to effect any public sale or distribution, including any
sale under Rule 144 of any shares of Common Stock or any other security
convertible into or exchangeable or exercisable for any shares of Common Stock
(in each case, other than as part of such underwritten public offering) during
the ten (10) days prior to, and during the 90-day period (or such longer period
as any underwriter may reasonably request) beginning on, the effective date of
the related registration statement. The Company may impose stop-transfer
instructions with respect to the shares subject to the foregoing restrictions
during such period.
(f) Term. The indemnification obligations contained in subsections
(g) and (h) shall survive for the period of the statute of limitations with
respect thereto.
(g) Indemnification. Each of the Subscriber and the Company agree to
indemnify the other in connection with any registration effected pursuant to
this Article IV as follows:
(i) To the extent permitted by law, the Company will indemnify
the Subscriber, its officers, directors, employees, subcontractors, consultants,
agents, legal counsel, and accountants and each underwriter, broker or dealer,
if any, of the Company's securities covered by such a registration statement,
and each person who controls the Subscriber or such underwriter, broker or
dealer within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages, and liabilities (or actions, proceedings, or
settlements in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular, or other document (including any related registration
statement, notification, or the like) incident to any such registration,
qualification, or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, the Exchange Act or any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse the Subscriber and its officers, directors, employees, subcontractors,
consultants, agents, legal counsel, and accountants, each such underwriter,
broker or dealer, and each person who controls the Subscriber or such
underwriter, for any legal and other expenses reasonably incurred in connection
with investigating and defending or settling any such claim, loss, damage,
liability, or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability, or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by or on behalf of the Subscriber or such
underwriter, broker or dealer and stated to be specifically for use therein or
any failure by the Subscriber or such underwriter, broker or dealer to deliver a
final prospectus or supplement or amendment correcting earlier documents. It is
agreed that the indemnity agreement contained in this Article IV shall not apply
to amounts paid in settlement
14
<PAGE> 18
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company.
(ii) To the extent permitted by law, the Subscriber will
indemnify the Company, each of its officers, directors, partners, employees,
subcontractors, consultants, agents, legal counsel, and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, and each person who controls the Company or such underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages, and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, each of its officers, directors, partners, employees,
subcontractors, consultants, agents, legal counsel, and accountants, each such
underwriter, and each such control person, for any legal and other expenses
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Subscriber; provided, however, that the Subscriber will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in strict
conformity with information pertaining to the Subscriber, as such, furnished in
writing to the Company by the Subscriber stated to be specifically for use in
such registration statement and prospectus; provided, further, however, that the
liability of the Subscriber hereunder shall be limited to the proportion that
the public offering price of the Warrant Shares sold by the Subscriber under
such registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds received
by the Subscriber from the sale of the Warrant Shares covered by such
registration statement; and provided, further, however, that the obligations of
the Subscriber hereunder shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Subscriber.
(iii) If the indemnification provided for in Section 4.5(g) is
held by a court of competent jurisdiction to be unavailable to the party seeking
such indemnification (the "Indemnified Party") with respect to any loss,
liability, claim, damage, or expense referred to therein, then the party which
is required to provide indemnification pursuant to Section 4.5(g) (the
"Indemnifying Party") in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss,
15
<PAGE> 19
liability, claim, damage, or expense as well as any other relevant equitable
considerations, provided, however, that in any such case, (x) no such
Indemnifying Party will be required to contribute any amount in excess of the
public offering price of all shares offered by it pursuant to such registration
statement; and (y) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(iv) Notwithstanding the foregoing or Section 4.5(h) below, to
the extent that the provisions on indemnification contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(h) Indemnification Procedures. Each party entitled to
indemnification under Section 4.5(g) of this Agreement (the "Indemnified Party")
shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and (if the claim is made by a
third party) shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its indemnification obligations to
the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
(i) Delay of Registration. the Subscriber shall have no right to
take an action to restrain, enjoin or otherwise delay any registration as a
result of any controversy that might arise with respect to the interpretation or
implementation of this Article IV.
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<PAGE> 20
ARTICLE V
MISCELLANEOUS
5.1 Indemnity. Without prejudicing any other remedy available to the
parties at law or in equity and except as set forth in Article IV hereof, the
parties hereby covenant, immediately upon demand therefor, to indemnify, defend,
and hold each other (and their respective subsidiary, affiliated, or parent
entities, officers, directors, stockholders, attorneys, employees, agents, and
representatives) harmless from and against any and all costs, losses, damages,
penalties, fines, or expenses (including without limitation reasonable
attorneys' fees, court costs, and associated expenses) suffered, imposed upon,
or incurred by them in any manner arising out of, relating to, or in connection
with the following:
(a) any representation or warranty of either of the parties set
forth herein being untrue or incorrect in any material respect or the failure of
either of the parties to materially observe or timely and fully perform any of
their respective obligations hereunder;
(b) any material misrepresentation in or material omission from any
information provided by the parties to each other in connection with this
Agreement or the consummation of the transactions contemplated herein; and
(c) any expenses, claims, costs, or other liabilities or obligations
of any description whatsoever arising from or in any way connected with any
claim that may be brought against either party by a stockholder of that party.
5.2 Modification. Neither this Agreement nor any provisions hereof shall
be modified, discharged or terminated except by an instrument in writing signed
by the party against whom any waiver, change, discharge or termination is
sought.
5.3 Notices.
(a) Any notice, demand or other communication which any party hereto
may be required, or may elect, to give to anyone interested hereunder shall be
sufficiently given if (i) deposited, postage prepaid, in a United States mail
letter box, registered or certified mail, return receipt requested, addressed to
such address as may be given herein, or (ii) delivered personally at such
address.
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<PAGE> 21
(b) Addresses:
If to the Company to:
Precision Systems, Inc.
11800 30th Court North
St. Petersburg, Florida 33716
Facsimile: (813) 573-9193
Attn: President
If to Subscriber to the address set forth on the signature page
hereof.
5.4 Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
5.5 Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns. If the
Subscriber is more than one person, the obligation of the Subscriber shall be
joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and its heirs, executors, administrators and successors
5.6 Entire Agreement. This instrument contains the entire agreement of the
parties and there are no representations, covenants or other agreements except
as stated or referred to herein.
5.7 Assignability. This Agreement is not transferable or assignable by the
Subscriber.
5.8 Governing Law; Jurisdiction and Choice of Forum. Notwithstanding the
place where this Agreement may be executed by any of the parties hereto, the
parties expressly agree that all the terms and provisions hereof shall be
construed in accordance with and governed by the laws of the State of Delaware.
5.9 Pronouns. The use herein of the masculine pronouns "him" or "his" or
similar terms shall be deemed to include the feminine and neuter genders as well
and the use herein of the singular pronoun shall be deemed to include the plural
as well.
5.10 Severability. The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect.
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<PAGE> 22
5.11 Waiver. It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party
5.12 Further Assurances. The parties agree to execute and deliver all such
further documents agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
IN WITNESS WHEREOF, the Company and the Subscriber have executed this
Agreement as of the date first written above.
RMS LIMITED PARTNERSHIP, PRECISION SYSTEMS, INC.,
a Nevada limited partnership a Delaware Corporation
- ----------------------- -----------------------
By: By:
------------------- -------------------
Its: Its:
------------------- -------------------
Address:
50 West Liberty Street
Suite 650
Reno, Nevada 89501
19
<PAGE> 23
Exhibit A
Form of Note
[Attached]
<PAGE> 24
Exhibit B
Warrant Certificate
[Attached]
<PAGE> 25
Exhibit B-1
Loan Agreement
[Attached]
22
<PAGE> 26
Exhibit C
SEC Filings
The Company's Report on Form 10-K for the transition period ended December
31, 1996.
The Company's Report on Form 10-K for the fiscal year ended August 31,
1996.
The Company's Quarterly Report on Form 10-Q for the quarters ended March 31
and June 30, 1997.
The description of the Common Stock of the Company which is contained in
the Company's Registration Statement on Form 10 dated April 27, 1992,
amended by Form 8 on June 22, 1994, and July 24, 1994 and August 3, 1994.
<PAGE> 27
Exhibit D
RISK FACTORS
DEPENDENCE ON CERTAIN CUSTOMERS
Sales to MCI Telecommunications, Inc. accounted for approximately 45% and
6%, respectively of the Company's revenues for the year ended August 31, 1996
and the four months ended December 31, 1996. The loss of this customer could
have a material adverse effect on the Company's operations and financial
condition.
COMPETITION
The worldwide telecommunications industry is highly competitive. The
Company believes that the features and functionalities of its products coupled
with its distribution capability, system reliability, service, support, and
pricing, position the Company to compete in the telecommunications industry
worldwide. In addition, the Company is committed to ongoing research and
development (R&D) efforts and is dedicated to developing new products and
strengthening existing products. The Company views its extensive R&D efforts as
essential to maintaining a competitive position in the industry.
One of the most important competitive advantages for the Company is its
multi-application platform. It is the Company's view that the majority of
service providers purchasing enhanced services now consider it a necessity to
have the ability to run multiple applications on a single platform. If a service
provider introduces an enhanced service that does not deliver the expected
subscriber acceptance, it has the capability to add-on or replace the service
with a different application which can run on the same installed platform. A
multi-application platform diffuses the risk associated with the investment
required to run enhanced services. In addition, the Company's multi-application
platform enables a layered, open architecture design to support the most widely
used hardware solutions (including media servers, switches, voice response
units, and network standards).
In the United States, the manufacturing prohibition that precluded the
Regional Bell Operating Companies ("RBOCs") from manufacturing hardware and
software that provide voice processing services has been lifted. This allows the
RBOCs to compete against the Company for these products. It is the Company's
view that the RBOCs will focus their priorities on protecting their existing
customers and markets, moving into their competitors' markets, and introducing
new services. The Company believes that in order to introduce new services
competitively, the RBOCs will contract with companies, such as Precision
Systems, so as to eliminate the large capital investment, expertise, and time
necessary to develop these products. However, the Company could potentially be
competing with the RBOCs for provision of these types of services.
Internationally, it is the Company's view that the deregulation underway or
proposed in many countries will continue to increase the opportunities for
expansion of markets for the
<PAGE> 28
Company's products. The acquisition of Vicorp was a major factor in establishing
an international presence for the Company as Vicorp is a European-based company
that has an existing customer base and strong partner relationships. See
"International Operations."
The Company expects to continue to face substantial competition from
existing and new competitors including other companies with considerably greater
financial, technical, marketing and sales resources. The Company also
anticipates that a number of its competitors will be introducing new or enhanced
products during the next several years. Accordingly, other companies may succeed
in developing products earlier than the Company or developing products that are
more effective or less costly than those developed and introduced by the
Company.
VOLATILITY OF STOCK PRICE
Based on its trading history, the Company believes that the market for the
Company's Common Stock is highly volatile. Factors such as quarterly
fluctuations in operating results, announcements by the Company or its
competitors or technological innovations or product improvements, as well as
changes in general economic conditions and other factors, potentially affect the
market price of the Common Stock. The Company's three largest shareholders
("Large Shareholders"), Alta Investissements SA (2,808,427 shares of Common
Stock), Vulcan Ventures Incorporated (2,750,000 shares of Common Stock) and RMS
Limited Partnership (2,415,945 shares of Common Stock and 10,000 shares of
Series A Preferred Stock which are convertible into 1,218,487 shares of Common
Stock) own large blocks of the Company's Common Stock. RMS Limited Partnership
has exercised its "piggyback" registration rights with respect to 2,415,495
shares of Common Stock. The Company has caused the resale of those shares of
Common Stock to be registered under the Securities Act, which registration could
cause a large number of shares of Common Stock to be sold in the public market.
The Company is unable to predict the effect that sales by the Large Stockholders
may have on the then prevailing price of the Common Stock. However, such sales
may have an adverse effect on the market price for the Common Stock and could
impair the Company's ability to raise capital through an offering of its
securities. See "Shares Eligible for Future Sale."
KEY PERSONNEL AND MANAGEMENT OF GROWTH
The Company's success will depend upon the continued contributions of its
officers and key personnel, the loss of any of whom could materially adversely
affect the Company's operations. The Company's growth will depend upon its
ability to attract and retain skilled employees, particularly in sales and
research and development, and the ability of its officers and key employees to
successfully manage growth, to implement appropriate management information
systems and controls to assure timely delivery of the Company's products, and to
continue to refine its products and to develop new products which incorporate
advancements in technology. Any failure to do so could have a material adverse
effect on the Company's operations.
<PAGE> 29
BUSINESS-RELATED RISKS
The information set forth under the captions "Markets", "Competition" and
"Customers" in Part I of the Company's Annual Report on Form 10-K for the
transition period ended December 31, 1996, in addition to the other information
included therein, is hereby incorporated by reference herein.
INTERNATIONAL OPERATIONS
A significant portion of the Company's business is derived from
international markets, including major operations throughout Europe. Such
operations may be subject to various risks including governmental activities
that may limit or disrupt markets, restrict the movement of funds or result in
the deprivation of contract rights or the taking of property without fair
compensation. In certain countries, such operations may be subject to the
additional risk of fluctuating currency values and exchange controls. In the
international markets in which the Company operates, it is subject to various
laws and regulations with respect to the operation and taxation of its business,
the imposition, application and interpretation of which can prove to be
uncertain.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock. It is
currently contemplated that the Company will not pay cash dividends on its
Common Stock in the immediately foreseeable future. The payment and level of
cash dividends by the Company on its Common Stock are subject to the discretion
of the Board of Directors of the Company. Decisions regarding the payment of
dividends will be based upon a number of factors, including the operating
results and financial requirements of the Company. The Company's dividend policy
will be reviewed by the Board of Directors of the Company at such future times
as may be appropriate in light of relevant factors existing at such times.
TECHNOLOGICAL CHANGES
The market for the Company's products is subject to rapid technological
change, requiring a high level of expenditures by the Company for research and
development. Current competitors or new market entrants may introduce and
deliver new products or features that could adversely affect the competitive
position of the Company's systems in some or all of its markets. In order to
maintain its competitive position, the Company must continue to enhance its
existing products and to develop and market new products successfully, and there
is no assurance that the Company will be able to do so.
The Company releases performance enhancements and new features for its
products on an ongoing basis. Because of the increasing complexity of the
Company's products, these efforts have continued to increase in technical
difficulty. Products as complex as the Company's often contain undetected errors
or "bugs" when first released, which are discovered only after the product has
been used by different customers and in varying applications. Because of the
importance the Company places on product reliability, the
<PAGE> 30
Company has, from time to time, temporarily delayed product shipments to
complete "debugging" efforts. Moreover, rapid technology changes in the voice
and data communications industry may render the Company's technology obsolete at
any time, requiring the Company to react quickly to develop more sophisticated
and competitive technology and thereby increasing the possibility of design
errors. Identifying and correcting errors and making required design
modifications typically is costly, can be time consuming and be expected to
become more difficult as the Company's products increase in complexity. Despite
extensive testing, there can be no assurance that errors will not be discovered
in the future, causing delays in product introductions and shipments or
requiring design modifications which could adversely affect operating results.
LIMITED SOURCES OF SUPPLY
Although the Company generally uses standard parts and components in
assembling its products, certain of the processing boards used in the Enhanced
Services Platform ("ESP") platform are currently manufactured to the Company's
specifications by a single supplier. The Company is currently exploring the
availability of additional manufacturing capacity for these processing boards.
To date, the Company has been able to obtain adequate supplies of these
components in a timely manner from existing sources. However, delay or lack of
supply from existing sources or the inability to develop alternative sources if
and as required in the future could adversely affect the Company's operating
results.
MARKETING UNCERTAINTIES
The Company plans to expand its current efforts to market its product by
increasing the number of its direct sales personnel and by entering into
additional joint marketing arrangements with computer and telephone switch
manufacturers. The Company expects that, for 1997, it will substantially
increase its marketing efforts in the Asia/Pacific region in order to increase
its revenue opportunities. In the course of expanding its marketing efforts, the
Company may encounter many of the difficulties typically associated with such an
expansion, including problems in identifying and retaining qualified sales
personnel. While the Company believes that an expanded marketing effort will
contribute to an increase in sales, there can be no assurance that this increase
will occur or that any increase will be sufficient to offset increased costs of
marketing.
FUTURE OPERATING RESULTS, CASH FLOW AND QUARTERLY FLUCTUATIONS
Based on the fact that the Company acquired Vicorp N.V. and subsidiaries in
April, 1996 and BFD Productions in October, 1996 (both acquisitions accounted
for using the purchase method) and that the Company participates in a rapidly
changing technological market, the Company can give no assurance as to its
ability to generate revenue growth, profitability or positive cash flow on a
quarterly or annual basis. The Company's operating expenses are increasing as
the Company expands its operations, and operating results for 1997 will
potentially be adversely affected if revenues do not increase correspondingly.
Management is actively involved in discussions with several potential sources of
capital investment. The Company expects that with the recent acquisitions of
Vicorp N.V. and BFD
<PAGE> 31
Productions, Inc., its working capital requirements will increase significantly
over prior periods. The Company will be able to fund its operating and investing
activities through 1997 through the use of its current working capital,
including the collection of existing accounts receivables and the generation of
future revenue. In the event that such sources prove to be insufficient, the
Company may be required to seek additional debt or equity financing. However,
there is no assurance that any such efforts will result on additional capital
sources for the Company.
BUSINESS EXPANSION
The Company expects to engage in significant research and development and
to undertake marketing efforts in order to introduce new products and services.
There can be no assurances that such products and services can be developed or
marketed or that the sales of such products and services will be profitable to
the Company. In addition, the Company may attempt to acquire complementary
businesses which manufacture products or provide services in the industry. There
can be no assurances that acquisition candidates can be found, that acquisitions
can be consummated on favorable terms or that such acquisitions, if completed,
will be successful. Additionally, given the Company's acquisition of Vicorp N.V.
and its large presence in international markets, regulatory, monetary, and
inflationary factors can potentially negatively impact the Company's operations
in the future.
SHARES ELIGIBLE FOR FUTURE SALE
Subject to certain limitations, Vulcan Ventures Incorporated ("Vulcan") is
entitled to request the registration of the greater of 750,000 shares of Common
Stock or 10% of the number of outstanding shares of Common Stock and to
"piggyback" on registrations effected by the Company. Vulcan owns 2,750,000
shares of Common Stock. Additionally, Alta Investissements SA has certain demand
and "piggyback" registration rights with respect to its 2,808,427 shares of
Common Stock. By exercising their registration rights, subject to certain
conditions, such holders could cause a large number of shares of Common Stock to
be sold in the public market. The Company is unable to predict the effect that
sales by such holders may have on the then prevailing price of the Common Stock.
However, such sales may have an adverse effect on the market price for the
Common Stock. See "Volatility of Stock Price."
LITIGATION
The Company is subject to certain legal proceedings in the ordinary course
of business (see Item 3 - "Legal Proceedings" of the Company's December 31, 1996
Form 10-K). After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that their final resolution will not have
a significant adverse effect upon the Company's business or its consolidated
financial statements, although there can be no assurance given of the ultimate
outcome of any of such litigation.
The Company operates in an industry with increased risk of litigation
resulting from aggressive prosecution of intellectual property claims. This
litigation uncertainty could
<PAGE> 32
potentially postpone, delay or eliminate potential sales opportunities and,
therefore, affect the Company's operations.
PRODUCT PROTECTION
The Company relies on a combination of trade secrets and copyright laws,
patents, licenses, non-disclosure agreements, and technical measures to protect
its rights in its products. However, there can be no assurance that these
measures will fully protect the Company from the wrongful disclosure or
misappropriation of its proprietary information.
PATENTS AND LICENSES
The Company has obtained a patent for certain elements of the ESP platform.
There can be no assurance, however, that the Company's intellectual property
protection will be sufficient to prevent competitors from developing similar
technology. The Company currently licenses certain technology from third parties
and plans to do so in the future. Although the Company is not aware of any
infringement by its products or patent on any patent owned by any third party,
if such infringement were to exist, it could have a material adverse effect on
the Company. The Company believes that any additional licenses or other rights
to products or features under patents or copyrights of others could be obtained
under conditions that would not have a material adverse effect on the Company;
however, there can be no assurance of this.
FIXED PRICE CONTRACTS
The Company negotiates certain of its customer contracts under fixed-price
terms. The Company expends significant effort to analyze the requirements of
such opportunity in order to minimize any potential cost over-runs above the
contract value. However, there an be no assurance that such measures will fully
protect the Company against material losses on these fixed-price contracts.
<PAGE> 1
EXHIBIT C
WARRANT TO PURCHASE COMMON STOCK
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. These securities have been
acquired for the account of the holders and not with a view to distribution, and
may not be sold, transferred, pledged or hypothecated in the absence of an
effective registration statement for such securities under the Securities Act of
1933, as amended, or an opinion of counsel delivered to the Company that
registration is not required under such Act.
PRECISION SYSTEMS, INC.,
A DELAWARE CORPORATION
WARRANT CERTIFICATE
Dated as of September 30, 1997 (the "Issue Date")
Warrant to Purchase Common Stock
Precision Systems, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received and pursuant to the terms and conditions of
that certain subscription agreement dated as of September 30, 1997 between the
Company and RMS Limited Partnership, a Nevada limited partnership (the
"Subscription Agreement"), RMS Limited Partnership or its permitted assigns (the
"Holder") is the registered owner of a warrant to purchase common stock of the
Company (the "Warrant"). The Warrant will entitle the Holder to purchase two
hundred seventy-five thousand (275,000) shares, as adjusted from time to time as
provided in Section 8 hereof, of the common stock, $.01 par value per share, of
the Company (the "Common Stock"). Shares of Common Stock issuable upon exercise
of the Warrant shall be referred to as Warrant Shares and each such share shall
be a Warrant Share. The Warrant may be exercised during the period of time set
forth in Section 3(a) and on or before the sixth anniversary of the date hereof
(the "Expiration Date"), all subject to the following terms and conditions. The
Warrant shall have an exercise price of $4.00 per share (the "Exercise Price").
The Exercise Price for the Warrant shall be subject to adjustment from time to
time as provided in Section 8 hereof.
Section 1. Registration. The Company shall register the Warrant, upon
records to be maintained by the Company for that purpose, in the name of the
Holder. The Company
<PAGE> 2
may deem and treat the Holder as the absolute owner thereof for the purpose of
any exercise thereof or any distribution to the holder thereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
THE WARRANT MAY NOT BE ASSIGNED, TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED
OR OTHERWISE ENCUMBERED BY THE HOLDER THEREOF WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY; PROVIDED, HOWEVER, THAT THE WARRANT MAY BE TRANSFERRED TO AN
AFFILIATE OF THE REGISTERED HOLDER WITHOUT THE WRITTEN CONSENT OF THE COMPANY.
AN "AFFILIATE" OF ANY PERSON OR ENTITY MEANS ANY OTHER PERSON OR ENTITY DIRECTLY
OR INDIRECTLY CONTROLLING, CONTROLLED BY OR UNDER DIRECT OR INDIRECT COMMON
CONTROL WITH SUCH PERSON OR ENTITY.
Section 2. Registration of Transfers and Exchanges.
(a) Transfer of Warrant. The Company shall register a transfer of the
Warrant permitted pursuant to Section 1 hereof upon records to be maintained by
the Company for that purpose, upon surrender of this Warrant Certificate, with a
form of assignment approved by the Company, to the Company at the office
specified in or pursuant to Section 11. Upon any such registration of transfer,
a new Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the Warrant so transferred shall be issued to the
transferee and a new Warrant Certificate, in similar form, evidencing the
remaining Warrants not so transferred, if any, shall be issued to the then
registered holder thereof.
(b) Warrant Exchangeable for Different Denominations. This Warrant
Certificate is exchangeable, upon the surrender hereof by the holder hereof at
the office of the Company specified in or pursuant to Section 3(c) hereof, for
new Warrant Certificates, in substantially the form of this Warrant Certificate,
evidencing in the aggregate the right to purchase the number of Warrant Shares
which may then be purchased hereunder, each of such new Warrant Certificates to
be dated the date of such exchange and to represent the right to purchase such
number of Warrant Shares as shall be designated by said holder hereof at the
time of such surrender.
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<PAGE> 3
Section 3. Duration and Exercise of Warrant.
(a) The Warrant shall be exercisable by the Holder thereof on any
business day during the five (5) year period commencing on the first anniversary
of the Issue Date through and including the sixth anniversary of the Issue Date
(the "Expiration Date"). At 5:00 P.M., St. Petersburg, Florida time, on the
Expiration Date, the Warrant shall be and become void and of no value to the
extent not exercised prior to such time.
(b) Subject to the provisions of this Warrant Certificate, including
adjustments to the number of Warrant Shares issuable on the exercise of the
Warrant and to the Exercise Price pursuant to Section 8 hereof, the Holder on or
prior to the Expiration Date shall have the right to purchase from the Company
(and the Company shall be obligated to issue and sell to such Holder) upon
payment of the applicable Exercise Price for each Warrant Share to be so
purchased, fully paid Warrant Shares which shall be non-assessable; provided,
however, that the Exercise Price for Warrant Shares issuable upon exercise of
such Warrant shall have been paid by the Holder of such Warrant.
(c) Subject to Sections 5, 10, and 11 hereof, upon surrender of this
Warrant Certificate, with the Form of Election to Purchase attached hereto duly
filled in and signed, to the Company at its office at 11800 30th Court North,
St. Petersburg, Florida 33716, or at such other address as the Company may
specify in writing to the Holder and upon payment of the applicable Exercise
Price multiplied by the number of Warrant Shares then issuable upon exercise of
the Warrant being exercised in lawful money of the United States of America, all
as specified by the holder of the Warrant Certificate in the form of Election to
Purchase, the Company shall promptly, but in no event later than 20 days after
the date of exercise, issue and cause to be delivered to the Holder, and in the
name of the Holder, a certificate for the Warrant Shares issued upon such
exercise of such Warrant. The "Date of Exercise" of the Warrant means the date
on which the Company shall have received (i) the Warrant Certificate, with the
Form of Election to Purchase attached hereto appropriately filled in and duly
signed, and (ii) payment of the applicable Exercise Price for such Warrant.
(d) The Warrant evidenced by this Warrant Certificate shall be
exercisable, either as an entirety or, from time to time, in accordance with the
terms hereof for part only of the number of Warrant Shares the Holder is
entitled to purchase pursuant to this Warrant Certificate. If less than all of
the Warrant Shares evidenced by this Warrant Certificate are exercised at any
time, the Company shall issue, at its expense, a new Warrant Certificate, in
substantially the form of this Warrant Certificate, for the remaining number of
Warrant Shares evidenced by this Warrant Certificate.
3
<PAGE> 4
Section 4. [Intentionally Omitted]
Section 5. Payment of Taxes. The Company will pay all taxes attributable to
the issuance of the Warrant and the Warrant Shares; provided, however, that the
Company shall not be required to pay any tax in respect of the issuance or
delivery of certificates for Warrant Shares or other securities in respect of
the Warrant Shares upon the exercise of the Warrant.
Section 6. Mutilated or Missing Warrant Certificate. If this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, upon request by the
Holder the Company will issue, in exchange for and upon cancellation of the
mutilated Warrant Certificate, or in substitution for the lost, stolen or
destroyed Warrant Certificate, a new Warrant Certificate, in substantially the
form of this Warrant Certificate, of like tenor and representing the equivalent
number of Warrant Shares but, in the case of loss, theft or destruction, only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of this Warrant Certificate and, if requested by the
Company, indemnity also reasonably satisfactory to it.
Section 7. Reservation, Listing and Issuance of Warrant Shares. (a) The
Company will at all times have authorized, and reserve and keep available, free
from preemptive rights, for the purpose of enabling it to satisfy any obligation
to issue shares of Common Stock upon the exercise of the Warrant, the number of
shares of Common Stock deliverable upon exercise of the Warrant. The Company
will, at its expense, use its best efforts to cause such shares of Common Stock
issuable upon exercise of the Warrant to be listed (subject to issuance or
notice of issuance of Warrant Shares) on all stock exchanges on which the Common
Stock is listed not later than September 30, 1998 (the "Lapse Date") or the date
on which the Common Stock is first listed on any such exchange, whichever is
later.
(b) Before taking any action which could cause an adjustment pursuant
to Section 8 hereof reducing the Exercise Price below the then par value (if
any) of the Warrant Shares, the Company will take any corporate action which may
be necessary in order that the Company may validly and legally issue at the
Exercise Price as so adjusted Warrant Shares that are fully paid and
non-assessable.
(c) The Company covenants that all shares of Common Stock issuable
upon exercise of the Warrant will, upon issuance in accordance with the terms of
this Warrant Certificate, be (i) duly authorized, fully paid and non-assessable
and (ii) free from
4
<PAGE> 5
all taxes with respect to the issuance thereof and from all liens, charges and
security interests created by the Company.
Section 8. Adjustments of Price and Number of Warrant Shares.
(a) The Exercise Price of the Warrant shall be subject to adjustment
from time to time as hereinafter provided. Upon each adjustment of such Exercise
Price pursuant to subsection (b), (c), (d) or (e) of this Section 8, the Holder
shall thereafter, prior to the Expiration Date and subject to the limitations on
exercise set forth in this Warrant Certificate, be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the applicable Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares issuable upon exercise
of such Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(b) Adjustment of Price upon Issuance of Common Stock. If and
whenever after the Lapse Date and prior to the Expiration Date the Company shall
issue or sell any shares of Common Stock for a consideration per share less than
the Exercise Price of the Warrant in effect immediately prior to the time of
such issue or sale, the Exercise Price for each such Warrant shall be reduced to
the price (calculated to the nearest cent) determined by dividing (A) an amount
equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing Exercise
Price for such Warrant, and (2) the consideration, if any, received by the
Company upon such issue or sale, by (B) the total number of shares of Common
Stock outstanding immediately after such issue or sale. No adjustment of any
Exercise Price, however, shall be made in an amount less than $.01 per share,
but any such lesser adjustment shall be carried forward and shall be made at the
time of, and together with, the next subsequent adjustment which together with
any adjustment so carried forward shall amount to $.01 per share or more.
(c) For the purposes of subsection (b) of this Section, the following
clauses shall also be applicable:
(i) Issuance of Rights or Options. In case at any time
following the Lapse Date the Company shall grant any rights (other
than the Warrant) to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or securities convertible into or
exchangeable for Common Stock (such convertible or exchangeable stock or
securities being herein called "Convertible Securities") whether or not
such rights or
5
<PAGE> 6
options or the right to convert or exchange any such Convertible Securities
are immediately exercisable, and the price per share for which Common Stock
issuable upon the exchange of such right or options or upon conversion or
exchange of such Convertible Securities (determined as provided below)
shall be less than the then applicable Exercise Price of the Warrant in
effect immediately prior to the time of the granting of such rights or
options then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon
the exercise of such rights or options shall (as of the date of granting of
such rights or options) be deemed to be outstanding and to have issued for
such price per share. Except as provided in clause (iii) of this
subsection, no further adjustment of the Exercise Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such rights or options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
For the purposes of this clause (i), the price per share for which Common
Stock issuable upon the exercise of any such rights or options or upon
conversion or exchange of any such Convertible Securities shall be
determined by dividing (A) the total amount, if any, received or receivable
by the Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable to
the Company upon the exercise of all such rights or options, plus, in the
case of such rights or options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such rights or options.
(ii) Issuance of Convertible Securities. In case the Company
shall issue or sell any Convertible Securities after the Lapse Date,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable
upon conversion or exchange of such Convertible Securities (determined as
provided below) shall be less than the Exercise Price for the Warrant in
effect immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the date of the
issue
6
<PAGE> 7
or sale of such Convertible Securities) be deemed to be outstanding and to
have been issued for such price per share, provided that (1) except as
provided in clause (iii) of this subsection, no further adjustments of any
Exercise Price shall be made upon the actual issue of such Common Stock or
upon conversion or exchange of such Convertible Securities, and (2) if any
such issue or sale of such Convertible Securities is made upon exercise of
any rights to subscribe for or to purchase or any option to purchase any
such Convertible Securities for which adjustments of any Exercise Price
have been or are to be made pursuant to the provisions of this subsection
(c), no further adjustment of any Exercise Price shall be made by reason of
such issue or sale. For the purposes of this clause (ii), the price per
share for which Common Stock is issuable upon conversion or exchange of
Convertible Securities shall be determined by dividing (A) the total amount
received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any rights or options referred to in clause (i)
above, or the additional consideration, if any, payable upon the conversion
or exchange of Convertible Securities referred to in clause (i) or (ii)
above, or the rate at which any Convertible Securities referred to in
clause (i) or (ii) above are convertible into or exchangeable for Common
Stock, shall change at any time following the Lapse Date (other than under
or by reason of provisions designed to protect against dilution), then the
Exercise Price for the Warrant in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would have been in
effect at such time had such rights, options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold; and on the expiration of any such option or right
or the termination of any such right to convert or exchange such
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be increased to the Exercise Price which would have been in
effect at the time of such expiration or termination had such right, option
or Convertible Securities, to the extent outstanding, immediately prior to
such expiration or termination never been issued, and
7
<PAGE> 8
the Common Stock issuable thereunder shall no longer be deemed to be
outstanding. If the purchase price provided for in any such right or
option referred to in clause (i) above or the rate at which any Convertible
Securities referred to in clause (i) or (ii) above are convertible into or
exchangeable for Common Stock, shall decrease at any time under or by
reasons of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of
any such right or option or upon conversion or exchange of any such
Convertible Security, the Exercise Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained
had such right, option or Convertible Security never been issued as to such
Common Stock and had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Exercise Price then in effect hereunder is thereby
decreased.
(iv) Stock Dividends. In case the Company shall declare a
dividend or make any other distribution upon any stock of the Company
payable in Common Stock or Convertible Securities, any Common Stock or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
(v) Consideration for Stock. In case any share of Common
Stock or Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be deemed to be the fair value of such
consideration as determined, in good faith and in the exercise of
reasonable business judgment, by the board of directors of the Company,
without deduction of any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights or
options to purchase such shares of Common Stock or Convertible Securities
8
<PAGE> 9
shall be issued in connection with any merger or consolidation in which the
Company is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of the
Company shall be changed into or exchanged for the stock or other
securities of another corporation), the amount of consideration therefor
shall be deemed to be the fair value as determined reasonably and in good
faith by the board of directors of the Company of such portion of the
assets and business of the non-surviving corporation as such board may
determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or options, as the case may be.
(vi) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(vii) Treasury Shares and Option or Conversion Shares. The
number of shares of Common Stock outstanding at any given time shall
not include shares owned or held by or for the account of the Company, and
the disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this subsection (c). For the purposes of
subsection (b), the number of shares of Common Stock outstanding at any
given time shall include all shares of Common Stock issuable upon the
exercise of any right or option to purchase Common Stock exercisable as of
the date of such determination and shares of Common Stock issuable upon the
exercise of conversion or exchange rights of any Convertible Securities the
holders of which have the right to exercise such conversion or exchange
rights as of the date of such determination.
(x) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment
of the Exercise Price of the Warrant in case of the issuance of shares of
Common Stock upon the exercise of options or rights granted or provided or
to be granted or provided under employee benefit plans or stock
9
<PAGE> 10
option plans established for the benefit of employees, consultants or
members of the board of directors of the Company currently in effect or
adopted by the Company after the Issue Date with the approval of the board
of directors of the Company, and shall not be required to make any such
adjustment upon the granting of any options or rights referred to above if
and to the extent that issuance of the shares covered thereby is excepted
by this clause. The Company shall not be required to make any adjustment of
any Exercise Price in the case of the issuance of shares of Common Stock
upon the exercise of any conversion rights by holders of any Convertible
Securities outstanding on the Issue Date including any Series A Preferred
Stock or Series B Preferred Stock of the Company. The Company shall not be
required to make any adjustment of any Exercise Price in the case of the
issuance of any securities of the Company on or prior to the Lapse Date or
upon the issuance of shares of Common Stock upon the exercise of any
conversion rights by holders of any Convertible Securities issued on or
prior to the Lapse Date. The Company shall not be required to make any
adjustment of any Exercise Price in the case of the sale and issuance of
Common Stock upon the exercise of the Warrant or upon conversion of any
share of the Company's Series A Preferred Stock, Series B Preferred Stock
or any security of the Company into which the Series B Preferred Stock may
be converted.
(d) Adjustment for Certain Special Dividends. In case the Company
shall declare a dividend upon the Common Stock payable otherwise than out of
earnings or earned surplus, determined in accordance with generally accepted
accounting principles, and otherwise than in Common Stock or Convertible
Securities, the Exercise Price in effect immediately prior to the declaration of
such dividend shall be reduced by an amount equal, in the case of a dividend in
cash, to the amount per share of the Common Stock so declared as payable
otherwise than out of earnings or earned surplus, as determined, reasonably and
in good faith, by the board of directors of the Company. For the purposes of the
foregoing a dividend other than in cash shall be considered payable out of
earnings or earned surplus (other than reevaluation of paid-in-surplus) only to
the extent that such earnings or earned surplus are charged an amount equal to
the fair value of such dividend as determined, reasonably and in good faith, by
the board of directors of the Company. Such reductions shall take effect as of
the date on which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of Common Stock of record
entitled to such dividend are determined.
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(e) Subdivisions or Combination of Stock. In case the Company shall
at any time subdivide the outstanding shares of Common Stock into a greater
number of shares, the numbers of shares of Common Stock purchasable shall be
proportionately increased and the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased, and the number of shares of Common Stock
purchasable shall be proportionately reduced.
(f) Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company (i) consolidates with or merges into
any other corporation and is not the continuing or surviving corporation of such
consolidation or merger, or (ii) permits any other corporation to consolidate
with or merge into the Company and the Company is the continuing or surviving
corporation but, in connection with such consolidation or merger, the Common
Stock is changed into or exchanged for stock or other securities of any other
corporation or cash or any other assets, or (iii) transfers all or substantially
all of its properties and assets to any other corporation, or (iv) effects a
capital reorganization or reclassification of the capital stock of the Company
in such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or assets with respect to or in exchange for Common Stock,
then, and in each such case, proper provision shall be made so that, upon the
basis and upon the terms and in the manner provided in this subsection (f), the
holder of this Warrant Certificate, upon the exercise of the Warrant at any time
after the consummation of such consolidation, merger, transfer, reorganization
or reclassification, shall be entitled to receive (at the aggregate Exercise
Price in effect for all shares of Common Stock issuable upon such exercise of
such Warrant immediately prior to such consummation as adjusted to the time of
such transaction), in lieu of shares of Common Stock issuable upon such exercise
prior to such consummation, the stock and other securities, cash and assets to
which such holder would have been entitled upon such consummation if such holder
had so exercised such Warrant immediately prior thereto (subject to adjustments
subsequent to such corporate action as nearly equivalent as possible to the
adjustments provided for in this Section 8).
(g) Notice of Adjustment. Upon any adjustment of any Exercise Price,
then and in each such case the Company shall promptly deliver a notice to the
registered holder of the Warrant, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of each Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based and evidence of the approval of the Company's
independent public accountants.
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(h) Other Notices. In case at any time:
(i) The Company shall declare any cash dividend on its Common
Stock;
(ii) The Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(iii) The Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(iv) The Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or assets
(other than cash dividends or cash distributions payable out of earnings or
earned surplus or dividends payable in Common Stock);
(v) There shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another corporation (other than a subsidiary of
the Company in which the Company is the surviving or continuing corporation
and no change occurs in the Company's Common Stock), or sale of all or
substantially all of its assets to, another corporation;
(vi) There shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or
winding up of the Company; or
(vii) The Company proposes to take any other action or an event
occurs which would require an adjustment of the Exercise Price pursuant to
subsection (i) of this Section 8;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the Holder at the address of such Holder as shown on the books of
the Company, or (1) the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights, or
(2) the date (or, if not then known, a reasonable approximation thereof by the
Company) on which such reorganization reclassification, consolidation, merger,
sale, dissolution, liquidation, bankruptcy,
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assignment for the benefit of creditors, winding up or other action, as the case
may be, shall take place. Such notice shall also specify (or if not then known,
reasonably approximate) the date as of which the Holders of Common Stock of
record shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit
of creditors, winding up, or other action, as the case may be. Such written
notice shall be given at least twenty days prior to the action in question and
not less than twenty days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto.
Section 9. No Stock Rights. The Holder as such, shall not be entitled to
vote or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof, nor shall
anything contained herein be construed to confer upon the Holder the rights of a
stockholder of the Company or the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or give or
withhold consent to any corporate action or to receive notice of meetings or
other actions affecting stockholders (except as provided herein), or the right
to receive dividends or subscription rights or otherwise, until the Date of
Exercise of Warrant shall have occurred.
Section 10. Fractional Warrant and Fractional Warrant Shares.
(a) The Company shall be required to issue fractions of Warrants and
to distribute Warrant Certificates which evidence fractional Warrants.
(b) The Company shall not be required to issue fractions of Warrant
Shares upon exercise of the Warrant or to distribute certificates which evidence
fractional Warrant Shares. If any fraction of a Warrant Share would, except for
the provisions of this Section 10(b), be issuable on the exercise of the Warrant
(or specified portion thereof), the Company shall pay to the holder an amount in
cash equal to the Current Market Price for one share of Common Stock on the
trading day immediately preceding the date the Warrant is presented for
exercise, multiplied by such fraction. The Current Market Price of a share of
Common Stock on any day means that the last reported sale price (or, if no sale
price is reported, the average of the high and low bid prices) of the Common
Stock of the Company on such day on the National Association of Securities
Dealers, Inc. automated quotation system or as quoted by the National Quotation
Bureau Incorporated, or if the Common Stock is listed on an exchange, on the
principal exchange on which the Common Stock is listed. In the event no such
quotation is available for any such day, the
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board of Directors of the Company shall, acting in good faith, determine the
Current Market Price on the basis of such quotations as it considers
appropriate.
Section 11. Notices. All notices, request, demands and other communications
relating to this Warrant Certificate shall (a) be in writing which shall include
communications by facsimile, (b) be (i) sent by registered or certified mail,
postage prepaid, return receipt requested, (ii) by facsimile or (iii) delivered
by hand, and (c) be given at the following respective addresses and facsimile
and the telephone number and to the attention of the following persons:
(i) If to the registered owner hereof, to it at the address,
facsimile or telephone number furnished by the registered holder to
the Company.
(ii) If to the Company, to it at:
11800 30th Court North
St. Petersburg, Florida 33716
(813) 572-9300 - telephone
(813) 572-7637 - facsimile
Attention: President
or at such other address or facsimile or telephone number or to the attention of
such other person as the party to who such information pertains may hereafter
specify in a notice to the others specifically captioned "Notice of Change of
Address," and (d) be effective or deemed delivered or furnished (i) if given by
mail, on the third business day after such communication is deposited in the
mail addressed as above provided, (ii) if given by facsimile when such
communication is transmitted to the appropriate number determined as above
provided in this Section 11, and (iii) if given by hand delivery, when left at
the address of the addressee addressed as above provided.
Section 12. Binding Effect. This Warrant Certificate shall be binding upon
and inure to the sole and exclusive benefit of the Company, its successors and
assigns, and the registered holder or holders from time to time of the Warrant
and Warrant Shares.
Section 13. Survival of Rights and Duties. This Warrant Certificate shall
terminate and be of no further force and effect on the earlier of 5:00 P.M.,
Eastern Standard Time, on the Expiration Date or the date on which the Warrant
have been exercised, except that the provisions of Sections 4, 5, 7(c) and 11
hereof shall continue in full force and effect after such termination date.
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Section 14. Governing Law. This Warrant Certificate shall be construed in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, The Company has caused this Warrant Certificate to be
executed under its corporate seal by its officers thereunto duly authorized as
of the Issue Date.
Precision Systems, Inc.
By:
--------------------------
Its: Vice President
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FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if the Holder Desires to Exercise Warrants
Evidenced by the Foregoing Warrant Certificate)
To Precision Systems, Inc.
The undersigned hereby irrevocably elects to purchase _______ Warrant
Shares pursuant to an exercise of the Warrant evidenced by the foregoing Warrant
Certificate for, and to purchase thereunder, _________________ full shares of
Common Stock issuable upon exercise of said Warrants and delivery of $__________
(in cash as provided for in the foregoing Warrant Certificate) and any
applicable taxes payable by the undersigned pursuant to such Warrant
Certificate.
The undersigned requests that certificates for such shares be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
- -------------------
- ------------------------------------
(Print Name)
- ------------------------------------
(Print Address)
- ------------------------------------
If said number of Warrants shall not be all of the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be issued in the name of
and delivered to:
- ------------------------------------
(Please print name and address)
- ------------------------------------
- ------------------------------------
Name of Holder
Date: , 19 (Please Print):
--------------- -- -----------------------
By:
-----------------------------------
