UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 27, 2000
ENTRADE INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 1-15303 52-2153008
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 Central Avenue, Northfield, Illinois 60093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 441-6650
Not applicable
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
On March 27, 2000, Entrade Inc. ("Entrade") issued 30,000 shares of
Series A Convertible Preferred Stock, par value $1,000 per share, and related
Warrants in a private placement to institutional investors. Entrade estimates
the net proceeds of the offering, after expenses, to be approximately
$28,575,000. The Series A Convertible Preferred stock is subject to the terms
and conditions of the Statement with Respect to Shares attached hereto as
Exhibit 3.1. The Warrants are subject to the terms and conditions of the form of
Warrant attached hereto as Exhibit 4.1. Pursuant to a Registration Rights
Agreement attached hereto as Exhibit 10.1, Entrade has agreed to prepare and
file with the Securities and Exchange Commission a registration statement
covering the resale of the shares of Entrade common stock, no par value,
issuable pursuant to the terms of the Series A Preferred Stock and the related
Warrants. The terms of the private placement are more fully set forth in the
Securities Purchase Agreement attached hereto as Exhibit 10.2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not Applicable.
(b) Not applicable.
(c) Exhibits:
Exhibit No. Exhibit Description
3.1 Statement with Respect to Shares of Series A
Convertible Preferred Stock of Entrade Inc. as filed
with the Secretary of Commonwealth of the
Commonwealth of Pennsylvania on March 24, 2000.
4.1 Form of Warrant to Purchase Common Stock of Entrade
Inc. dated March 24, 2000, issued to certain
investors.
10.1 Registration Rights Agreement, dated as of March 24,
2000, among Entrade Inc. and the investors named
therein.
10.2 Securities Purchase Agreement, dated as of March 24,
2000, among Entrade Inc. and the investors listed on
the Schedule of Buyers attached thereto.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENTRADE INC.
By: /s/Mark F. Santacrose
--------------------------------
Mark F. Santacrose, President
and Chief Executive Officer
Date: March 29, 2000
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EXHIBIT INDEX
Exhibit No. Exhibit Description
3.1 Statement with Respect to Shares of Series A
Convertible Preferred Stock of Entrade Inc. as filed
with the Secretary of Commonwealth of the
Commonwealth of Pennsylvania on March 24, 2000.
4.1 Form of Warrant to Purchase Common Stock of Entrade
Inc. dated March 24, 2000, issued to certain
investors.
10.1 Registration Rights Agreement, dated as of March 24,
2000, among Entrade Inc. and the investors named
therein.
10.2 Securities Purchase Agreement, dated as of March 24,
2000, among Entrade Inc. and the investors listed on
the Schedule of Buyers attached thereto.
Exhibit 3.1
EXHIBIT A
RESOLVED, that Entrade, Inc., a corporation organized under
the Business Corporation Law of the Commonwealth of Pennsylvania (the
"Company") is authorized to issue 30,000 shares of Series A Convertible
Preferred Stock (the "Preferred Shares"), par value $1,000 per share,
which shall have the following powers, designations, preferences and
other special rights:
(1) Dividends. The holders of the Preferred Shares shall be
entitled to receive dividends ("Dividends") at a rate of 6.0% per annum, which
shall be cumulative, accrue daily from the Issuance Date (as defined below) and
be payable on the last day of each Calendar Quarter (as defined below) beginning
on the earlier of (i) the last day of the Calendar Quarter in which the
Registration Statement (as defined below) is declared effective by the SEC (as
defined below) and (ii) June 30, 2000 (each a "Dividend Date"). If a Dividend
Date is not a Business Day (as defined below) then the Dividend shall be due and
payable on the Business Day immediately following the Dividend Date. Dividends
shall be payable in cash or, at the option of the Company, in shares of Common
Stock (as defined below) ("Dividend Shares"), provided that the Dividends which
accrued during any period shall be payable in shares of Common Stock only if the
Company provides written notice ("Dividend Election Notice") to each holder of
Preferred Shares at least ten (10) Business Days prior to the Dividend Date.
Dividends to be paid in shares of Common Stock shall be paid in a number of
fully paid and nonassessable shares (rounded to the nearest whole share in
accordance with Section 2(b)) of Common Stock equal to the quotient of (a) the
Additional Amount (as defined below) divided by (b) the Conversion Price (as
defined below) on the date which is two (2) trading days immediately prior to
the applicable Dividend Date. Notwithstanding the foregoing, the Company shall
not be entitled to pay Dividends in shares of Common Stock and shall be required
to pay such Dividends in cash if (a) any event constituting a Triggering Event
(as defined in Section 3(b)), or an event that with the passage of time and
without being cured would constitute a Triggering Event, has occurred and is
continuing on the Dividend Date or the date which is 10 Business Days prior to
the Dividend Date, unless otherwise consented to in writing by the holder of
Preferred Shares entitled to receive such Dividend, or (b) the Registration
Statement (as defined below) is not effective and available for the resale of
all of the Registrable Securities (as defined in the Registration Rights
Agreement), including, without limitation, the Dividend Shares, on the Dividend
Date or the date which is 10 Business Days prior to the Dividend Date. Any
accrued and unpaid Dividends which are not paid (either in cash or, subject to
the conditions described above, in shares of Common Stock) within 10 Business
Days of such accrued and unpaid dividends' Dividend Date shall bear interest at
the rate of 18.0% per annum from such Dividend Date until the same is paid in
full (the "Default Interest").
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, no par value per share
(the "Common Stock"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this
Statement with Respect to Shares stating the designation and voting rights,
preferences, limitation and special rights of the
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Preferred Shares (the "Statement of Designations"), the following terms shall
have the following meanings:
(i) "Additional Amount" means, on a per
share basis, the sum of (A) unpaid Default Interest through the date of
determination plus (B) the result of the following formula:
(0.06)(N/365)($1,000).
(ii) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company.
(iii) "Applicable Daily Price" means, as of
any date, 91% of the lowest Closing Sale Price of the Common Stock during the
two (2) consecutive trading days ending on and including such date of
determination.
(iv) "Business Day" means any day other than
Saturday, Sunday or other day on which commercial banks in the city of New York
are authorized or required by law to remain closed.
(v) "Calendar Quarter" means each of the
period beginning on and including January 1 and ending on and including March
31, the period beginning on and including April 1 and ending on and including
June 30, the period beginning on and including July 1 and ending on and
including September 30, and the period beginning on and including October 1 and
ending on and including December 31.
(vi) "Closing Sale Price" means, for any
security as of any date, the last closing trade price for such security on the
Principal Market (as defined below) as reported by Bloomberg Financial Markets
("Bloomberg"), or if the Principal Market begins to operate on an extended hours
basis, and does not designate the closing trade price, then the last trade price
at 4:00 p.m. Eastern Time as reported by Bloomberg, or if the foregoing do not
apply, the last closing trade price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the lowest ask price and highest bid price of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of the Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(d)(iii) below. All such determinations shall be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
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(vii) "Closing Price" means, with respect to
any Preferred Share, the Closing Sale Price of the Common Stock on the Issuance
Date (appropriately adjusted for stock dividends, stock splits, stock
combinations or similar transactions).
(viii) "Company Period Termination Date"
means the earlier of (A) the date which is 455 days after the Issuance Date and
(B) the first Liquidity Default Date.
(ix) "Conversion Amount" means the sum of
(1) the Additional Amount (as defined above), and (2) $1,000.
(x) "Conversion Price" means, as of any
Conversion Date (as defined below) or other date of determination, the
Applicable Daily Price; provided that in no event shall the Conversion Price
exceed the Fixed Conversion Price (as defined below), each in effect as of such
date and subject to adjustment as provided herein; and further provided, that a
Conversion Notice (as defined in Section 2(d)(i)) which is delivered to the
Company prior to 4:00 p.m. Eastern Time on a given date shall, solely for the
purposes of calculating the Conversion Price pursuant to this Section 2(a)(ix),
be deemed to have been given after 4:00 p.m. Eastern Time on the trading date
immediately preceding the date such notice was delivered to the Company.
(xi) "Convertible Securities" means any
stock or securities (other than Options) directly or indirectly convertible into
or exchangeable for Common Stock.
(xii) "Excluded Securities" means (A)
options to purchase shares of Common Stock, provided (I) such options are issued
after the Issuance Date to employees or consultants of the Company within 30
days of such employee or consultant starting their employment or consultation
with the Company, (II) such options are approved by the Board of Directors of
the Company or an appropriately designated committee of the Board of Directors
and (III) the exercise price of such options is not less than the market price
of the Common Stock on the date of issuance of such options, (B) shares of
Common Stock issued by the Company in a firm commitment, underwritten public
offering which generates aggregate gross proceeds to the Company (as reflected
in the preliminary prospectus and final prospectus for such offering) of at
least $30,000,000, and (C) warrants to purchase Common Stock issued by the
Company in connection with any strategic partnership or relationship or joint
venture (the primary purpose of which is not to raise equity capital), provided
that all such warrants issued by the Company after the Issuance Date do not
grant the right to acquire in excess of 2,000,000 shares of Common Stock
(subject to adjustment for stock splits, stock dividends, stock combinations and
other similar transactions), provided further that the exercise price of each
such warrant is not less than the market price of the Common Stock on the date
the terms of such warrant are agreed to in principle in writing.
(xiii) "Fixed Conversion Price" means, with
respect to any Preferred Share, as of any Conversion Date or other date of
determination, $78.73, in each case
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subject to adjustment as provided herein (including, without limitation,
pursuant to Sections 2(f)(v) and 2(f)(vi)).
(xiv) "Issuance Date" means, with respect to
each Preferred Share, the date of issuance of the applicable Preferred Share.
(xv) "Liquidity Default Date" means the
earliest of (A) the first date after the Issuance Date on which the Closing Sale
Price of the Common Stock is less than $20.6875 (subject to adjustment for stock
splits, stock dividends, stock combinations and other similar transactions) for
any 15 trading days during the 20 consecutive trading days immediately preceding
such date of determination; (B) the first date after the Issuance Date on which
the Closing Sale Price of the Common Stock is less than $15.00 (subject to
adjustment for stock splits, stock dividends, stock combinations and other
similar transactions) for the two consecutive trading days immediately preceding
such date of determination; (C) the first date after the Issuance Date on which
the Company publicly discloses that either the Company or any affiliate of the
Company (other than ARTRA GROUP Incorporated (including any successor thereto
("ARTRA"))) has made any payment to or on behalf of ARTRA for any material
liability of ARTRA, other than the repayment by the Company of any intercompany
debt existing on the Issuance Date; (D) the first date after the Issuance Date
on which there is publicly announced that ARTRA, pursuant to or within the
meaning of Title 11, U.S. Code, or any similar Federal or State Law for the
relief of debtors (collectively, the "Bankruptcy Law"), either (I) commences a
voluntary case, (II) consents to the entry of an order for relief against it in
an involuntary case, (III) consents to the appointment of a Custodian (as
defined below) of it or for all or substantially all of its property, (IV) makes
a general assignment for the benefit of its creditors, or (V) admits in writing
that it is generally unable to pay its debts as the same become due; or (E) the
first date after the Issuance Date on which there is publicly announced that a
court of competent jurisdiction has entered an order or decree under any
Bankruptcy Law that: (1) is for relief against ARTRA in an involuntary case, (2)
appoints a Custodian of ARTRA or for all or substantially all of its property,
or (3) orders the liquidation of ARTRA or any subsidiary of ARTRA, and the order
or decree referred to in the preceding clauses (1), (2) or (3). For purposes of
this Section 2(a)(xv), "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
(xvi) "Liquidity Default Date Price" means,
(I) with respect to a Liquidity Default Date described in clause (A) of Section
2(a)(xv), the arithmetic average of the lowest 15 Closing Sale Prices of the
Common Stock during the 20 consecutive trading days immediately preceding such
Liquidity Default Date, (II) with respect to a Liquidity Default Date described
in clause (B) of Section 2(a)(xv), the arithmetic average of the Closing Sale
Price of the Common Stock on the five (5) consecutive trading days immediately
preceding such Company Liquidity Default Date, excluding for purposes of such
calculation one (1) highest Closing Sale Price and one (1) lowest Closing Sale
Price during such five-day period such that the average is made on the basis of
the three (3) remaining Closing Sale Prices, (III) with respect to a Liquidity
Default Date described in clause (C), clause (D) or clause (E) of Section
2(a)(xv), the arithmetic average of the Closing Sale Price of the Common Stock
during the period beginning on and
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including the date which is one (1) trading day after such Liquidity Default
Date and ending on and including the date which is three (3) trading days after
such Liquidity Default Date.
(xvii) "Maturity Date" means the date which
is two (2) years after the Issuance Date, unless extended pursuant to Section
2(d)(vii).
(xviii) "N" means the number of days from,
but excluding, the last Dividend Date with respect to which dividends, along
with any Default Interest, have been paid by the Company on the applicable
Preferred Share, or the Issuance Date if no Dividend Date has occurred, through
and including the Conversion Date, the Maturity Date or other date of
determination for such Preferred Share, as the case may be, for which such
determination is being made.
(xix) "Options" means any rights, warrants
or options to subscribe for or purchase Common Stock or Convertible Securities.
(xx) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xxi) "Principal Market" means The New York
Stock Exchange, Inc., or if the Common Stock is not traded on The New York Stock
Exchange, Inc., then the principal securities exchange or trading market for the
Common Stock.
(xxii) "Registration Rights Agreement" means
that certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Preferred Shares and exercise of the Warrants.
(xxiii) "Securities Purchase Agreement"
means that certain securities purchase agreement between the Company and the
initial holders of the Preferred Shares.
(xxiv) "Stated Value" means $1,000.
(xxv) "Warrants" means the warrants to
purchase shares of Common Stock issued by the Company pursuant to the Securities
Purchase Agreement.
(b) Holder's Conversion Right; Mandatory Conversion.
Subject to the provisions of Sections 5 and 8, at any time or times on
or after the Issuance Date, any holder of Preferred Shares shall be
entitled to convert any whole or fractional number of Preferred Shares
into fully paid and nonassessable shares of Common Stock in accordance
with Section 2(d) at the Conversion Rate (as defined below). If any
Preferred Shares remain outstanding on the Maturity Date, then,
pursuant to Section 2(d)(vii), all such
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Preferred Shares shall be converted at the Conversion Rate as of such
date in accordance with Section 2(d) or redeemed by the Company. The
Company shall not issue any fraction of a share of Common Stock upon
any conversion. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one Preferred Share by a
holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of a fraction of a share of
Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(c) Conversion. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section
2(b) shall be determined according to the following formula (the
"Conversion Rate"):
Conversion Amount
Conversion Price
(d) Mechanics of Conversion. The conversion of
Preferred Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To
convert Preferred Shares into shares of Common Stock on any date (the
"Conversion Date"), the holder thereof shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such
date, a copy of an executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company and (B) if required by
Section 2(d)(viii), surrender to a common carrier for delivery to the Company as
soon as practicable following such date the original certificates representing
the Preferred Shares being converted (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or destruction) (the
"Preferred Stock Certificates"). A holder delivering a Conversion Notice shall
use its best efforts to send a copy of such Conversion Notice to the Chief
Financial Officer of the Company by facsimile, provided the Company has
previously delivered written notice to such holder of the name and facsimile
number for the Company's Chief Financial Officer; provided, however, that the
failure of any holder to satisfy the obligations under this sentence shall not
effect the Conversion Date or the obligations of the Company for any conversion
of Preferred Shares.
(ii) Company's Response. Upon receipt by the
Company of a copy of a Conversion Notice, the Company shall (1) as soon as
practicable, but in no event later than within one (1) Business Day, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder
and the Company's designated transfer agent (the "Transfer Agent"), which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (2) on or before
the second (2nd) Business Day following the date of receipt by the Company of
such Conversion Notice (the "Share Delivery Date"), (A) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in
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the name of the holder or its designee, for the number of shares of Common Stock
to which the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the holder, credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion, as may be required
pursuant to Section 2(d)(viii), is greater than the number of Preferred Shares
being converted, then the Company shall, as soon as practicable and in no event
later than three Business Days after receipt of the Preferred Stock
Certificate(s) (the "Preferred Stock Delivery Date") and at its own expense,
issue and deliver to the holder a new Preferred Stock Certificate representing
the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Closing Sale Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the Transfer
Agent to issue to the holder the number of shares of Common Stock that is not
disputed and shall transmit an explanation of the disputed determinations or
arithmetic calculations to the holder via facsimile within one (1) Business Day
of receipt of such holder's Conversion Notice. If such holder and the Company
are unable to agree upon the determination of the Closing Sale Price or
arithmetic calculation of the Conversion Rate within two (2) Business Days of
such disputed determination or arithmetic calculation being transmitted to the
holder, then the Company shall within one (1) Business Day submit via facsimile
(A) the disputed determination of the Closing Sale Price to an independent,
reputable investment bank selected by the Company and approved by the holders of
a majority of the Preferred Shares then outstanding or (B) the disputed
arithmetic calculation of the Conversion Rate to the Company's independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent error.
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If (I) within
five (5) Business Days after the Company's receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to a
holder or credit such holder's balance account with DTC for the number of shares
of Common Stock to which such holder is entitled upon such holder's conversion
of Preferred Shares or (II) within five (5) Business Days of the Company's
receipt of a Preferred Stock Certificate the Company shall fail to issue and
deliver a new Preferred Stock
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Certificate representing the number of Preferred Shares to which such holder is
entitled pursuant to Section 2(d)(ii), then in addition to all other available
remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Section 8 thereof),
the Company shall pay additional damages to such holder for each day after the
Share Delivery Date such conversion is not timely effected and/or each day after
the Preferred Stock Delivery Date such Preferred Stock Certificate is not
delivered in an amount equal to 0.5% of the product of (I) the sum of the number
of shares of Common Stock not delivered to the holder on or prior to the Share
Delivery Date and to which such holder is entitled and, in the event the Company
has failed to deliver a Preferred Stock Certificate to the holder on or prior to
the Preferred Stock Delivery Date, the number of shares of Common Stock issuable
upon conversion of the Preferred Shares represented by such Preferred Stock
Certificate as of the Preferred Stock Delivery Date and (II) the Closing Sale
Price of the Common Stock on the Share Delivery Date, in the case of the failure
to deliver Common Stock, or the Preferred Stock Delivery Date, in the case of
failure to deliver a Preferred Stock Certificate. If the Company fails to pay
the additional damages set forth in this Section 2(d)(v) within five Business
Days of the date incurred, then the holder entitled to such payments shall have
the right at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately issue, in
lieu of such cash damages, the number of shares of Common Stock equal to the
quotient of (X) the aggregate amount of the damages payments described herein
divided by (Y) the Conversion Price in effect on such Conversion Date as
specified by the holder in the Conversion Notice.
(B) Void Conversion Notice;
Adjustment of Conversion Price. If for any reason a holder has not received all
of the shares of Common Stock prior to the tenth (10th) Business Day after the
Share Delivery Date with respect to a conversion of Preferred Shares, then the
holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any Preferred
Shares that have not been converted pursuant to such holder's Conversion Notice;
provided that the voiding of a holder's Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior to the date
of such notice pursuant to Section 2(d)(v)(A) or otherwise. Thereafter, the
Fixed Conversion Price of any Preferred Shares returned or retained by the
holder for failure to timely convert shall be adjusted to the lesser of (I) the
Fixed Conversion Price as in effect on the date on which the holder voided the
Conversion Notice and (II) the lowest Closing Sale Price during the period
beginning on the Conversion Date and ending on the date such holder voided the
Conversion Notice, subject to further adjustment as provided in this Statement
of Designations.
(C) Conversion Failure. If for
any reason a holder has not received all of the shares of Common Stock prior to
the tenth (10th) Business Day after the Share Delivery Date with respect to a
conversion of Preferred Shares (a "Conversion Failure"), then the holder, upon
written notice to the Company, may require that the Company redeem all Preferred
Shares held by such holder, including the Preferred Shares previously submitted
for conversion and with respect to which the Company has not delivered shares of
Common Stock, in accordance with Section 3.
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(vi) Pro Rata Conversion. In the event the
Company receives a Conversion Notice from more than one holder of Preferred
Shares for the same Conversion Date and the Company can convert some, but not
all, of such Preferred Shares, the Company shall convert from each holder of
Preferred Shares electing to have Preferred Shares converted at such time a pro
rata amount of such holder's Preferred Shares submitted for conversion based on
the number of Preferred Shares submitted for conversion on such date by such
holder relative to the number of Preferred Shares submitted for conversion on
such date.
(vii) Mandatory Conversion or Redemption at
Maturity at Company's Option. If any Preferred Shares remain outstanding on the
Maturity Date, then all such Preferred Shares, at the Company's option, either
(i) shall be converted at the Maturity Date Conversion Price (as defined below)
for such Preferred Shares as of such date without the holders of such Preferred
Shares being required to give a Conversion Notice on the Maturity Date (a
"Maturity Date Mandatory Conversion"), or (ii) shall be redeemed as of such date
for an amount in cash per Preferred Share (the "Maturity Date Redemption Price")
equal to the Liquidation Preference (as defined in Section 12) (a "Maturity Date
Mandatory Redemption"). The Company shall be deemed to have elected a Maturity
Date Mandatory Conversion unless it delivers written notice to each holder of
Preferred Shares at least 35 Business Days prior to the Maturity Date of its
election to effect a Maturity Date Mandatory Redemption. If the Company elects a
Maturity Date Mandatory Redemption, then on the Maturity Date the Company shall
pay to each holder of Preferred Shares outstanding on the Maturity Date, by wire
transfer of immediately available funds, an amount per Preferred Share equal to
the Maturity Date Redemption Price. If the Company elects a Maturity Date
Mandatory Redemption and fails to redeem all of the Preferred Shares outstanding
on the Maturity Date by payment of the Maturity Date Redemption Price, then in
addition to any remedy such holder of Preferred Shares may have under this
Statement of Designations, the Securities Purchase Agreement and the
Registration Rights Agreement, (X) the applicable Maturity Date Redemption Price
payable in respect of such unredeemed Preferred Shares shall bear interest at
the rate of 1.5% per month, prorated for partial months, until paid in full, and
(Y) any holder of Preferred Shares shall have the option to require the Company
to convert any or all of such holder's Preferred Shares that the Company elected
to redeem under this Section 2(d)(vii) and for which the Maturity Date
Redemption Price (together with any interest thereon) has not been paid into the
number of shares of Common Stock such holder would have received if such holder
had converted such Preferred Shares at a conversion price equal to the lesser of
(I) the Applicable Daily Price on the Maturity Date (as if such holder delivered
a Conversion Notice to the Company after 4:00 p.m. Eastern Time on the Maturity
Date) and (II) the Fixed Conversion Price on the Maturity Date. Promptly
following the Maturity Date, all holders of Preferred Shares shall surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the Company or
the Transfer Agent. If the Company has elected a Maturity Date Mandatory
Conversion, has failed to deliver notice to elect a Maturity Date Mandatory
Redemption at least 35 Business Days prior to the Maturity Date or has failed to
pay the Maturity Date Redemption Price in a timely manner as described above,
then the Maturity Date shall be extended for any Preferred Shares for as long as
(A) the conversion of such Preferred Shares would violate the provisions of
Section 5, (B) a Triggering Event shall have occurred and be continuing, or (C)
an event shall have occurred and
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be continuing which with the passage of time and the failure to cure would
result in a Triggering Event. For purposes of this Section 2(d)(vii), "Maturity
Date Conversion Price" means 95% of the arithmetic average of the Closing Sale
Prices of the Common Stock on the 30 consecutive trading days immediately
preceding the Maturity Date.
(viii) Book-Entry. Notwithstanding anything
to the contrary set forth herein, upon conversion of Preferred Shares in
accordance with the terms hereof, the holder thereof shall not be required to
physically surrender the certificate representing the Preferred Shares to the
Company unless the full number of Preferred Shares represented by the
certificate are being converted. The holder and the Company shall maintain
records showing the number of Preferred Shares so converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
holder and the Company, so as not to require physical surrender of the
certificate representing the Preferred Shares upon each such conversion. In the
event of any dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if Preferred Shares represented by a certificate are converted as
aforesaid, the holder may not transfer the certificate representing the
Preferred Shares unless the holder first physically surrenders the certificate
representing the Preferred Shares to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the holder a new certificate of
like tenor, registered as the holder may request, representing in the aggregate
the remaining number of Preferred Shares represented by such certificate. The
holder and any assignee, by acceptance of a certificate, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of any
Preferred Shares, the number of Preferred Shares represented by such certificate
may be less than the number of Preferred Shares stated on the face thereof. Each
certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE
TERMS OF THE COMPANY'S STATEMENT OF DESIGNATIONS RELATING TO
THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE,
INCLUDING SECTION 2(d)(viii) THEREOF. THE NUMBER OF PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE
NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT
TO SECTION 2(d)(viii) OF THE STATEMENT OF DESIGNATIONS
RELATING TO THE PREFERRED SHARES REPRESENTED BY THIS
CERTIFICATE.
(e) Taxes. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of Common
Stock upon the conversion of Preferred Shares.
(f) Adjustments to Conversion Price. The
Conversion Price will be subject to adjustment from time to time as provided in
this Section 2(f).
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(i) Adjustment of Fixed Conversion Price
upon Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(ii) Holder's Right of Alternative
Conversion Price Following Issuance of Convertible Securities. If the Company in
any manner issues or sells Convertible Securities or Options (other than Exempt
Convertible Securities (as defined below)) that are convertible into or
exchangeable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to a
fixed price (each of the formulations for such variable price being herein
referred to as, a "Variable Price"), and such Variable Price is not calculated
using the same formula used to calculate the Applicable Daily Price in effect
immediately prior to the time of such issue or sale, the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of the
Preferred Shares ("Variable Notice") on the date of issuance of such Convertible
Securities or Options. If a holder of the Preferred Shares then outstanding
provides written notice to the Company via facsimile and overnight courier (the
"Variable Price Election Notice") within 10 Business Days of receiving a
Variable Notice that such holder desires to replace the Applicable Daily Price
then in effect with the Variable Price described in such Variable Notice, then,
from and after the date of the Company's receipt of the Variable Price Election
Notice, the Applicable Daily Price will automatically be replaced with the
Variable Price for the Preferred Shares held by such holder. In the event that a
holder of Preferred Shares delivers a Conversion Notice after the Company's
issuance of Convertible Securities with a Variable Price but before such
holder's receipt of the Company's Variable Notice, then such holder shall have
the option by written notice to the Company to rescind such Conversion Notice or
to have the Conversion Price be equal to such Variable Price for the conversion
effected by such Conversion Notice. "Exempt Convertible Securities" means
Convertible Securities or Options where the conversion, exercise or exchange
price of such securities may not be less than the market price of the Common
Stock on the date of issuance of such securities nor may the conversion,
exercise or exchange price of such securities be reduced or adjusted down after
the date of issuance of such securities (other than in connection with a stock
split, stock dividend or other similar transaction).
(iii) Other Events. If any event occurs of
the type contemplated by the provisions of this Section 2(f) but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders of
the Preferred Shares; provided that no such adjustment will increase the
Conversion Price, except as otherwise determined pursuant to Section 2(f)(i).
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<PAGE>
(iv) Notices.
(A) Immediately upon any adjustment
of the Conversion Price pursuant to this Section 2(f), the Company will give
written notice thereof to each holder of Preferred Shares, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.
(B) The Company will give written
notice to each holder of Preferred Shares at least ten (10) Business Days prior
to the date on which the Company closes its books or takes a record (I) with
respect to any dividend or distribution upon the Common Stock, (II) with respect
to any pro rata subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Organic Change (as defined in
Section 4(a)), dissolution or liquidation, provided that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to such holder.
(C) The Company will also give
written notice to each holder of Preferred Shares at least ten (10) Business
Days prior to the date on which any Organic Change, dissolution or liquidation
will take place, provided that such information shall be made known to the
public prior to or in conjunction with such notice being provided to such
holder.
(v) Day 455 Adjustment of Fixed Conversion
Price. If no Liquidity Default Date has occurred on or prior to the date which
is 11 trading days prior to the date which is 455 days after the Issuance Date,
then beginning on and including the date which is 456 days after the Issuance
Date, the Fixed Conversion Price shall equal the lower of (I) the Fixed
Conversion Price in effect on the date which is 455 days after the Issuance Date
and (II) 120% of the arithmetic average of the Closing Sale Price of the Common
Stock on the 10 consecutive trading days immediately preceding the date which is
456 days after the Issuance Date, subject to further adjustment as provided in
this Statement of Designations.
(vi) Liquidity Default Date Adjustment of
Fixed Conversion Price. If a Liquidity Default Date occurs prior to or on the
date which is 11 trading days prior to the date which is 455 days after the
Issuance Date, then beginning on and including the date which is four (4)
trading days after such Liquidity Default Date, the Fixed Conversion Price shall
equal the lower of (I) the Fixed Conversion Price in effect on the date
immediately preceding such Liquidity Default Date and (II) 120% of the Liquidity
Default Date Price with respect to such Liquidity Default Date, subject to
further adjustment as provided in this Statement of Designations.
(3) Redemption at Option of Holders.
-------------------------------
(a) Redemption Option Upon Triggering Event. In
addition to all other rights of the holders of Preferred Shares
contained herein, after a Triggering Event (as defined below), each
holder of Preferred Shares shall have the right, at such holder's
option, to require the Company to redeem all or a portion of such
holder's Preferred Shares
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<PAGE>
at a price per Preferred Share equal to the greater of (i) 125% of the
Liquidation Preference and (ii) the product of (A) the Conversion Rate
in effect at such time as such holder delivers a Notice of Redemption
at Option of Buyer (as defined below) and (B) the Closing Sale Price of
the Common Stock on the trading day immediately preceding such
Triggering Event on which the Principal Market is open for trading (the
"Redemption Price").
(b) "Triggering Event". A "Triggering Event" shall
be deemed to have occurred at such time as any of the following events:
(i) the failure of the applicable
Registration Statement to be declared effective by the Securities and Exchange
Commission (the "SEC") on or prior to the date that is 30 days after the
applicable Effectiveness Deadline (as defined in the Registration Rights
Agreement);
(ii) while the Registration Statement is
required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, except for days during any Allowable Grace Period (as defined
in the Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason (including, without limitation, the issuance of
a stop order) or is unavailable to the holder of the Preferred Shares for sale
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of five consecutive
trading days or for more than an aggregate of 10 trading days in any 365-day
period (other than days during any Allowable Grace Period);
(iii) the suspension from trading or failure
of the Common Stock to be listed on the Nasdaq National Market or The New York
Stock Exchange, Inc. for a period of five (5) consecutive trading days or for
more than an aggregate of 10 trading days in any 365-day period;
(iv) the Company's notice or the Transfer
Agent's notice, at the Company's direction, to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not to
comply with a request for conversion of any Preferred Shares into shares of
Common Stock that is tendered in accordance with the provisions of this
Statement of Designations;
(v) a Conversion Failure (as defined in
Section 2(d)(v)(C));
(vi) upon the Company's receipt of a
Conversion Notice, the Company shall not be obligated to issue shares of Common
Stock upon such Conversion due to the provisions of Section 16;
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<PAGE>
(vii) the Company fails to receive the
Stockholder Approval (as defined in Section 4(g) of the Securities Purchase
Agreement) on or prior to the Stockholder Meeting Deadline (as defined in the
Securities Purchase Agreement); or
(viii) the Company breaches any
representation, warranty, covenant or other term or condition of the Securities
Purchase Agreement, the Registration Rights Agreement, the Warrants, this
Statement of Designations or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated thereby
and hereby, except to the extent that such breach would not have a Material
Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement)
and except, in the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least 10 days.
(c) Mechanics of Redemption at Option of Buyer.
Within one (1) Business Day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Preferred Shares. At any time after the earlier of a holder's receipt
of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event, any holder of Preferred Shares then outstanding may
require the Company to redeem up to all of such holder's Preferred
Shares by delivering written notice thereof via facsimile and overnight
courier ("Notice of Redemption at Option of Buyer") to the Company,
which Notice of Redemption at Option of Buyer shall indicate the number
of Preferred Shares that such holder is electing to redeem.
(d) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer from any holder
of Preferred Shares, the Company shall immediately notify each holder
of Preferred Shares by facsimile of the Company's receipt of such
notice(s). The Company shall deliver the applicable Redemption Price to
a holder which delivers a Notice of Redemption at Option of Buyer
within five Business Days after the Company's receipt of a Notice of
Redemption at Option of Buyer; provided that, if required by Section
2(d)(viii), a holder's Preferred Stock Certificates shall have been
delivered to the Transfer Agent. If the Company is unable to redeem all
of the Preferred Shares submitted for redemption, the Company shall (i)
redeem a pro rata amount from each holder of Preferred Shares based on
the number of Preferred Shares submitted for redemption by such holder
relative to the total number of Preferred Shares submitted for
redemption by all holders of Preferred Shares and (ii) in addition to
any remedy such holder of Preferred Shares may have under this
Statement of Designations and the Securities Purchase Agreement, pay to
each holder interest at the rate of 1.5% per month (prorated for
partial months) in respect of each unredeemed Preferred Share until
paid in full.
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<PAGE>
(e) Void Redemption. In the event that the Company
does not pay the Redemption Price within the time period set forth in
Section 3(d), at any time thereafter and until the Company pays such
unpaid applicable Redemption Price in full, a holder of Preferred
Shares shall have the option (the "Void Optional Redemption Option")
to, in lieu of redemption, require the Company to promptly return to
such holder any or all of the Preferred Shares that were submitted for
redemption by such holder under this Section 3 and for which the
applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Company via
facsimile (the "Void Optional Redemption Notice"). Upon the Company's
receipt of such Void Optional Redemption Notice, (i) the Notice of
Redemption at Option of Buyer shall be null and void with respect to
those Preferred Shares subject to the Void Optional Redemption Notice,
(ii) the Company shall immediately return any Preferred Shares subject
to the Void Optional Redemption Notice, and (iii) the Fixed Conversion
Price of such returned Preferred Shares shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the Void
Optional Redemption Notice is delivered to the Company and (B) the
lowest Closing Sale Price of the Common Stock during the period
beginning on the date on which the Notice of Redemption at Option of
Buyer is delivered to the Company and ending on the date on which the
Void Optional Redemption Notice is delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a
dispute as to the determination of the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section
2(d)(iii) above with the term "Redemption Price" being substituted for
the term "Conversion Rate". A holder's delivery of a Void Optional
Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which
have accrued prior to the date of such notice. In the event of a
redemption pursuant to this Section 3 of less than all of the Preferred
Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder
of such Preferred Shares a preferred stock certificate representing the
remaining Preferred Shares which have not been redeemed.
(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") a written agreement (in form and substance
reasonably satisfactory to the holders of at least two-
15
<PAGE>
thirds (2/3) of the Preferred Shares then outstanding) to deliver to each holder
of Preferred Shares in exchange for such shares, a security of the Acquiring
Entity evidenced by a written instrument substantially similar in form and
substance to the Preferred Shares, including, without limitation, having a
stated value and liquidation preference equal to the Stated Value and the
Liquidation Preference of the Preferred Shares held by such holder, and
reasonably satisfactory to the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding. Prior to the consummation of any other
Organic Change, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the holders of a majority of the Preferred
Shares then outstanding) to insure that each of the holders of the Preferred
Shares will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Optional Redemption Upon Change of Control. In
addition to the rights of the holders of Preferred Shares under Section 4(a),
upon a Change of Control (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to 115% of the Stated Value ("Change of Control
Redemption Price"). No sooner than 20 days nor later than 10 days prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "Notice of Change of Control") to each holder
of Preferred Shares. At any time during the period beginning after receipt of a
Notice of Change of Control (or, in the event a Notice of Change of Control is
not delivered at least 10 days prior to a Change of Control, at any time on or
after the date which is 10 days prior to a Change of Control) and ending on the
date of such Change of Control, any holder of the Preferred Shares then
outstanding may require the Company to redeem all or a portion of the holder's
Preferred Shares then outstanding by delivering written notice thereof via
facsimile and overnight courier (a "Notice of Redemption Upon Change of
Control") to the Company, which Notice of Redemption Upon Change of Control
shall indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the applicable Change of Control Redemption Price, as
calculated pursuant to this Section 4(b). Upon the Company's receipt of a
Notice(s) of Redemption Upon Change of Control from any holder of Preferred
Shares, the Company shall promptly, but in no event later than one (1) Business
Day following such receipt, notify each holder of Preferred Shares by facsimile
of the Company's receipt of such Notice(s) of Redemption Upon Change of Control.
The Company shall deliver the applicable Change of Control Redemption Price
simultaneously with the consummation of the Change of Control; provided that, if
required by Section 2(d)(viii), a holder's Preferred Stock Certificates shall
have been so delivered to the Company. Payments provided for in this Section
4(b) shall have priority to payments to other stockholders in connection with a
Change of Control. For purposes of this
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<PAGE>
Section 4(b), "Change of Control" means (i) the consolidation, merger or other
business combination of the Company with or into another Person (other than (A)
a consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company), (ii) the sale or
transfer of all or substantially all of the Company's assets, or (iii) a
purchase, tender or exchange offer made to and accepted by the holders of more
than 50% of the outstanding shares of Common Stock.
(c) Forced Delisting. If a redemption voided pursuant
to Section 3(e) was caused by a Triggering Event involving the Company's
inability to issue Conversion Shares because of the Exchange Cap (as defined in
Section 16), and if so directed in a Void Mandatory Redemption Notice by the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding,
including Preferred Shares submitted for redemption pursuant to Section 3 with
respect to which the applicable Redemption Price has not been paid, the Company
shall promptly as practicable delist the Common Stock from the exchange or
automated quotation system on which the Common Stock is traded and have the
Common Stock, at such holders' option, traded on the electronic bulletin board
or the "pink sheets."
(d) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(5) Limitation on Beneficial Ownership. The Company shall not
effect any conversion of Preferred Shares and no holder of Preferred Shares
shall have the right to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such holder and
its affiliates to exceed 4.99% of the total outstanding shares of Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by such holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
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Preferred Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants or
convertible preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 5, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Section 5, in determining the number of outstanding shares of Common
Stock a holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent Form 10-Q, Form 10-K or other public
filing with the SEC, as the case may be, (2) a more recent public announcement
by the Company, or (3) any other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding. Upon the written
request of any holder, the Company shall promptly, but in no event later than
one (1) Business Day following the receipt of such notice, confirm in writing to
any such holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to conversions of Preferred Shares and exercise of Warrants (as
defined below) by such holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.
(6) Redemption at the Company's Election. At any time or times
during the period beginning on the Issuance Date and ending on and including the
Company Period Termination Date, the Company shall have the right, in its sole
discretion, to require that some or all of the outstanding Preferred Shares be
redeemed ("Redemption at Company's Election"), for consideration per Preferred
Share equal to 115% of the Conversion Amount for such Preferred Share (the
"Company's Election Redemption Price"); provided that the Conditions to
Redemption at the Company's Election (as set forth below) are satisfied as of
the Company's Election Redemption Date (as defined below). The Company may
exercise its right to Redemption at Company's Election only by providing each
holder of Preferred Shares written notice ("Notice of Redemption at Company's
Election") at least 10 Business Days but not more than 20 Business Days prior to
the date of consummation of such redemption ("Company's Election Redemption
Date"). If the Company elects to require redemption of some, but not all, of the
Preferred Shares then outstanding, the Company shall require redemption of the
pro rata amount from each holder of such Preferred Shares based on the number of
Preferred Shares purchased by such holder relative to the total number of
Preferred Shares purchased on the Issuance Date (such amount with respect to
each holder being referred to herein as its "Pro Rata Redemption Amount"). The
Company's Notice of Redemption at Company's Election shall indicate (x) the
aggregate number of Preferred Shares the Company has elected to redeem from all
holders of Preferred Shares, (y) the date selected by the Company for the
Company's Election Redemption Date, and (z) each holder's Pro Rata Redemption
Amount of the Preferred Shares selected for redemption. If the Company has
exercised its right of Redemption at Company's Election and the conditions of
this Section 6, including the Conditions to Redemption at Company's Election,
have been satisfied, then each holder's Pro Rata Redemption Amount of the
Preferred Shares selected for redemption which remain outstanding on the
Company's Election Redemption Date shall be redeemed as of the
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<PAGE>
Company's Election Redemption Date by payment by the Company to each such holder
of Preferred Shares of the Company's Election Redemption Price. If required by
Section 2(d)(viii), all such holders of the Preferred Shares being redeemed
shall thereupon and within two (2) Business Days after the Company's Election
Redemption Date, or such earlier date as the Company and each such holder of
Preferred Shares mutually agree, surrender all Preferred Shares being redeemed
on such date to the Company. If the Company fails to pay the full Company's
Election Redemption Price on the Company's Election Redemption Date with respect
to a Preferred Share selected for redemption, then the Redemption at Company's
Election shall be null and void with respect to such Preferred Share and the
Holder shall be entitled to all the rights of a holder of outstanding Preferred
Shares. "Conditions to Redemption at the Company's Election" means the following
conditions: (i) during the period beginning on the Issuance Date and ending on
and including the Company's Election Redemption Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares to the
holders of the Preferred Shares within five (5) Business Days of the applicable
Conversion Date; (ii) on each day during the period beginning 30 days prior to
the date of Notice of Redemption at Company's Election and ending on and
including the Company's Election Redemption Date, the Common Stock is listed on
The New York Stock Exchange, Inc. and is not suspended from trading on such
exchange (excluding suspensions of not more than one day resulting from business
announcements by the Company); (iii) during the period beginning on and
including the Issuance Date and ending on and including the Company's Election
Redemption Date, there shall not have occurred (A) a Triggering Event or (B) an
event (other than an event described in Section 3(b)(viii)) that with the
passage of time and without being cured would constitute a Triggering Event;
(iv) during the period beginning on the Issuance Date and ending on and
including the Company's Election Redemption Date, there shall not have occurred
the consummation of a purchase, tender or exchange offer accepted by the holders
of more than 50% of the then outstanding shares of Common Stock, which purchase,
tender or exchange offer was not recommended or approved by the Company's Board
of Directors (a "Hostile Tender Offer"); (v) during the period beginning on the
Issuance Date and ending on and including the Company's Election Redemption
Date, there shall not have occurred the public announcement of a pending,
proposed or intended Change of Control (other than a Hostile Tender Offer) which
the Company has not publicly and accurately announced as being consummated,
terminated or abandoned; (vi) the Company shall not have delivered a Notice of
Redemption at Company's Election and the Company's Election Redemption Date
shall not occur during a Company's Mandatory Conversion Period (as defined in
Section 7); and (vii) the Company's Election Redemption Date is not later than
the Company Period Termination Date. Notwithstanding the above, but subject to
Section 5 and Section 8, any holder of Preferred Shares may convert any
Preferred Shares (including Preferred Shares selected for redemption) into
Common Stock pursuant to Section 2 on or prior to the date immediately preceding
the Company's Election Redemption Date. If the Company fails to timely pay any
Company's Election Redemption Price in accordance with this Section 6, then the
Company shall not be permitted to submit another Notice of Redemption at
Company's Election without the prior written consent of the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding.
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<PAGE>
(7) Conversion at the Company's Election. On any date during
the period beginning on the date which is 20 Business Days after the
Registration Statement has been declared effective by the SEC and ending on and
including the Company Period Termination Date, the Company shall have the right,
in its sole discretion, to require that some or all of the outstanding Preferred
Shares be converted ("Company's Conversion Election") at the applicable
Conversion Rate; provided that the Conditions to Conversion at the Company's
Election (as set forth below) are satisfied as of the Company's Election
Conversion Date (as defined below) or waived by all the holders of the Preferred
Shares then outstanding. The Company shall exercise its right to Company's
Conversion Election by providing each holder of Preferred Shares written notice
("Company's Conversion Election Notice") on such date by facsimile and overnight
courier. The date on which each of such holders of the Preferred Shares actually
receives the Company's Conversion Election Notice is referred to herein as the
"Company's Conversion Election Notice Date." If the Company elects to require
conversion of some, but not all, of such Preferred Shares then outstanding, the
Company shall require conversion of the pro rata amount from each holder of such
Preferred Shares based on the number of Preferred Shares purchased by such
holder relative to the total number of Preferred Shares purchased on the
Issuance Date (such amount with respect to each holder of such Preferred Shares
being referred to herein as its "Pro Rata Conversion Amount"). The Company's
Conversion Election Notice shall indicate (x) the aggregate number of such
Preferred Shares the Company has selected for conversion, (y) the date selected
by the Company for conversion ("Company's Election Conversion Date"), which date
shall be not less than 20 Business Days or more than 60 Business Days after the
Company's Conversion Election Notice Date, and (z) each holder's Pro Rata
Conversion Amount. Subject to the satisfaction of all the conditions of this
Section 7 and provided that the Company does not deliver a Company's Mandatory
Conversion Period Termination Notice (in the manner described below) with an
effective date prior to the applicable Company's Election Conversion Date and
except to the extent restricted by Section 5, on the Company's Election
Conversion Date each holder of Preferred Shares selected for conversion will be
deemed to have submitted a Conversion Notice in accordance with Section 2(d)(i)
for a number of Preferred Shares equal to the result of (a) such holder's Pro
Rata Conversion Amount, minus (b) the number of such Preferred Shares converted
by such holder during the Company's Mandatory Conversion Period (as defined
below); provided, however, in no event shall any holder of Preferred Shares be
required to convert a number of Preferred Shares during any Company's Mandatory
Conversion Period into a number of shares of Common Stock in excess of such
holder's pro rata portion (determined in the same manner as the Pro Rata
Conversion Amount above) of 15% of the aggregate trading volume of the Common
Stock on the Principal Market (as reported by Bloomberg) during the Company's
Mandatory Conversion Period; provided, further, however, if the Principal Market
modifies the method by which it calculates or reports the trading volume, then
such percentage will be modified accordingly. The Company may terminate a
Conversion at Company's Election prior to the Company's Election Conversion Date
with respect to any Preferred Shares not submitted for conversion prior to the
effective date of such termination by delivering written notice ("Company's
Mandatory Conversion Period Termination Notice") to each holder of Preferred
Shares not later than 8:00 a.m., Eastern Time, on the date which is at least two
(2) Business Days prior to the effective time and date of such termination,
provided that the Company has not previously delivered
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<PAGE>
at least three (3) Company's Mandatory Conversion Period Termination Notices.
"Conditions to Conversion at the Company's Election" means the following
conditions: (i) on each day during the period beginning on and including the
date the Registration Statement is declared effective by the SEC and ending on
and including the Company's Election Conversion Date, the Registration Statement
which includes the Registrable Securities relating to the Preferred Shares
selected for conversion shall be effective and available for the sale of no less
than all the Registrable Securities required to be included in such Registration
Statement; (ii) on each day during the period beginning on the Issuance Date and
ending on and including the Company's Election Conversion Date, the Common Stock
is listed on The New York Stock Exchange, Inc. and shall not have been delisted
or suspended from trading on such exchange nor shall delisting or suspension by
such exchange (other than suspensions of not more than one day and occurring
prior to the Company's Conversion Election Notice Date due to business
announcements by the Company) have been threatened either (A) in writing by such
exchange or (B) by falling below the minimum listing maintenance requirements of
such exchange; (iii) during the period beginning on the Issuance Date and ending
on and including the Company's Election Conversion Date, there shall not have
occurred (A) the consummation of a Hostile Tender Offer (as defined in Section
6) or a Triggering Event, (B) an event (other than an event described in Section
3(b)(viii)) that with the passage of time and without being cured would
constitute a Triggering Event, or (C) the public announcement of a pending,
proposed or intended Change of Control (other than a Hostile Tender Offer) which
the Company has not accurately and publicly announced as being consummated,
terminated or abandoned; (iv) the aggregate number of Preferred Shares selected
for conversion by the Company as reflected in the Company's Conversion Election
Notice is at least 3,000; (v) during the period beginning on the Issuance Date
and ending on and including the Company's Election Conversion Date, the Company
shall have delivered shares of Common Stock upon conversion of the Preferred
Shares and upon exercise of the Warrants to the holders thereof within five (5)
Business Days of the applicable Conversion Date, in the case of the conversion
of Preferred Shares, or the Company's receipt of the Exercise Delivery Documents
(as defined in Section 2(a) of the Warrants), in the case of the exercise of
Warrants; (vi) the Company otherwise shall have been in compliance in all
material respects with this Statement of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement and shall not have
breached in any material respect any provision of this Statement of
Designations, the Securities Purchase Agreement, the Warrants or the
Registration Rights Agreement; (vii) the Company shall not have delivered a
Company's Conversion Election Notice during any Company's Mandatory Conversion
Period; (viii) the Company's Election Conversion Date is not later than the
Company Period Termination Date; and (ix) if the Company's Election Conversion
Date occurs after the Stockholder Meeting Deadline, then the Company shall have
received the Stockholder Approval. "Company's Mandatory Conversion Period"
means, with respect to any Company's Conversion Election, the period beginning
on and including the Company's Conversion Election Notice Date and ending on and
including the earlier of (i) the Company's Election Conversion Date and (ii)
6:00 p.m., Eastern Time, on the effective date of the Company's Mandatory
Conversion Period Termination Notice, which effective date shall not be fewer
than two (2) Business Days after the receipt of such notice by each holder of
Preferred Shares.
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<PAGE>
(8) Restrictions on Conversions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to Section 2(b) shall be
limited as set forth below. Subject to the exceptions described below, without
the prior consent of the Company, no holder of Preferred Shares shall be
entitled to convert any Preferred Shares during the period beginning on the
Issuance Date and ending on and including the earlier of the first Liquidity
Default Date and the date which is 455 days after the Issuance Date.
Notwithstanding the foregoing, the conversion restrictions set forth in this
Section 8 shall not apply: (a) during a Company's Mandatory Conversion Period,
but only with respect to the number of Preferred Shares set forth in a Company's
Election Conversion Notice for such holder with respect to such Company
Mandatory Conversion Period; (b) on and after any date on which the Common Stock
is not listed on The New York Stock Exchange, Inc. or the Nasdaq National Market
or has been suspended from trading on any such exchange (excluding suspensions
of not more than two (2) days resulting from business announcements by the
Company), or any such delisting or suspension is threatened or pending either
(I) in writing by such exchange or (II) by falling below the minimum listing
maintenance requirements of such exchange; (c) on or after any date on which
there shall have occurred (I) the consummation of a Hostile Tender Offer, (II) a
Triggering Event or (III) an event (other than an event described in Section
3(b)(viii)) that with the passage of time and without being cured would
constitute a Triggering Event; (d) on or after any date on which there shall
have been an announcement of a pending, proposed or intended Change of Control
(other than a Hostile Tender Offer); (e) on or after any date on which the
Company issues or sells or is deemed to have issued or sold any Convertible
Securities or Options (other than Strategic Convertible Securities (as defined
below)) that are convertible into or exercisable or exchangeable for shares of
Common Stock at a conversion or exercise price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to a
fixed price; (f) on or after any date on which the Company fails to pay the
Company's Election Redemption Price for any Preferred Shares within two (2)
Business Days of the applicable Company's Election Redemption Date in accordance
with a Redemption at Company's Election pursuant to Section 6; (g) on or after
the date the Company issues or sells any shares of Common Stock or any
Convertible Securities or Options (other than Excluded Securities or upon
conversion of the Preferred Shares or exercise of the Warrants or in connection
with any Approved Stock Plan or shares of Common Stock issuable pursuant to
warrants or options outstanding prior to the Issuance Date, provided such
warrants or options are not amended in any material respect after the Issuance
Date), with respect to a number of Preferred Shares representing an aggregate
Conversion Amount equal to the lesser of (I) each holder's pro rata portion
(determined in the same manner as Pro Rata Conversion Amount in Section 7) of
the consideration received by the Company in connection with such issuance or
sale and (II) the aggregate Conversion Amount represented by such holder's
Preferred Shares; (h) with respect to any conversion of Preferred Shares at a
price equal to the Fixed Conversion Price then in effect; (i) on or after the
first date on which the Company fails to comply with its obligations under
Section 4(m) of the Securities Purchase Agreement; or (j) on or after the
Stockholder Meeting Deadline if the Company fails to receive the Stockholder
Approval (as defined in Section 4(g) of the Securities Purchase Agreement) on or
before the Stockholder Meeting Deadline. "Strategic Convertible Securities"
means Convertible Securities or Options issued by the Company in connection with
any strategic partnership or relationship or joint venture (the primary purpose
of
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<PAGE>
which is not to raise equity capital), provided that the conversion, exercise or
exchange price of such securities may not be less than the market price of the
Common Stock on the date of issuance of such securities nor may the conversion,
exercise or exchange price of such securities be reduced or adjusted down after
the date of issuance of such securities (other than in connection with a stock
split, stock dividend or other similar transaction).
(9) Redemption Upon Liquidity Default Date. Upon the
occurrence of the first Liquidity Default Date, the Company shall have the
right, in its sole discretion, to require that all, but not less than all, of
the outstanding Preferred Shares be redeemed ("Redemption Upon Liquidity
Default") on the date which is four (4) Business Days after such Liquidity
Default Date (the "Liquidity Default Redemption Date") for consideration per
Preferred Share equal to 115% of the Conversion Amount for such Preferred Share
(the "Liquidity Default Redemption Price"); provided that the Conditions to
Liquidity Default Redemption (as set forth below) are satisfied as of the
Liquidity Default Redemption Date. The Company may exercise its right to
Redemption Upon Liquidity Default only by providing each holder of Preferred
Shares written notice ("Notice of Redemption Upon Liquidity Default") on the
first Business Day after the Liquidity Default Date. The Notice of Redemption
Upon Liquidity Default shall indicate (x) confirmation of the Liquidity Default
Redemption Date, which date shall be the date which is four (4) Business Days
after the Liquidity Default Date, and (y) the Liquidity Default Redemption Price
for each Preferred Share outstanding on the Liquidity Default Redemption Date.
If the Company has exercised its right of Redemption Upon Liquidity Default and
the conditions of this Section 9, including the Conditions to Redemption Upon
Liquidity Default, have been satisfied, then each holder's Preferred Shares
which remain outstanding on the Liquidity Default Redemption Date shall be
redeemed as of the Liquidity Default Redemption Date by payment by the Company
to each such holder of Preferred Shares of the Liquidity Default Redemption
Price by wire transfer of immediately available funds. All such holders of the
Preferred Shares being redeemed shall thereupon and within two (2) Business Days
after the Liquidity Default Redemption Date, or such earlier date as the Company
and each such holder of Preferred Shares mutually agree, surrender all Preferred
Shares redeemed on by the Company on the Liquidity Default Redemption Date. If
the Company fails to pay the full Liquidity Default Redemption Price on the
Liquidity Default Redemption Date with respect to all Preferred Shares
outstanding on such date, then the Redemption Upon Liquidity Default shall be
null and void with respect to such Preferred Shares and the Holder shall be
entitled to all the rights of a holder of outstanding Preferred Shares.
"Conditions to Redemption Upon Liquidity Default" means the following
conditions: (i) during the period beginning on the Issuance Date and ending on
and including the Liquidity Default Redemption Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares to the
holders of the Preferred Shares within five (5) Business Days of the applicable
Conversion Date; (ii) with respect to the Preferred Shares of a specific holder,
such holder shall not have delivered a Notice of Redemption at Option of Buyer
in accordance with Section 3(c) with respect to such Preferred Shares prior to
the Liquidity Default Redemption Date; (iii) the arithmetic average of the
Closing Sale Price of the Common Stock on the five (5) consecutive trading days
immediately preceding the date which is one Business Day after the Liquidity
Default Date shall not be greater than $78.73 (subject to adjustment for stock
splits, stock
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<PAGE>
dividends, stock combinations and other similar transactions); (iv) during the
period beginning on the Issuance Date and ending on and including the Liquidity
Default Redemption Date, there shall not have occurred the consummation of a
Hostile Tender Offer; (v) during the period beginning on the Issuance Date and
ending on and including the Liquidity Default Redemption Date, there shall not
have occurred the public announcement of a pending, proposed or intended Change
of Control (other than a Hostile Tender Offer) which the Company has not
publicly and accurately announced as being consummated, terminated or abandoned;
and (vi) the Liquidity Default Redemption Date is not later than the date which
is 455 days after the Issuance Date. Notwithstanding the above, but subject to
Section 5 and Section 8, any holder of Preferred Shares may convert any
Preferred Shares (including Preferred Shares selected for redemption) into
Common Stock pursuant to Section 2 on or prior to the date immediately preceding
the Liquidity Default Redemption Date.
(10) Reservation of Shares. The Company shall, so long as any
of the Preferred Shares are outstanding, take all action necessary to reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversions of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 200%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions). The
initial number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the number
of Preferred Shares held by each holder at the time of issuance of the Preferred
Shares or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
(11) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
Pennsylvania Business Corporation Law, and as expressly provided in this
Statement of Designations.
(12) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to the sum of (i) the Stated Value
and (ii) the Additional Amount for such Preferred Share (such sum being referred
to as the "Liquidation Preference"); provided that, if the Liquidation
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<PAGE>
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "Pari Passu Shares"), then each holder of Preferred
Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Statement of
Designations, Preferences and Rights, as a percentage of the full amount of
Liquidation Funds payable to all holders of Preferred Shares and Pari Passu
Shares. The purchase or redemption by the Company of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other Person, nor the sale or transfer
by the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company.
(13) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Preferred Shares with respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of Incorporation or
bylaws, or file any resolution of the board of directors of the Company with the
Secretary of State of the Commonwealth of Pennsylvania or enter into any
agreement containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other class of
capital stock. In the event of the merger or consolidation of the Company with
or into another corporation, the Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger shall
result inconsistent therewith.
(14) Participation. Subject to the rights of the holders, if
any, of the Pari Passu Shares, the holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock.
(15) Restriction on Redemption and Cash Dividends. Until all
of the Preferred Shares have been converted or redeemed as provided herein, the
Company shall not, directly or
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<PAGE>
indirectly, redeem, or declare or pay any cash dividend or distribution on, its
capital stock (other than the Preferred Shares) without the prior express
written consent of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares.
(16) Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue any shares of Common Stock upon conversion of
the Preferred Shares if the issuance of such shares of Common Stock would exceed
that number of shares of Common Stock which the Company may issue upon
conversion of the Preferred Shares (the "Exchange Cap") without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market (or any successor rule or regulation) for issuances of Common
Stock in excess of such amount, (b) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall
be reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding or (c) the required number of the holders of the Preferred
Shares have exercised their rights pursuant to Section 4(c) to have the Company
remove the Common Stock from the Principal Market. Until such approval or
written opinion is obtained or such action has been taken by the required number
of holders of Preferred Shares, no purchaser of Preferred Shares pursuant to the
Securities Purchase Agreement (the "Purchasers") shall be issued, upon
conversion of Preferred Shares, shares of Common Stock in an amount greater than
the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the
numerator of which is the number of Preferred Shares issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the Preferred Shares issued to the Purchasers
pursuant to the Securities Purchase Agreement (the "Cap Allocation Amount"). In
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap Allocation Amount. In the event that any holder
of Preferred Shares shall convert all of such holder's Preferred Shares into a
number of shares of Common Stock which, in the aggregate, is less than such
holder's Cap Allocation Amount, then the difference between such holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Preferred Shares on a pro rata basis in proportion to the
number of Preferred Shares then held by each such holder.
(17) Vote to Change the Terms of or Issue Additional Preferred
Shares. The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, shall be required for (a) any
change to this Statement of Designations or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares and (b) the
issuance of Preferred Shares other than pursuant to the Securities Purchase
Agreement.
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<PAGE>
(18) Lost or Stolen Certificates. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(19) Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Statement of Designations
shall be cumulative and in addition to all other remedies available under this
Statement of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief). No remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy.
Nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Statement of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(20) Specific Shall Not Limit General; Construction. No
specific provision contained in this Statement of Designations shall limit or
modify any more general provision contained herein. This Statement of
Designations shall be deemed to be jointly drafted by the Company and all Buyers
and shall not be construed against any person as the drafter hereof.
(21) Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(22) Notice. Whenever notice is required to be given under
this Statement of Designations, unless otherwise provided herein, such notice
shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement.
(23) Transfer of Preferred Shares. A holder of Preferred
Shares may assign some or all of its rights hereunder or the Preferred Shares
held by such holder without the consent of the Company.
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<PAGE>
EXHIBIT I
ENTRADE INC.
CONVERSION NOTICE
Reference is made to the Statement with Respect to Shares stating the
designations and voting rights, preferences, limitations and special rights of
Entrade Inc. for its Series A Convertible Preferred Stock (the "Statement of
Designations"). In accordance with and pursuant to the Statement of
Designations, the undersigned hereby elects to convert the number of shares of
Series A Convertible Preferred Stock, par value $1,000 per share (the "Preferred
Shares"), of Entrade Inc., a Pennsylvania corporation (the "Company"), indicated
below into shares of Common Stock, no par value per share (the "Common Stock"),
of the Company, as of the date specified below.
Date of Conversion:____________________________________________________
Number of Preferred Shares to be converted:____________________________
Stock certificate no(s). of Preferred Shares to be converted:__________
Please confirm the following information:
Conversion Price:______________________________________________________
Number of shares of Common Stock to be issued:_________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:______________________________________________________________
______________________________________________________________
Facsimile Number:______________________________________________________
Authorization:_________________________________________________________
By:__________________________________________________
Title:_______________________________________________
Dated:_________________________________________________________________
Account Number (if electronic book entry transfer):____________________
Transaction Code Number (if electronic book entry transfer):___________
[ALSO SEND COPY TO ENTRADE'S CFO]
Doc #:CH02 (08239-00003) 1094106v6;3/23/2000/Time:13:38
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<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated March ___, 2000
from the Company and acknowledged and agreed to by [TRANSFER AGENT].
ENTRADE INC.
By:________________________
Name:______________________
Title:_____________________
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<PAGE>
CHI\24237.5
The inclusion of any one matter in the following schedules is not
deemed to be an admission that such matter is material.
SCHEDULE 3(a)
Subsidiaries
1. Entrade Inc.
2. entrade.com, Inc.
3. printeralliance.com, Inc.
4. utiliparts.com, Inc.
5. TruckCenter.com, Inc.
6. Artra Group Incorporated
7. Public Liquidation Systems, Inc.
8. Asset Liquidation Group, Inc.
9. Entrade Merger Subsidiary, Inc.
10. asseTrade.com, Inc.*
11. Pricecontainer.com, Inc.1
12. TradeTextile.com, Inc.*
13. AssetControl.com, LLC
14. A.G. Holding Corp.
15. Fill-Mor Holding, Inc.
16. BCA Holdings, Inc.
17. Golden Corp.
18. Rescuers, Inc.
______________________________________
1 As of March 24, 2000, Entrade Inc. does not own more than 25% of the
capital stock or similar equity interest of such entity.
<PAGE>
SCHEDULE 3(c)
Capitalization
(i) None.
(ii) Several intercompany loans among Entrade and its subsidiaries.
Promissory Note delivered by Entrade Inc. to Don Haidl in the principal
amount of $12,600,000 in connection with the acquisition of Nationwide
Auction Systems.
Promissory Note delivered by Entrade Inc. to Corey Schlossmann in the
principal amount of $1,400,000 in connection with the acquisition of
Nationwide Auction Systems.
Revolving line of credit from Imperial Bank to Asset Liquidation Group,
Inc. (One of Entrade Inc.'s Nationwide subsidiaries) in an amount not
to exceed $3,000,000.
Debt extended from various banks relating to Nationwide Auction
System's various real property.
(iii) For warrants and stock options granted pursuant to stock option plans
prior to January 1, 2000, see the Draft 1999 10-K. 602,500 stock
options and 1,120,500 warrants were granted on or after January 1,
2000.
printeralliance.com, Inc., utiliparts.com, Inc. and TruckCenter.com,
Inc. have made commitments to certain employees to grant rights to
purchase stock upon the adoption of option plans by each respective
company. As of March 27, 2000, these option plans have not been
adopted.
Subject to shareholder approval, agreement of Entrade Inc. to, upon
conversion of certain obligations under a promissory note issued to Don
G. Haidl and a promissory note issued to Corey Schlossmann, issue an
aggregate of 265,621 shares of common stock of Entrade Inc.
(iv) Rights which obligate Entrade Inc. to register in the aggregate,
5,629,584 shares of common stock of Entrade Inc. held by all or
substantially all of the selling shareholders listed in the
Registration Statement on Form S-1 filed by Entrade Inc. with the
Securities and Exchange Commission on February 10, 2000 (File No.
333-96523).
Rights to register 75,000 shares of common stock of Entrade Inc. held
by TradeTextile.com, Inc.
Rights to register, in the aggregate, up to a maximum of 1,000,000
shares of common stock of Entrade Inc. held by Robert D. Kohn, Benjamin
Kafka and Mark Quinn pursuant to a proposed merger between Positive
Asset Remarketing, Inc. and Entrade Merger Subsidiary, Inc.
Rights to register, in the aggregate, 352,941 shares of common stock of
Entrade Inc. or that number determined by dividing $6,000,000 by the
average closing price for such stock held by Warren Rothstein, Thomas
Settineri and Gary Levi pursuant to a proposed acquisition of some of
the stock of ATM Service Ltd. d/b/a ATMCenter.com.
Rights to register 1,000,000 shares of common stock of Entrade Inc.
held by Textron Financial Corporation.
Agreement in principal by utiliparts.com, Inc. to register shares of
its common stock held by Entrade Inc. and asseTrade.com, Inc.
(v) Redeemable securities of printeralliance.com, Inc. held by Entrade Inc.
(vi) None.
(vii) It is currently proposed that the 2000 Entrade Equity Incentive Plan
will provide for the granting of stock appreciation rights and "phantom
stock."
<PAGE>
SCHEDULE 3(e)
Conflicts
A Listing Application relating to the Conversion Shares, Warrant Shares and
Dividend Shares has not been filed with the New York Stock Exchange.
<PAGE>
SCHEDULE 3(f)
SEC Documents
Report on Form 8-K filed with the Securities and Exchange Commission on October
6, 1999.
Report on Form 8-K filed with the Securities and Exchange Commission on October
28, 1999.
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission
on November 15, 1999.
Amended Report on Form 8-K/A filed with the Securities and Exchange Commission
on December 2, 1999.
Report on Form 8-K filed with the Securities and Exchange Commission on January
25, 2000.
Amended Quarterly Report on Form 10-Q/A filed with the Securities and Exchange
Commission on March 2, 2000.
Report on Form 8-K filed with the Securities and Exchange Commission on March 2,
2000.
<PAGE>
SCHEDULE 3(g)
Material Changes
An interim agreement between Artra and certain of its excess insurance carriers,
under which such insurers paid defense, settlement and indemnity costs relating
to certain products liability claims, expired on January 31, 2000.
<PAGE>
SCHEDULE 3(h)
Litigation
The following portion of Schedule 3(h) is adapted from the Risk Factors of
Entrade Inc.'s Draft 1999 10-K:
Artra's potential product liability and environmental liabilities may
result in future costs to Artra that are difficult to estimate.
Since 1983, Artra has responded to significant product liability claims
relating to the use of asbestos in the manufacture of products by various
companies, including a former Artra subsidiary. Reports from local counsel
indicate, as of December 31, 1999, pending claims asserted by approximately
45,000 plaintiffs (excluding loss of consortium claims), and it is probable that
there are a significant number of additional claims that remain unasserted.
Artra has no reasonable basis on which to quantify the potential cost to it of
the pending claims and any unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in
disposition of the product liability claims from 1983 through September 1998,
when Artra's primary insurance carriers asserted that Artra's primary insurance
coverage for the claims had been exhausted. Since September 1998, certain of
Artra's excess insurance carriers, under a reservation of the right to deny
coverage liability at a subsequent date, have, under a temporary agreement which
expired on January 31, 2000, assumed the defense of the claims and paid defense,
settlement and indemnity costs relating to the claims of approximately
$17,500,000 through December 31, 1999. Although Artra is engaged in negotiations
with its excess insurance carriers regarding their payment of these defense,
settlement and indemnity costs, we can provide no assurance that Artra will be
able to conclude an agreement with the excess carriers.
Because of the expiration of the temporary agreement and the uncertain
conclusion of Artra's negotiations with the excess insurance carriers, Artra may
have to advance some or all of these costs, which could have a material adverse
effect on Artra's financial condition, and seek reimbursement of these costs
from the excess insurance carriers through litigation or otherwise. If Artra
were unable to conclude a permanent agreement with its excess insurance
carriers, a court could also determine that Artra is responsible for a portion
of the defense and indemnity costs associated with the product liability claims.
Such a finding would also have a material adverse effect on Artra's financial
condition.
Artra's financial condition could also be materially adversely affected
to the extent that its existing insurance coverage and any to which it might
become entitled in the future is not sufficient to respond to the product
liability claims. Although Artra believes that its remaining insurance coverage
as of December 31, 1999 relating to the claims is not less than $185,000,000, we
can provide no assurance that the coverage will be adequate to coverArtra's
responsibility for the claims. In the event Artra were unable to satisfy the
claims through a combination of insurance coverage and its own assets, it is
possible that Artra could be forced to seek protection under the federal
bankruptcy laws. In such event, Entrade could lose its entire
<PAGE>
investment in Artra. It is also possible that the plaintiffs asserting the
claims against Artra could attempt to pursue legal action against Entrade.
Entrade believes that no valid legal basis exists for the imposition of Artra's
liability for the claims against Entrade, and Entrade would vigorously defend
against any attempt to impose such liability.
Former operations of Artra and its subsidiaries have been subject to
requirements imposed under federal, state and local environmental and health and
safety laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act and comparable state laws.
Liability under CERCLA is, in most instances, strict, joint and
several, meaning that Artra could be liable for all response costs incurred. As
a result of these environmental matters, Artra and its subsidiaries have, from
time to time, been and currently are involved in administrative and judicial
proceedings and inquires. Artra has provided accruals for these claims. Various
uncertainties, however, with respect to these and other sites and facilities
make it difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of these activities if
undertaken.
The following portion of Schedule 3(h) is adapted from a draft of a
Registration Statement on Form S-4 which Entrade Inc. intends to file with the
Securities and Exchange Commission (nothing shall preclude or inhibit Entrade
Inc. from changing or revising the following language in the Registration
Statement on Form S-4):
Product liability claims
Since 1983, Artra has responded to significant product liability claims
relating to the use of asbestos in the manufacture of products by various
companies, including a former Artra subsidiary. Reports from local counsel
indicate, as of December 31, 1999, pending claims asserted by approximately
45,000 plaintiffs (excluding loss of consortium claims) in 17 states. It is
probable that a significant number of additional claims will be asserted in the
future. Artra cannot quantify the potential cost to it of these pending and
unasserted claims.
Artra's primary insurance carriers paid approximately $13,000,000 in
disposition of the claims from 1983 through September 1998, when Artra's primary
insurance carriers asserted that Artra's primary insurance coverage for the
claims had been exhausted. Since September 1998, certain of Artra's excess
insurance carriers, under a reservation of the right to deny coverage liability
at a subsequent date, have pursuant to an interim agreement assumed the defense
of the claims and paid defense, settlement and indemnity costs relating to these
claims which totaled approximately $17,500,000 through December 31, 1999. The
interim agreement expired as of January 31, 2000.
Until January 31, 2000, pursuant to the interim agreement, certain of
Artra's excess insurance carriers funded defense and indemnity costs as they
became due. Under the interim agreement, the claims were administered by Granite
State Insurance Company, an affiliate of the American International Group, Inc.,
one of Artra's principal excess insurers, and one of the participants in the
expired interim agreement. Since January 31, 2000, Granite State has not
<PAGE>
administered the claims or advanced funds for defense, settlement and indemnity
expenses. Nevertheless, through its counsel, Granite State has indicated its
intent to reimburse Artra for payments made by Artra upon submission of
insurance claims to it pursuant to its policies.
Negotiations are continuing with Granite State and the other excess
insurers regarding the establishment of a permanent funding, claims
administration and coverage agreement. Unless and until such a permanent
agreement is reached, as to which Artra can provide no assurance, Artra intends,
unless litigation should become necessary in light of the positions of the
excess carriers or other circumstances, to: (i) administer the claims and (ii)
fund defense, settlement and indemnity costs to the extent necessary and then
seek reimbursement from the excess insurance carriers. It is also possible that
these excess insurance carriers could cease making payments at any time on the
basis of their various reservations of rights.
Artra and two of its excess insurers currently have a dispute as to the
existence of certain insurance coverage, in the approximate amount of
$31,000,000, for the period 1968 - 1975. These carriers contend that the
policies for this period, if they ever existed, are "lost." If Artra or its
carriers were to be unable to locate all or some of these policies, absent the
negotiation of an agreement with the carriers or a finding that there are
sufficient indicia of coverage to establish existence of these policies, as to
which Artra can provide no assurance, a court could find that no coverage
existed for all or some of the periods in question. In that event, a court might
find Artra responsible for funding its pro rata share of payments for defense
and indemnity costs. A similar issue exists with respect to an unknown amount of
primary and excess insurance coverage by unknown insurers for the period 1947 -
1962, for which Artra has not been able to locate policies, with potential
effect similar to that possible with respect to the 1968 - 1975 period.
If Artra were unable to conclude a permanent agreement with its excess
insurance carriers regarding the claims or with respect to coverage for the
potential gaps described herein, if Artra were ultimately unsuccessful in
attempting to marshal any such insurance and instead a court were to determine
that gaps in coverage exist, or if a court were to determine that Artra is
responsible for a portion of the defense and indemnity costs associated with
those potential gaps in coverage, there could be a material adverse effect on
Artra's financial condition.
Artra's financial condition could also be materially adversely affected
to the extent, if any, that its existing insurance coverage and any to which it
might become entitled in the future is not sufficient to respond fully to the
claims. Artra has the following amounts of excess insurance it believes are
available to indemnify Artra against its liability on some or all of the claims:
approximately (i) $204,000,000 for which Artra has policies, less amounts
expended through December 31, 1999 (believed to be approximately $17,500,000)
and such additional amounts as have been paid or committed since December 31,
1999; (ii) an additional amount which may total as much as $45,000,000 for which
Artra thus far has been unable to locate insurance policies but for which Artra
has certain evidence of coverage, and (iii) any potentially applicable coverage
in an undetermined amount for any other policies that may exist over certain
years, which Artra is investigating. There is also some potential additional
coverage from two excess insurers which Artra believes are or may be involved in
insolvency proceedings. In the event Artra were unable to satisfy the claims
through a combination of insurance coverage and its own assets, or in the event
<PAGE>
that Artra does not receive timely reimbursement from its excess carriers of
amounts Artra may be required to expend on defense, settlement and indemnity
payments, it is possible that Artra could be forced to seek protection under the
federal bankruptcy laws.
If Artra's insurance coverage and Artra's other assets are not
sufficient to satisfy the claims against Artra, Entrade could lose its entire
investment in Artra. If the combination of insurance coverage and Artra's assets
is not sufficient to satisfy the claims, it is also possible that the plaintiffs
presenting the claims could attempt to pursue legal action against Entrade.
Entrade believes that no valid legal basis exists for, and it would have
meritorious defenses against, the imposition of Artra's liability for the claims
against Entrade, and Entrade would vigorously defend against any attempt to
impose such liability. In the event of an unfavorable outcome of such legal
action, however, there could be a material adverse effect upon Entrade's
financial condition and results of operations.
Environmental matters
EPA notices alleging environmental violations
In April 1994, the EPA notified Artra that it was a potentially
responsible party for the disposal of hazardous substances (principally waste
oil) at a disposal site in Palmer, Massachusetts, generated by a manufacturing
facility formerly operated by the Clearshield Plastics Division of Harvel
Industries, Inc., a majority owned subsidiary of Artra. In 1985, Harvel was
merged into Artra's Fill-Mor subsidiary. This site has been included on the
EPA's National Priorities List. In February 1983, Harvel sold the assets of
Clearshield to Envirodyne Industries, Inc. The alleged waste disposal occurred
in 1977 and 1978, at which time Harvel was a majority-owned subsidiary of Artra.
In May 1994, Envirodyne and its Clearshield National, Inc. subsidiary sued Artra
for indemnification in connection with this proceeding. The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7,000,000
according to proofs of claim filed in the adversary proceeding. A committee
formed by the named potentially responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000. Artra has not made any
independent investigation of the amount of its potential liability and no
assurances can be given that it will not substantially exceed $400,000.
Lawsuits seeking recovery of environmental clean-up costs
In a case titled Sherwin-Williams Company v. Artra Group Incorporated,
filed in 1991 in the United States District Court for Maryland, Sherwin-Williams
Company brought suit against Artra and other former owners of a paint
manufacturing facility in Baltimore, Maryland, for recovery of costs of
investigation and clean-up of hazardous substances that were stored, disposed of
or otherwise released at the manufacturing facility. This facility was owned by
Baltimore Paint and Chemical Company, formerly a subsidiary of Artra from 1969
to 1980. Sherwin-Williams' current projection of the cost of clean-up is
approximately $5,000,000 to $6,000,000. Artra has filed counterclaims against
Sherwin-Williams and cross claims against other former owners of the property.
<PAGE>
Artra also is vigorously defending this action and has raised numerous defenses.
Currently, the case is still in discovery and Artra cannot determine what, if
any, its liability may be in this matter.
Artra was named as a defendant in United States v. Chevron Chemical
Company brought in the United States District Court for the Central District of
California in respect to an Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. Artra's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company subsidiary of Baltimore Paint and Chemical Company, which was
formerly owned by Artra. Synkoloid manufactured spackling paste, wall coatings
and related products, certain of which generated hazardous substances as a
by-product of the manufacturing process. Artra entered into a consent decree
with the EPA in which it agreed to pay $85,000 for one phase of the clean-up
costs for this site; however, Artra defaulted on its payment obligation. Artra
is presently unable to estimate the total potential liability for clean-up costs
at this site, which clean-up is expected to continue for a number of years. The
consent decree, even if it had been honored by Artra, was not intended to
release Artra from liability for costs associated with other phases of the
clean-up at this site. Artra is presently unable to determine what, if any,
additional liability it may incur in this matter.
Other Cases
Bagcraft Packaging, LLC and Packaging Dynamics, LLC filed suit against
Artra and its BCA Holdings, Inc. subsidiary in the Circuit Court of Cook County,
Illinois, on November 22, 1999, alleging that Artra breached a non-compete
agreement entered into in connection with the sale of certain assets to Bagcraft
Packaging, LLC by hiring Mark Santacrose as Chief Executive Officer and
President of Artra. The plaintiffs seek damages in excess of $5,000,000. Artra
intends to vigorously defend itself in this action.
Incidental litigation involving Public Liquidation Systems, Inc. and
Asset Liquidation Group, Inc., Entrade Inc.'s Nationwide subsidiaries, occurring
in the ordinary course of their businesses.
<PAGE>
SCHEDULE 3(m)
Executive Officers
Robert S. Gruber has tendered his resignation, effective as of March 31, 2000,
from his position as Vice President - Corporate Relations of Entrade Inc.
Lawrence D. Levin's employment with Entrade Inc. as its Controller terminates
effective as of March 31, 2000.
Nothing in this Schedule 3(m) should be deemed to constitute a
determination or admission that any such person is an executive
officer.
<PAGE>
SCHEDULE 3(n)
Intellectual Property
Entrade Inc. has entered into various confidentiality agreements with third
parties which will terminate within one (1) or two (2) years after the date of
execution of such agreements.
In certain cases, Entrade Inc. has not yet entered into confidentiality
agreements and/or invention agreements with employees relating to the secrecy,
confidentiality, and ownership of Entrade Inc.'s intellectual property (which
does not represent an admission by Entrade Inc. (i) that such employees are not
obligated to keep Entrade Inc.'s intellectual property secret and confidential,
or (ii) that any such employee owns any of Entrade Inc.'s intellectual
property).
<PAGE>
SCHEDULE 3(q)
Tax Status
None.
<PAGE>
SCHEDULE 3(r)
Transactions with Affiliates
Certain employment agreements, option agreements, employment-related agreements
and business expense agreements.
Lease for approximately 12,700 square feet in Northfield, Illinois by and
between Entrade Inc., as lessee, and The John Harvey Family Trust, as lessor.
Lease for approximately 800 square feet in Northfield, Illinois by and between
Artra Group Incorporated, as lessee, and The John Harvey Family Trust, as
lessor.
Agreement and Plan of Merger by and between Entrade Inc., Positive Asset
Remarketing, Robert D. Kohn, Benjamin Kafka and Mark Quinn.
Stock Purchase Agreement by and between Entrade Inc., Warren Rothstein, Thomas
Settineri and Gary Levi.
Loan in the principal amount of $512,500 to Donald G. Haidl from WestAmerica
Bank as guaranteed by Public Liquidation Systems, Inc.
<PAGE>
SCHEDULE 3(w)
Liens
Mortgages upon various real property owned by Public Liquidation Systems, Inc.
and Asset Liquidation Group, Inc., Entrade Inc.'s Nationwide subsidiaries.
<PAGE>
SCHEDULE 3(x)
Insurance
None.
<PAGE>
SCHEDULE 3(aa)
Certain Agreements
None.
<PAGE>
SCHEDULE 4(d)
Working Capital
Fee to J.C. Bradford & Co.: $1,350,000
Cost reimbursements: $50,000
Legal fees and costs for Entrade Inc.: $25,000
Partial prepayment of Artra debt: $2,500,000
Working capital and investment capital
for both existing and new businesses: $26,075,000
Exhibit 4.1
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS WARRANT.
ENTRADE INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: _____________________ Number of Shares: ________
Date of Issuance: March __, 2000
Entrade Inc., a Pennsylvania corporation (the "Company"), hereby certifies that,
for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) ___________________ (________) [INSERT 13.3334 shares of Common Stock
for each Preferred Share] fully paid nonassessable shares of Common Stock (as
defined herein) of the Company (the "Warrant Shares") at the purchase price per
share provided in Section 1(b) below; provided, however, that in no event shall
the holder be entitled to exercise this Warrant for a number of Warrant Shares
in excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such
<PAGE>
proviso is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised Warrants beneficially
owned by the holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by the holder and its affiliates (including, without
limitation, any convertible notes or preferred stock) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-Q, Form 10-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public announcement
by the Company or (3) any other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding. Upon the written
request of any holder, the Company shall promptly, but in no event later than
one (1) Business Day following the receipt of such notice, confirm in writing to
any such holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to conversions of Preferred Shares and exercise of Warrants (as
defined below) by such holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "Preferred Share Warrants") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of March 24, 2000, among the
Company and the Buyers referred to therein (the "Securities Purchase
Agreement").
(b) Definitions. The following words and terms as used in
this Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director or consultant for services provided to the Company.
(ii) "Statement of Designations" means the Company's
Statement with Respect to Share stating the designation and voting rights,
preferences, limitations and special rights for its Series A Convertible
Preferred Stock.
(iii) "Business Day" means any day other than
Saturday, Sunday or any other day on which commercial banks in the City of New
York are authorized or required by law to remain closed.
-2-
<PAGE>
(iv) "Closing Sale Price" means, for any security as
of any date, the last closing trade price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("Bloomberg"), or if the Principal Market begins to operate on an extended hours
basis, and does not designate the closing trade price, then the last trade price
at 4:00 p.m. Eastern Time as reported by Bloomberg, or, if the foregoing do not
apply, the last closing trade price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the lowest ask price and the highest bid price of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holder of this Warrant. If the Company and the holder of
this Warrant are unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved pursuant to Section 2(a) below with the term
"Closing Sale Price" being substituted for the term "Market Price." All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period.
(v) "Common Stock" means (i) the Company's common
stock, no par value per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(vi) "Convertible Securities" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(vii) "Expiration Date" means the date three (3)
years after the Issuance Date of this Warrant or, if such date falls on a
Saturday, Sunday or other day on which banks are required or authorized to be
closed in the City of New York or the State of New York or on which trading does
not take place on the Principal Market (a "Holiday"), the next date that is not
a Holiday.
(viii) "Excluded Securities" means (A) options to
purchase shares of Common Stock, provided (I) such options are issued after the
Issuance Date of this Warrant to employees or consultants of the Company within
30 days of such employee or consultant starting their employment or consultation
with the Company, (II) such options are approved by the Board of Directors of
the Company or an appropriately designated committee of the Board of Directors
and (III) the exercise price of such options is not less than the market price
of the Common Stock on the date of issuance of such options, (B) shares of
Common Stock issued by the Company in a firm commitment, underwritten public
offering which generates aggregate gross proceeds to the Company (as reflected
in the preliminary prospectus and final prospectus for such offering) of at
least $30,000,000, and (C) warrants to purchase Common Stock issued by the
Company in connection with any strategic partnership or relationship or joint
venture (the primary purpose of which is not to raise equity capital), provided
that all such warrants issued by the Company after the Issuance Date of this
Warrant do not grant the right to acquire in excess of 2,000,000 shares
-3-
<PAGE>
of Common Stock and the exercise price of such warrants is not less than the
market price of the common stock on the date the terms of such warrant are
agreed to in principle in writing.
(ix) "Issuance Date" means, with respect to each
Warrant, the date of issuance of the applicable Warrant.
(x) "Market Price" means, with respect to any
security for any date of determination, that price which shall be computed as
the arithmetic average of the Closing Sale Prices for such security on each of
the 10 consecutive trading days immediately preceding such date of determination
(all such determinations to be appropriately adjusted for any stock dividend,
stock split or similar transaction during the pricing period).
(xi) "Options" means any rights, warrants or options
to subscribe for or purchase Common Stock or Convertible Securities.
(xii) "Other Securities" means (i) those options and
warrants of the Company issued prior to, and outstanding on, the date of
issuance of this Warrant, (ii) the shares of Common Stock issued upon exercise
of such options and warrants, provided such options and warrants are not amended
in any material way after the issuance date of this Warrant, (iii) the Preferred
Shares and (iv) the shares of Common Stock issued upon conversion of the
Preferred Shares or the exercise of the Preferred Share Warrants.
(xiii) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiv) "Preferred Shares" means the shares of the
Company's Series A Convertible Preferred Stock, par value $1,000 per share,
issued pursuant to the Securities Purchase Agreement.
(xv) "Principal Market" means The New York Stock
Exchange, Inc. or if the Common Stock is not traded on The New York Stock
Exchange, Inc., then the principal securities exchange or trading market for the
Common Stock.
(xvi) "Registration Rights Agreement" means that
Agreement dated March 24, 2000 by and among the Company and the Buyers referred
to therein.
(xvii) "Securities Act" means the Securities Act of
1933, as amended.
(xviii) "Warrant" means this Warrant and all Warrants
issued in exchange, transfer or replacement hereof.
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(xix) "Warrant Exercise Price" shall be equal to
$41.375, as adjusted for stock splits, stock dividends, stock combinations and
similar transaction and subject to adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all
references herein (A) to the Company shall be deemed to include the Company's
successors and (B) to any applicable law defined or referred to herein, shall be
deemed references to such applicable law as the same may have been or may be
amended or supplemented from time to time.
(ii) When used in this Warrant, the words "herein,"
"hereof," and "hereunder," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"Section," "Schedule," and "Exhibit" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter
gender includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time on any Business Day on or after the
opening of business on the date hereof and prior to 11:59 P.M. Eastern Time on
the Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the applicable Warrant Exercise Price multiplied by the number
of Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash or wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 2(f)) and (iii) the surrender to a
common carrier for overnight delivery to the Company, as soon as practicable
following such date, of this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction). In the
event of any exercise of the rights represented by this Warrant in compliance
with this Section 2(a), the Company shall on the second Business Day following
the date of receipt of the Exercise Notice, the Aggregate Exercise Price (or
notice of a Cashless Exercise) and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) (the "Exercise Delivery Documents"), credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with The Depository Trust Company; provided,
however, if the holder who submitted the
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Exercise Notice requested physical delivery of any or all of the Warrant Shares,
then the Company shall, on or before the second Business Day following receipt
of the Exercise Delivery Documents issue and surrender to a common carrier for
overnight delivery to the address specified in the Exercise Notice, a
certificate, registered in the name of the holder, for the number of shares of
Common Stock to which the holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A) above or notification to the Company of a Cashless Exercise
referred to in Section 2(f), the holder of this Warrant shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
of delivery of this Warrant as required by clause (iii) above or the
certificates evidencing such Warrant Shares. In the case of a dispute as to the
determination of the Warrant Exercise Price or the Market Price of a security or
the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the holder the number of shares of Common Stock that is not disputed
and shall transmit an explanation of the disputed determinations or arithmetic
calculations to the holder via facsimile within one Business Day of receipt of
the holder's subscription notice. If the holder and the Company are unable to
agree upon the determination of the Warrant Exercise Price or the Market Price
or arithmetic calculation of the Warrant Shares within two (2) Business Days of
such disputed determination or arithmetic calculation being transmitted to the
holder, then the Company shall within one (1) Business Day transmit via
facsimile (i) the disputed determination of the Warrant Exercise Price or the
Market Price to an independent, reputable investment banking firm or (ii) the
disputed arithmetic calculation of the Warrant Shares to its independent,
outside accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which such Warrant is exercised.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no reason
to issue to the holder within five (5) Business Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of Common Stock to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant, the Company
shall, in
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addition to any other remedies under this Warrant or the Securities Purchase
Agreement or otherwise available to such holder, including any indemnification
under Section 8 of the Securities Purchase Agreement, pay as additional damages
in cash to such holder on each day after such fifth (5th) Business Day that the
delivery of such Common Stock certificate is not timely effected an amount equal
to 0.5% of the product of (A) the sum of the number of shares of Common Stock
not issued to the holder on a timely basis and to which the holder is entitled,
and (B) the average of the Closing Sale Price of the Common Stock for the three
consecutive trading days immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without violating this
Section 2.
(e) If within five (5) Business Days after the Company's
receipt of the Exercise Delivery Documents, the Company fails to deliver a new
Warrant to the holder for the number of shares of Common Stock to which such
holder is entitled pursuant to Section 2(b) hereof, then, in addition to any
other available remedies under this Warrant or the Securities Purchase Agreement
including indemnification pursuant to Section 8 thereof or otherwise available
to such holder, the Company shall pay as additional damages in cash to such
holder on each day after such fifth (5th) Business Day that such delivery of
such new Warrant is not timely effected an amount equal to 0.5% of the product
of (A) the number of shares of Common Stock represented by the portion of this
Warrant which is not being exercised and (B) the average of the Closing Sale
Prices of the Common Stock for the three consecutive trading days immediately
preceding the last possible date which the Company could have issued such
Warrant to the holder without violating this Section 2.
(f) If after the Effectiveness Deadline (as defined in the
Registration Rights Agreement), despite the Company's obligations under the
Securities Purchase Agreement and the Registration Rights Agreement, the Warrant
Shares to be issued are not registered and available for resale pursuant to a
registration statement in accordance with the Registration Rights Agreement,
then notwithstanding anything contained herein to the contrary, the holder of
this Warrant may, in its sole discretion, exercise this Warrant in whole or in
part and, in lieu of making the cash payment otherwise contemplated to be made
to the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the "Net Number" of shares of Common
Stock determined according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which
this Warrant is then being exercised.
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B= the Closing Sale Price of the Common Stock on
the date immediately preceding the date of the
subscription notice.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such
exercise.
(g) Adjustment to Warrant Exercise Price. In addition to any
other adjustment to the Warrant Exercise Price provided for in this Warrant, if
a Liquidity Default Date (as defined in the Statement of Designations) occurs
prior to or on the date which is 11 trading days prior to the date which is 455
days after the Issuance Date, then beginning on and including the date which is
four (4) trading days after such Liquidity Default Date the Warrant Exercise
Price shall be equal to the lower of (I) the Warrant Exercise Price in effect on
the date immediately preceding such Liquidity Default Date and (II) the
Liquidity Default Date Price (as defined in the Statement of Designations) with
respect to such Liquidity Default Date, subject to further adjustment as
provided herein. Upon adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
Section 3. Covenants as to Common Stock. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution
for or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares
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of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Company's Statement of Designations or any
waiver thereof which has an adverse effect on the rights granted hereunder shall
be given effect until the Company has taken appropriate action (satisfactory to
the holders of Preferred Share Warrants representing at least two-thirds (2/3)
of the shares of Common Stock issuable upon the exercise of such Preferred Share
Warrants then outstanding) to avoid such adverse effect with respect to this
Warrant. Without limiting the generality of the foregoing, the Company (i) will
not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Warrant Exercise Price then in effect, and
(ii) will take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies
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of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of
the Warrant Shares for any minimum or other specific term and reserves the right
to dispose of this Warrant and the Warrant Shares at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act. The holder of this Warrant further represents, by acceptance hereof, that,
as of this date, such holder is an "accredited investor" as such term is defined
in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "Accredited Investor"). Upon exercise of
this Warrant, other than pursuant to a Cashless Exercise, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant, other than pursuant to a Cashless Exercise, that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of this Warrant shall not violate any United States or state securities
laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall be
assignable by the holder hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares
for resale under the Securities Act pursuant to the Registration Rights
Agreement and the initial holder of this Warrant (and certain assignees thereof)
is entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
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Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than shares of Common Stock which are
issued or deemed to have been issued by the Company in connection with an
Approved Stock Plan or Excluded Security or upon the issuance, exercise or
conversion of the Other Securities) for a consideration per share less than a
price (the "Applicable Price") equal to the Warrant Exercise Price in effect
immediately prior to such issuance or sale, then immediately after such issue or
sale the Warrant Exercise Price then in effect shall be reduced to an amount
equal to such consideration per share. Upon each such adjustment of the Warrant
Exercise Price hereunder made on or prior to the date which is 455 days after
the Issuance Date, the number of shares of Common Stock acquirable upon exercise
of this Warrant shall be adjusted to the number of shares determined by
multiplying the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
(i) Issuance of Options. If the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion
or exchange of any Convertible Securities issuable upon exercise of any such
Option is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable
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Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the issuance or sale of
such Convertible Securities for such price per share. For the purposes of this
Section 8(b)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon the conversion or exchange" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion or exchange of such Convertible
Security. No further adjustment of the Warrant Exercise Price shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or is to be made pursuant to other provisions of
this Section 8(b), no further adjustment of the Warrant Exercise Price shall be
made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
(c) Effect on Warrant Exercise Price of Certain Events.
For purposes of determining the adjusted Warrant Exercise Price under Sections
8(a) and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price of such securities on the date of receipt
of such securities. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will
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be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of Preferred Share Warrants representing at least two-thirds (2/3) of
the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Preferred Share Warrants representing at least two-thirds (2/3)
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. The determination of such appraiser shall be final
and binding upon all parties and the fees and expenses of such appraiser shall
be borne jointly by the Company and the holders of Preferred Share Warrants.
(ii) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock unless such shares are
cancelled.
(iv) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common
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Stock obtainable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(d) shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:
(i) any Warrant Exercise Price in effect immediately
prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares
obtainable upon exercise of this Warrant shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding clause (i), or
(B) in the event that the Distribution is of common stock of a company whose
common stock is traded on a national securities exchange or a national automated
quotation system, then the holder of this Warrant shall receive an additional
warrant to purchase Common Stock, the terms of which shall be identical to those
of this Warrant, except that such warrant shall be exercisable into the amount
of the assets that would have been payable to the holder of this Warrant
pursuant to the Distribution had the holder exercised this Warrant immediately
prior to such record date and with an exercise price equal to the amount by
which the exercise price of this Warrant was decreased with respect to the
Distribution pursuant to the terms of the immediately preceding clause (i).
(f) Adjustment of Warrant Exercise Price for Registration
Statement Failures. If (i) any Registration Statement (as defined in the
Registration Rights Agreement) covering the resale of the shares of Common Stock
issuable upon exercise of this Warrant is not (A) filed with the SEC on or
before the applicable Filing Deadline (as defined in the Registration Rights
Agreement) or (B) declared effective by the SEC on or before the applicable
Effectiveness Deadline (as defined in the Registration Rights Agreement) or (ii)
after the Registration Statement has been declared effective by the SEC, sales
of all the shares of Common Stock issuable upon exercise of this Warrant can not
be made pursuant to the Registration Statement (including, without limitation,
because of a failure to keep the Registration Statement effective, to disclose
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such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock or
otherwise) for a period of more than five (5) consecutive days or more than 10
days in any 365-day period (including days during Grace Periods (as defined in
Section 3(t) of the Registration Rights Agreement)), then, as partial relief for
the damages to the holder by reason of any of the foregoing events (which remedy
shall not be exclusive of any other remedies available at law or in equity), the
Warrant Exercise Price in effect at such time shall be reduced by an amount
equal to the product of (a) the Warrant Exercise Price in effect as of the
Issuance Date and (b) the sum of (I) 0.05, if the Registration Statement is not
filed by the Filing Deadline and the Company has redeemed at least 15,000
Preferred Shares by the Filing Deadline , plus (II) 0.05, if the Registration
Statement is not declared effective by the Effectiveness Deadline and the
Company has redeemed at least 15,000 Preferred Shares by the Effectiveness
Deadline, plus (III) the product of (x) 0.001 multiplied by (y) the sum of (i)
the number of days after the Filing Deadline that such Registration Statement is
not filed with the SEC, plus (ii) the number of days after the Effectiveness
Deadline that the Registration Statement is not declared effective by the SEC,
plus (iii) the number of days after the Registration Statement is declared
effective by the SEC that such Registration Statement is not available for the
sale of all the shares of Common Stock issuable upon exercise of this Warrant
and in excess of five (5) consecutive days or in excess of 10 days in any
365-day period (including days during Grace Periods), provided however that the
number of days counted in (i), (ii) and (iii) above shall exclude from such
count those days on which the Company had not previously redeemed at least
15,000 Preferred Shares.
(g) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 8 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Warrant Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Preferred Share Warrants; provided that no such adjustment pursuant to this
Section 8(g) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.
(h) Notices.
(i) Promptly upon any adjustment of a Warrant
Exercise Price, and in no event later than two (2) Business Days after such
adjustment, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the
holder of this Warrant at least ten (10) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with
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<PAGE>
respect to any Organic Change (as defined below), dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to
the holder of this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction in each case which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." Prior to the consummation of any (i) sale of all or
substantially all of the Company's assets to an acquiring Person or (ii) other
Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "Acquiring Entity") a
written agreement (in form and substance reasonably satisfactory to the holders
of Preferred Share Warrants representing at least two-thirds (2/3) of the shares
of Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding) to deliver to each holder of Preferred Share Warrants in exchange
for such Warrants, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant and
reasonably satisfactory to the holders of two- thirds (2/3) of the Preferred
Share Warrants then outstanding (including, an adjusted warrant exercise price
equal to the value for the Common Stock reflected by the terms of such
consolidation, merger or sale, and exercisable for a corresponding number of
shares of Common Stock acquirable and receivable upon exercise of the Preferred
Share Warrants (without regard to any limitations or exercise), if the value so
reflected is less than any Warrant Exercise Price in effect immediately prior to
such consolidation, merger or sale). Prior to the consummation of any other
Organic Change, the Company shall make appropriate provision (in form and
substance
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<PAGE>
reasonably satisfactory to the holders of Preferred Share Warrants representing
at least two-thirds (2/3) of the shares of Common Stock obtainable upon exercise
of the Preferred Share Warrants then outstanding) to insure that each of the
holders of the Preferred Share Warrants will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Preferred Share Warrants (without regard to any
limitations or exercise), such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on
receipt of an indemnification undertaking (or, in the case of a mutilated
Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
Telephone: (847) 784-3335
Facsimile: (847) 441-6959
Attention: Anthony E. Rothschild, General Counsel
With a copy to:
Duane, Morris & Hecksher LLP
227 West Monroe Street, Suit 3400
Chicago, Illinois 60606
Telephone: (312) 499-6700
Facsimile: (312) 499-6701
Attention: Eric M. Fogel, Esq.
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<PAGE>
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is March __, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7(c) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 13. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing at least
two-thirds (2/3) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding; provided that no such action may
increase the Warrant Exercise Price of any Preferred Share Warrant or decrease
the number of shares or class of stock obtainable upon exercise of any Preferred
Share Warrant without the written consent of the holder of such Preferred Share
Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. All questions
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York, or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
___________________, its ____________________________, as of the ___ day of
March, 2000.
ENTRADE INC.
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
ENTRADE INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Entrade
Inc., a Pennsylvania corporation (the "Company"), evidenced by the attached
Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment o
the Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to ____________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to ________
Warrant Shares (to the extent permitted by the
terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
_________________________
Name of Registered Holder
By:
Name:_______________________
Title:______________________
<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated March ___, 2000 from
the Company and acknowledged and agreed to by [TRANSFER AGENT].
ENTRADE INC.
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Entrade Inc., a Pennsylvania
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, ____
______________________________________
By: _____________________________
Its: _____________________________
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 24,
2000, by and among Entrade Inc., a Pennsylvania corporation, with headquarters
located at 500 Central Avenue, Northfield, Illinois 60093 (the "Company"), and
the undersigned Buyers (individually a "Buyer" and collectively the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and among the parties hereto (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) 30,000 shares
of the Company's Series A Convertible Preferred Stock, par value $1,000 per
share (the "Preferred Shares"), which will be convertible into shares (as
converted, the "Conversion Shares") of the Company's common stock, no par value
per share (the "Common Stock"), in accordance with the terms of the Company's
Statement with Respect to Shares stating the designation and voting rights,
preferences, limitation and special rights of its Series A Convertible Preferred
Stock (the "Statement of Designations"), and (ii) warrants to purchase shares of
Common Stock (the "Warrants" and, as exercised, the "Warrant Shares").
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof.
<PAGE>
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for the offering for
resale of securities on a continuous or delayed basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Dividend
Shares (as defined in the Statement of Designations) relating to the Preferred
Shares, (iii) Warrant Shares issued or issuable upon exercise of the Warrants,
and (iv) any shares of capital stock issued or issuable with respect to the
Conversion Shares, the Preferred Shares, the Dividend Shares relating to the
Preferred Shares, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Preferred Shares or
exercises of Warrants.
e. "Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Registrable Securities.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable, but in no event later than September 30, 2000 (the "Filing
Deadline"), file with the SEC a Registration Statement or Registration
Statements (as necessary) on Form S-3 covering the resale of all of the
Registrable Securities. In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). Any first Registration
Statement prepared pursuant hereto shall register for resale at least that
number of shares of Common Stock equal to the sum of (y) the product of (i) 2
and (ii) the number of Conversion Shares issuable upon conversion of the
Preferred Shares (without regard to any limitations on conversions) as of the
date immediately preceding the date the Registration Statement is initially
filed with the SEC, subject to adjustment as provided in Section 2(f), plus (z)
100% of the number of Warrant Shares issuable upon exercise of the Warrants
(without regard to any limitations on exercise) as of the date immediately
preceding the date the Registration Statement is initially filed with the SEC,
subject to adjustment as provided in Section 2(f). The Company shall cause such
Registration Statement to be declared effective by the SEC as soon as possible,
but in no event later than the date which is 90 days after the Filing Deadline
(the "Effectiveness Deadline").
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In
2
<PAGE>
the event that an Investor sells or otherwise transfers any of such Investor's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is
not available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form and (ii) undertake to register the resale
of the Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.
e. Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. If (i) a Registration Statement
covering all the Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the
applicable Filing Deadline or (B) declared effective by the SEC on or before the
applicable Effectiveness Deadline or (ii) on any day after the Registration
Statement has been declared effective by the SEC, sales of all the Registrable
Securities required to be included on such Registration Statement cannot be made
pursuant to the Registration Statement (including, without limitation, because
of a failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the Registration
Statement, to register sufficient shares of Common Stock) for a period of more
than five (5) consecutive days or more than ten (10) days in a 365-day period
(including days during Grace Periods (as defined in Section 3(t))), then, as
partial relief for the damages to any holder by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of Preferred Shares an amount in
cash per Preferred Share held equal to the product of (i) $1,000 multiplied by
(ii) the sum of (A) 0.015, if the Registration Statement is not filed by the
Filing Deadline, plus (B) 0.015, if the Registration Statement is not declared
effective by the Effectiveness Deadline, plus, (C) the product of (I) .0005
multiplied by (II) the sum of (x) the number of days after the Filing Deadline
that such Registration Statement is not filed with the SEC, plus (y) the number
of days after the Effectiveness Deadline that the Registration Statement is not
declared effective by the SEC, plus (z)
3
<PAGE>
the number of days after the Registration Statement has been declared effective
by the SEC that such Registration Statement is not available for the sale of at
least all the Registrable Securities required to be included on such
Registration Statement and in excess of five (5) consecutive days or in excess
of ten (10) days in a 365-day period (including days during Grace Periods). The
payments to which a holder shall be entitled pursuant to this Section 2(e) are
referred to herein as "Registration Delay Payments." Registration Delay Payments
shall be paid on the earlier of (I) the last day of the calendar month during
which such Registration Delay Payments are incurred and (II) the third business
day after the event or failure giving rise to the Registration Delayed Payments
is cured. In the event the Company fails to make Registration Delay Payments in
a timely manner, such Registration Delay Payments shall bear interest at the
rate of 1.5% per month (prorated for partial months) until paid in full.
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities which
such Registration Statement is required to cover or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least that number of shares of Common Stock equal to the sum of (x) the product
of (i) 2 and (ii) the number of Conversion Shares issuable upon conversion of
the Preferred Shares (without regard to any limitations on conversion) as of the
date immediately preceding the date such amendment or new Registration Statement
is filed with the SEC, plus (y) the number of Warrant Shares issuable upon
exercise of the Warrants (without regard to any limitations on exercise) as of
the date immediately preceding the date such amendment or new Registration
Statement is filed with the SEC, plus (z) the number of Conversion Warrant
Shares held by the Investors as of the date immediately preceding the date on
which such amendment or new Registration Statement is filed with the SEC, in
each case, as soon as practicable, but in any event not later than fifteen (15)
business days after the necessity therefor arises. The Company shall cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if the
number of Registrable Securities issued or issuable upon conversion of the
Preferred Shares and exercise of the Warrants covered by such Registration
Statement is greater than the sum of (a) the quotient determined by dividing (i)
the number of shares of Common Stock available for resale under the Registration
Statement to cover shares issued or issuable upon conversion of the Preferred
Shares by (ii) 1.5 and (b) the number of shares of Common Stock available for
resale under the Registration Statement to cover shares issued or issuable upon
exercise of the Warrants. For purposes of the calculation set forth in the
foregoing sentence, any restrictions on the convertibility of the Preferred
Shares or exercise of the Warrants shall be disregarded and such calculation
shall assume that the Preferred Shares are then convertible into, and the
Warrants are then exercisable for, shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Statement of Designations) or Exercise Price
(as defined in the Warrants), respectively.
4
<PAGE>
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(f), the Company will effect
the registration of the Registrable Securities in accordance with the intended
method of disposition thereof and, pursuant thereto, the Company shall have the
following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the Filing Deadline) and cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the applicable
Effectiveness Deadline). The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until the earlier of (i) the date as
of which the Investors may sell all of the Registrable Securities covered by
such Registration Statement without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
the Investors shall have sold all the Registrable Securities covered by such
Registration Statement (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The Company shall submit to the SEC, within three business days
after the Company learns that no review of a particular Registration Statement
will be made by the staff of the SEC or that the staff has no further comments
on the Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 Act"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.
5
<PAGE>
c. The Company shall (a) permit Legal Counsel to review and
comment upon those sections of (i) the Registration Statement at least five (5)
business days prior to its filing with the SEC, and (ii) all other Registration
Statements and all amendments and supplements to all Registration Statements,
which are applicable to the Buyers (except for Annual Reports on Form 10- K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any similar or
successor report and registration statements on Form S-8) at least four (4)
business days prior to their filing with the SEC and (b) not file any document
in a form to which Legal Counsel reasonably objects. The Company shall furnish
to Legal Counsel, without charge, (i) any correspondence from the SEC or the
staff of the SEC to the Company or its representatives relating to any
Registration Statement, (ii) promptly after the same is prepared and filed with
the SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, and all exhibits and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e. The Company shall (i) register and qualify, unless an
exemption from registration and qualification applies, the Registrable
Securities covered by a Registration Statement under all jurisdictions'
securities or "blue sky" laws in the United States, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change in the Company's Certificate of Incorporation or
by-laws that the Company's board of directors determines in good faith to be
contrary to the best interests of the Company and its shareholders, (x) qualify
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(e), (y) subject itself to general taxation in any
such jurisdiction, or (z) file a general consent to service of process in any
such jurisdiction. The Company shall promptly notify Legal Counsel and each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws
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of any jurisdiction in the United States or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such
event or development, the Company shall notify Legal Counsel and each Investor
in writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness),
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction, however, if such an order
or suspension is issued, the Company shall obtain the withdrawal of such order
or suspension at the earliest possible moment and to notify Legal Counsel and
each Investor who holds Registrable Securities being sold of the issuance of
such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
h. At the reasonable request of any Investor and at the
expense of such Investor, the Company shall furnish to such Investor, on the
date of the effectiveness of the Registration Statement and thereafter from time
to time on such dates as an Investor may reasonably request (i) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.
i. The Company shall make available for inspection, at the
expense of the Investor acting pursuant to this Section 3(i), by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause
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the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request; provided, however, that each Inspector
shall agree, and each Investor hereby agrees, to hold in strict confidence and
shall not make any disclosure (except to an Investor) or use of any Record or
other information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement of which the Inspector has knowledge. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements with the Company with respect thereto, substantially
in the form of this Section 3(i). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non- appealable order from a court or governmental body of competent
jurisdiction, (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement, or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall either (i) cause all the Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation and
quotation of all the Registrable Securities covered by the Registration
Statement on the Nasdaq National Market or The New York Stock Exchange, Inc.,
or, if the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), the Company shall secure the inclusion for quotation on The American Stock
Exchange, Inc., or The Nasdaq SmallCap Market, for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with
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respect to such Registrable Securities. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered, and to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
n. If requested by an Investor, the Company shall (i) as soon
as practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if reasonably requested by an Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement, provided that the
Company shall be deemed to satisfy its obligations under this Section 3(p) if it
timely makes all required filings under the 1934 Act and does not change its
fiscal year.
q. The Company shall otherwise comply with all applicable
rules and regulations of the SEC in connection with any registration hereunder.
r. Within two (2) business days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable
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Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.
s. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in Section 3(f),
at any time after the applicable Registration Statement has been declared
effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a "Grace Period"); provided, that
the Company shall promptly (i) notify the Investors in writing of the existence
of material non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Period shall exceed 20
consecutive days and during any 365-day period such Grace Periods shall not
exceed an aggregate of 30 days and the first day of each Grace Period must be at
least two trading days after the last day of any prior Grace Period (an
"Allowable Grace Period"). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the holders
receive the notice referred to in clause (i) and shall end on and include the
later of the date the holders receive the notice referred to in clause (ii) and
the date referred to in such notice. The provisions of 3(g) hereof shall not be
applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of
Section 3(f) with respect to the information giving rise thereto unless such
material non-public information is no longer applicable.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company reasonably requires from
each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with
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<PAGE>
the preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
c. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of Section 3(f), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
3(g) or the first sentence of Section 3(f) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor's receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of Section 3(f) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company. In addition, the Company shall reimburse the
Investors for the reasonable fees and disbursements of Legal Counsel in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 of this Agreement which fees and disbursements shall not exceed $10,000.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect
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<PAGE>
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue sky" laws of
any jurisdiction in which Registrable Securities are offered ("Blue Sky
Filing"), or the omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to Section 6(c), the Company shall reimburse the Investors and each such
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or disbursements or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not be available to the extent such Claim is
based on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (iii) shall not apply to
amounts paid in settlement of any Claim, if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) with
respect to any prospectus shall not inure to the benefit of an Indemnified
Person if the untrue statement or omission of material fact contained in the
prospectus was corrected in the prospectus and such new prospectus was delivered
to each Investor prior to such Investor's first use of the prospectus to which
the Claim relates.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "Indemnified Party"), against any Claim or Indemnified Damages to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or
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<PAGE>
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
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<PAGE>
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
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a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required by the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents as may be necessary
to qualify under Rule 144, and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
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11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
Telephone: (847) 784-3335
Facsimile: (847) 441-6959
Attention: Anthony E. Rothschild, General Counsel
With a copy to:
Duane, Morris & Hecksher LLP
227 West Monroe Street, Suit 3400
Chicago, Illinois 60606
Telephone: (312) 499-6700
Facsimile: (312) 499-6701
Attention: Eric M. Fogel, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
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If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby irrevocably
submits to the non- exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the
Warrants and the Statement of Designations constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There
are no restrictions, promises, warranties or
17
<PAGE>
undertakings, other than those set forth or referred to herein and therein. This
Agreement, the Securities Purchase Agreement, the Warrants and the Statement of
Designations supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitations on conversion of the Preferred Shares or
exercise of the Warrants.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * *
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
- ------- ------
ENTRADE INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: By:
-------------------------------- ---------------------------------
Name: Name: James F. O'Brien, Jr.
------------------------------ ---------------------------------
Its: Its: Managing Member
-------------------------------
BUYERS:
FISHER CAPITAL LTD.
By:
Name: Daniel J. Hopkins
Title: Authorized Signatory
WINGATE CAPITAL LTD.
By:_____________________________
Name: Daniel J. Hopkins
Title: Authorized Signatory
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:__________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
19
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor Address Investor's Representatives' Address
Investor Name and Facsimile Number and Facsimile Number
------------- -------------------- --------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. Promethean Investment Group, L.L.C.
750 Lexington Avenue, 22nd Floor 750 Lexington Avenue, 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John M. Floegel John M. Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attn: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Residence: Illinois
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attn: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Residence: Illinois
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attn: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attention: Adam J. Chill, Esq.
Telephone: (212) 806-5400
Facsimile: (212) 806-6006
</TABLE>
20
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:__________________
Re: Entrade Inc.
Ladies and Gentlemen:
We are counsel to Entrade Inc., a Pennsylvania corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the Buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Series A
Convertible Preferred Stock, par value $1,000 per share (the "Preferred Shares")
convertible into shares of the Company's common stock, no par value per share
(the "Common Stock"), and the related Warrants (the "Warrants") to acquire
shares of Common Stock. Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "Registration
Rights Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and upon exercise of the Warrants, under the Securities Act of
1933, as amended (the "1933 Act"). In connection with the Company's obligations
under the Registration Rights Agreement, on ____________ ____, the Company filed
a Registration Statement on Form S-3 (File No. 333- _____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:___________________
cc: [LIST NAMES OF HOLDERS]
Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of March 24,
2000, by and among Entrade Inc., a Pennsylvania corporation, with headquarters
located at 500 Central Avenue, Northfield, Illinois 60093 (the "Company"), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
"Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and each Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized a new series of its Preferred Stock, par
value $1,000 per share, which shall be called the Company's Series A Convertible
Preferred Stock (the "Preferred Stock"), which shall be convertible into shares
of the Company's common stock, no par value per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Company's Statement with Respect to Shares stating the Designation and voting
rights, preferences, limitations and special rights of the Preferred Stock in
the form attached hereto as Exhibit A (the "Statement of Designations");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, (i) the number of shares of Preferred Stock set forth
opposite such Buyer's name on the Schedule of Buyers (which number of shares to
be issued to all Buyers in the aggregate shall equal 30,000 shares of Preferred
Stock (the "Preferred Shares"), and (ii) warrants (the "Warrants") to purchase
the number of shares of Common Stock set forth opposite such Buyer's name on the
Schedule of Buyers (which number of shares in the aggregate shall equal 400,000
shares of Common Stock (as exercised collectively, the "Warrant Shares")), such
Warrants to be substantially in the form attached hereto as Exhibit B;
D. Contemporaneously with the execution and delivery of this Agreement,
the Company and each Buyer are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit C (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
<PAGE>
NOW THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7, the Company shall issue
and sell to each Buyer and each Buyer agrees to purchase from the Company the
number of Preferred Shares set forth opposite such Buyer's name on the Schedule
of Buyers, along with the related Warrants (the "Closing"). The purchase price
(the "Purchase Price") of each Preferred Share and the related Warrants at the
Closing shall be an aggregate of $1,000. "Business Day" means any day other than
Saturday, Sunday or other day on which commercial banks in the city of New York
are authorized or required by law to remain closed.
b. The Closing Date. The date and time of the Closing (the
"Closing Date") shall be 10:00 a.m., Eastern Time, within one (1) Business Day
following the date hereof, subject to satisfaction (or waiver) of the conditions
to the Closing set forth in Sections 6 and 7 (or such later date as is mutually
agreed to by the Company and the Buyer). The Closing shall occur on the Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693.
c. Form of Payment. On the Closing Date (i) each Buyer shall
pay the Purchase Price to the Company for the Preferred Shares and the related
Warrants to be issued and sold to such Buyer by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer stock certificates (in the
denominations as such Buyer shall request) (the "Stock Certificates")
representing such number of the Preferred Shares which such Buyer is then
purchasing along with the related Warrants, duly executed on behalf of the
Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
2
<PAGE>
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable, (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof and
(iv) in certain circumstances may receive Dividend Shares (as defined in the
Statement of Designations) (the Preferred Shares, the Warrants, the Conversion
Shares, the Dividend Shares and the Warrant Shares, collectively are referred to
herein as the "Securities"), for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor and QIB Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
With regards to HFTP Investment L.L.C. (a Buyer), HFTP Investment L.L.C.
represents and warrants that it is a "qualified institutional Buyer" as that
term is defined in Rule 144A promulgated under the 1933 Act.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
3
<PAGE>
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably satisfactory to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. Notwithstanding the
foregoing, the Securities may be pledged in connection with a bona fide margin
account or other loan secured by the Securities.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, SUCH SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale, assignment or transfer of such securities, such
holder provides the Company with an opinion of counsel, in a form reasonably
satisfactory to the Company, to the effect that such sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144. Such Buyer acknowledges, covenants
and agrees to sell Securities represented by a certificate(s) from which the
legend has been removed, only pursuant to (i) a registration statement effective
under the 1933 Act, or (ii) advice of counsel to such holder that such sale is
exempt from the registration requirements of Section 5 of the 1933 Act.
4
<PAGE>
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns greater than 25% of the capital stock
or holds greater than a 25% equity or similar interest) are corporations duly
organized and validly existing under the laws of the jurisdiction in which they
are incorporated and the Company and its United States Subsidiaries are in good
standing under the laws of the jurisdictions in which they are organized, and
have the requisite corporate power and authorization to own properties and to
carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations or financial condition of the Company
and its Subsidiaries taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or the Statement
of Designations. A complete list of the entities in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest is set
forth in Schedule 3(a).
5
<PAGE>
b. Authorization; Enforcement; Compliance with Other
Instruments. The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5), the Warrants and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by the Company and the execution and
filing of the Statement of Designations by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Preferred Shares and the Warrants and the
reservation for issuance and the issuance of the Conversion Shares and the
Warrant Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Executive Committee of the Company's Board of Directors which
authority has been duly delegated to the Executive Committee by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders. The Transaction Documents
have been duly executed and delivered by the Company. This Agreement and the
Registration Rights Agreement and, when executed and delivered, the other
Transaction Documents, constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 40,000,000 shares of Common Stock, of which as of March 15,
2000, 16,448,074 shares are issued and outstanding, 5,567,886 shares are
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 1,457,044 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares, the Warrants and shares
of Common Stock referred to above as issuable and reserved for issuance pursuant
to the Company's stock option and purchase plans) exercisable or exchangeable
for, or convertible into, shares of Common Stock and (ii) 4,000,000 shares of
preferred stock, of which as of the date hereof, no shares are issued and
outstanding. As of the Closing Date the Company shall not have issued or
reserved for issuance any shares of Common Stock since March 15, 2000 in excess
of 50,000 shares of Common Stock, except pursuant to the exercise of options for
which shares of Common Stock were reserved as of March 15, 2000 and are
reflected in the number of reserved shares set forth in clause (i) of the
immediately preceding sentence. All of such outstanding shares have been and
are, or upon issuance will be, validly issued, fully paid and nonassessable.
Except as disclosed in Schedule 3(c), (i) no shares of the Company's capital
stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding debt securities issued by the Company; (iii) there are no
outstanding options, warrants, scrip,
6
<PAGE>
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyer true and correct copies of the Company's Articles of Incorporation,
as amended and as in effect on the date hereof (the "Articles of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Statement of Designations. At least
1,900,000 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and exercise
of the Warrants. Upon conversion or exercise in accordance with the Statement of
Designations or the Warrants or issuance in accordance with the Statement of
Designations, as the case may be, the Conversion Shares, the Warrant Shares and
the Dividend Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Based in part upon the representations and warranties of
each Buyer as to factual matters set forth in Section 2, the issuance by the
Company of the Securities is exempt from registration under the 1933 Act. The
offer and sale by the Company of the Preferred Shares and the Warrants is being
made in reliance upon the exemption from registration set forth in Rule 506 of
Regulation D under the 1933 Act and is only being made to "accredited investors"
that meet the requirements of Rule 501(a) of Regulation D and similar exemptions
under state law.
e. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Statement of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the Articles of
Incorporation, any Statement with Respect to Shares of any outstanding series of
preferred stock of the Company or the By-laws; (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
7
<PAGE>
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party; or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the principal market or exchange on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Neither the Company nor its Subsidiaries is in violation of any term
of (i) its Articles of Incorporation, any Statement with Respect to Shares of
any outstanding series of preferred stock or its By-laws or their organizational
charter or by-laws, respectively, or (ii) any statute, rule or regulation
applicable to the Company or its Subsidiaries and neither the Company nor its
Subsidiaries is in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order, except, with
respect to this clause (ii), for such violations or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, ordinance or regulation of any governmental
entity except for such violations the sanctions for which either individually or
in the aggregate would not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and except such as have been
obtained as of the date hereof, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Statement of Designations in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and such consents shall have
been obtained prior to the Closing. The Company and its Subsidiaries are unaware
of any facts or circumstances which might reasonably be expected to give rise to
any of the foregoing. The Company is not in violation of the listing
requirements (other than the timely filing of additional listing applications)
of The New York Stock Exchange, Inc. ("NYSE") as in effect on the date hereof
and on the Closing Date and has no actual knowledge of any facts which would
reasonably lead to delisting or suspension of the Common Stock by NYSE in the
foreseeable future.
f. SEC Documents; Financial Statements. Since August 20, 1999,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act, (all of the foregoing filed since December 31,
1998 and prior to the date hereof and the draft, dated March 10, 2000, of the
Company's Form 10-K for the year ended December 31, 1999 which has been provided
to each of the Buyers (the "Draft 1999 10-K") and all exhibits included therein
and financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). A
complete list of the Company's SEC Documents is set forth on Schedule 3(f). As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, other than the fact that
on March 2, 2000 the Company filed a Form 10-Q/A amending its Form 10-Q for the
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three months ended September 30, 1999, however the Company does not believe that
it has any liability for the filing of, or the disclosures contained in, such
Form 10-Q/A or Form 10-Q. None of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its Subsidiaries nor any of their officers, directors, employees or
agents have provided the Buyers with any material, nonpublic information, except
as may be disclosed in the Draft 1999 10-K.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since August 20, 1999 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities or results of operations of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any knowledge of any fact which would reasonably lead a creditor
to do so.
h. Absence of Litigation. Except as disclosed in Schedule
3(h), there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as expressly set forth
in Schedule 3(h). Except as set forth in Schedule 3(h), to the knowledge of the
Company none of the directors or officers of the Company have been involved in
securities related litigation during the past five years.
i. Acknowledgment Regarding the Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Statement of Designations and the transactions contemplated
thereby. The Company further acknowledges that none of the Buyers is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the Statement of Designations and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the Statement of Designations and the transactions
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<PAGE>
contemplated thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Shares and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly disclosed.
k. Intentionally omitted
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of NYSE, nor will the Company or any of its
Subsidiaries take any action or steps that would require registration of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union, neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relations
with their employees are good. Except as set forth in Schedule 3(m), no
executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the
Company's Board of Directors that such officer intends to leave the Company or
otherwise terminate such officer's employment with the Company and the Company
does not expect to terminate any such officer during the six months following
the date of this Agreement.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
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property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), no claim, action or proceeding
has been made or brought against, or to the Company's knowledge, has been
threatened against, the Company or its Subsidiaries regarding trademarks, trade
name rights, patents, patent rights, inventions, copyrights, licenses, service
names, service marks, service mark registrations, trade secrets or other
infringement; and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. Except as set forth
in Schedule 3(n), the Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties except where the failure to do so would not have
either individually or in the aggregate a Material Adverse Effect.
o. Regulatory Permits. Except where the absence of which would
not have a Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses. Neither the Company nor any such Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
p. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
q. Tax Status. Except as set forth in Schedule 3(q), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and for which the
Company has set aside on its books provision reasonably adequate for the payment
of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
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r. Transactions With Affiliates and Employees. Except as set
forth on Schedule 3(r) or in the SEC Documents filed at least ten days prior to
the date hereof and other than the grant or exercise of stock options disclosed
on Schedule 3(c), none of the officers, directors or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Statement of Designations and
its obligation to issue the Warrant Shares in accordance with this Agreement and
the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
t. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Buyers as
a result of the Buyers and the Company fulfilling their obligations under the
Transaction Documents and the Statement of Designations, including, without
limitation, the Company's issuance of the Securities and the Buyers' ownership
of the Securities.
u. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change of control of the Company.
v. Year 2000 Compliance. The Company believes that the
computer applications that are material to its or any Subsidiary's business and
operations are reasonably expected to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000.
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w. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(w) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
x. Insurance. Except as disclosed in Schedule (x), the Company
and each of its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company or its Subsidiaries believes to be prudent and customary in the
businesses in which the Company or its Subsidiaries are engaged. Neither the
Company nor any such Subsidiaries has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect
the condition, financial or otherwise, or the earnings, business or operations
of the Company and its Subsidiaries, taken as a whole.
y. Environmental Laws. The Company and its Subsidiaries (i)
except as may be disclosed in the SEC Documents filed on EDGAR at least five (5)
Business Days prior to the date of this Agreement or the Draft 1999 10-K, are in
compliance in all material respects with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, except where the
failure to receive such permits, licenses or approvals would not, individually
or in the aggregate, have a Material Adverse Effect and (iii) are in compliance
in all material respects with all terms and conditions of any such permit,
license or approval, except where the failure to be in compliance or receive
such permits, licenses or approvals would not, individually or in the aggregate,
have a Material Adverse Effect.
z. Intentionally Omitted.
aa. No Materially Adverse Contracts. Except as specifically
disclosed in the SEC Documents, or as set forth in Schedule 3(aa), neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Except as specifically disclosed in the SEC
Documents, or as set forth in Schedule 3(aa), neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
4. COVENANTS.
a. Best Efforts. Each party hereto shall use its best efforts
to satisfy timely each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
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b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to each Buyer at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to such Buyer on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date which
is one year after the date on which the each Investor (as that term is defined
in the Registration Rights Agreement) may sell all of the Conversion Shares and
the Warrant Shares acquired by such Buyer without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date
on which (A) each Investor shall have sold all the Conversion Shares and the
Warrant Shares acquired by such Investor and (B) none of the Preferred Shares or
Warrants is outstanding (the "Reporting Period"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period: (i) unless filed and
available through the SEC's EDGAR system, within two (2) Business Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments thereto filed
pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries
(or the day after, if released through a recognized wire service) and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the sum of (A) 200% of the number of shares of Common
Stock needed to provide for the issuance of the Conversion Shares and (B) 100%
of the number of shares of Common Stock needed to provide for the issuance of
the Warrant Shares (without regard to any limitations on conversions or exercise
thereof).
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g. Proxy Statement. The Company shall provide each stockholder
entitled to vote at a meeting of stockholders of the Company, which meeting
shall occur on or before the earlier of (A) the date which is 75 days after the
Proxy Statement Triggering Date (as defined below) and (B) May 31, 2001 (the
"Stockholder Meeting Deadline"), a proxy statement, which has been previously
reviewed by each Buyer and Legal Counsel (as defined in the Registration Rights
Agreement), soliciting each such stockholder's affirmative vote at such
stockholder meeting for approval of the Company's issuance of all of the
Securities as described in this Agreement (such affirmative vote being referred
to as the "Stockholder Approval"), and the Company shall use its best efforts to
(i) solicit its stockholders' approval of such issuance of the Securities and
(ii) cause the Board of Directors of the Company to recommend to the
stockholders that they approve such proposal. If the Company fails to hold a
meeting of its stockholders by the Stockholder Meeting Deadline, then, as
partial relief (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Preferred Shares an amount in cash per Preferred Share held by such holder equal
to the product of (i) $1,000; multiplied by (ii) 0.015; multiplied by (iii) the
quotient of (x) the number of days after the Stockholder Meeting Deadline that a
meeting of the Company's stockholders is not held, divided by (y) 30. The
Company shall make the payments referred to in the immediately preceding
sentence within five days of the earlier of (I) the holding of the meeting of
the Company's stockholders, the failure of which resulted in the requirement to
make such payments, and (II) the last day of each 30-day period beginning on the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
1.5% per month (pro rated for partial months) until paid in full. "Proxy
Statement Triggering Date" shall mean the first date after the date of this
Agreement on which during the five consecutive trading days ending on and
including such date of determination there are three trading days on which the
sum of (A) the number of shares of Common Stock previously issued upon
conversion of any Preferred Shares and (B) the number of shares of Common Stock
issuable upon conversion of all the outstanding Preferred Shares based on the
Conversion Price in effect on the date of such determination (without regard to
any limitation upon the conversion of any Preferred Shares), equals or exceeds
12% of the number of shares of Common Stock issued and outstanding immediately
prior to the Closing Date.
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange (including NYSE and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents and the Statement of Designations. The Company shall maintain the
Common Stock's authorization for listing on the Nasdaq National Market or NYSE.
Neither the Company nor any of its Subsidiaries shall take any action which may
result in the delisting or suspension of the Common Stock on the Nasdaq National
Market or NYSE (other than to switch listings from NYSE to the Nasdaq National
Market). The Company shall promptly, and in no event later than the following
Business Day, offer to provide to each Buyer copies of any notices it receives
from the Nasdaq National Market or NYSE regarding the continued eligibility of
the Common Stock for listing on such automated quotation system or securities
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exchange, but only if such notices shall not contain any material nonpublic
information. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Closing,
the Company shall pay an expense allowance of $50,000 to HFTP Investment L.L.C.
(a Buyer), which amount shall be withheld by such Buyer from its Purchase Price.
j. Transactions With Affiliates. So long as (i) any Preferred
Shares or Warrants are outstanding or (ii) any Buyer owns Conversion Shares or
Warrant Shares with a market value of at least $500,000, the Company shall not,
and shall cause each of its Subsidiaries not to, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or supplement,
any agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, persons who were officers or directors at any
time during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock, or Affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a "Related
Party"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, (b) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company or
(c) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
k. Filing of Form 8-K and Form 10-K. On or before Wednesday,
March 29, 2000 following the Closing Date, the Company shall file a Form 8-K
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and consummated at the Closing and including as exhibits
to such Form 8-K this Agreement (including the Schedules to this Agreement), the
Statement of Designations, the Registration Rights Agreement and the Form of
Warrant, in the form required by the 1934 Act. On or prior to the date the
Company files the Form 8-K referred to in the immediately preceding sentence
with the SEC, the Company shall file with the SEC the Company's annual report on
Form 10-K for the year ending December 31, 1999, in the form of the Draft 1999
10-K.
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l. Corporate Existence. So long as any Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq National Market or NYSE.
m. Mandatory Conversion or Redemption. On or before the date
which is 30 days after the Registration Statement is declared effective by the
SEC, the Company (i) shall deliver to each Buyer one or more Company's
Conversion Election Notices or Notices of Redemption at Company's Election (as
each such term is defined in the Statement of Designations) for the conversion
or redemption, respectively, of an aggregate of at least 10% of the Preferred
Shares purchased by such Buyer at the Closing, subject to the satisfaction of
the conditions set forth in Sections 7 and 6, respectively, of the Statement of
Designations, (ii) shall comply with its obligations under Sections 7 and 6 of
the Statement of Designations with respect to the Company's Conversion Election
Notices and Notices of Redemption at Company's Election, respectively, referred
to in the preceding clause (i), and (iii) shall not have delivered any Company's
Mandatory Conversion Period Termination Notice (as defined in the Statement of
Designations) with respect to a Company's Conversion Election Notice referred to
in clause (i) above. On or before the date which is 365 days after the Closing
Date, the Company (A) shall deliver to the Buyers one or more Company's
Conversion Election Notices or Notices of Redemption at Company's Election for
the conversion or redemption, respectively, of an aggregate total, when
cumulated with the number of Preferred Shares converted or redeemed pursuant to
the first sentence of this Section 4(m) for such Buyer, of at least 30% of the
Preferred Shares purchased by such Buyer at the Closing, subject to the
satisfaction of the conditions set forth in Sections 7 and 6, respectively, of
the Statement of Designations, (B) shall comply with its obligations under
Sections 7 and 6 of the Statement of Designations with respect to the Company's
Conversion Election Notices and Notices of Redemption at Company's Election,
respectively, referred to in the preceding clause (A), and (C) shall not have
delivered any Company's Mandatory Conversion Period Termination Notice with
respect to a Company's Conversion Election Notice referred to in clause (A)
above.
n. Restriction on Short Sales. Each Buyer agrees that, subject
to the exceptions described below, during the period beginning on the Closing
Date and ending on the earlier of (i) the first date on which such Buyer no
longer holds any Preferred Shares and (ii) the Company Period Termination Date
(as defined in the Statement of Designations), neither such Buyer nor any of its
affiliates shall engage directly in any transaction constituting a "short sale"
(as defined in Rule 3b-3 of the 1934 Act) of the Common Stock (collectively,
"Short Sales"); provided, however, that each Buyer and its affiliates are
entitled to engage in transactions which constitute Short Sales to the extent
that following such transaction the aggregate short position of such Buyer and
its affiliates does not exceed the sum of (a) the number of shares of Common
Stock equal to the aggregate number of shares of Common Stock which such Buyer
and its affiliates have the right to acquire upon exercise of the Warrants held
by such Buyer and its affiliates (without regard to any limitations on exercises
of the Warrants), plus (b) prior to the first occurrence of a Short Sale Release
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Date (as defined below), during the period beginning on and including the first
day of a Company's Mandatory Conversion Period (as defined in Section 7 of the
Statement of Designations) and ending on and including the date which is the
later of (A) the last day of such Company's Mandatory Conversion Period and (B)
the date on which the Company has delivered all conversion shares relating to
all Conversion Notices submitted during such Mandatory Conversion Period, that
number of shares of Common Stock equal to the quotient of (i) the Conversion
Amount with respect to the number of Preferred Shares set forth in a Company's
Conversion Election Notice (as defined in Section 7 of the Statement of
Designations) for such Buyer and its affiliates with respect to such Company's
Mandatory Conversion Period, divided by (ii) the lowest Conversion Price (as
defined in the Statement of Designations) during the period beginning on and
including the first day of such Company's Mandatory Conversion Period and ending
on and including the last trading day of such Company's Mandatory Conversion
Period, plus (c) on and after the first date after the Closing Date on which
there occurs a Short Sale Release Date, the number of shares of Common Stock
equal to the quotient of (I) the aggregate Conversion Amount with respect to
Preferred Shares held by such Buyer and its affiliates, divided by (II) the
lowest Conversion Price on any day (whether or not such day is a Conversion
Date) during the period beginning on and including the first Short Sale Release
Date and ending on and including the first date after the Closing Date on which
neither such Buyer nor its affiliates hold any Preferred Shares, plus (d) prior
to the first occurrence of a Short Sale Release Date, that number of shares of
Common Stock equal to the number of shares of Common Stock for which Short Sales
where executed during the Company's Mandatory Conversion Period and for which
the holders of the Preferred Stock submitted Conversion Notices during the
Company's Mandatory Conversion Period. Notwithstanding the foregoing, the
restriction on Short Sales set forth in the first sentence of this Section 4(n)
shall not apply (I) on and after the first date on which there shall have
occurred a Triggering Event described in clause (iv), (v) or (vi) of Section
3(b) of the Statement of Designations or an event that with the passage of time
and without being cured would constitute a Triggering Event described in clause
(iv), (v) or (vi) of Section 3(b) of the Statement of Designations; (II) on or
after the date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities or Options (each as defined in the Statement
of Designations) other than Strategic Convertible Securities (as defined in
Section 8 of the Statement of Designations) that are convertible into or
exercisable or exchangeable for shares of Common Stock at a conversion or
exercise price which varies or may vary with the market price of the Common
Stock, including by way of one or more reset(s) to a fixed price; (III) with
respect to a Short Sale so long as such Buyer delivers a Conversion Notice (as
defined in the Statement of Designations) within two (2) Business Days of such
Short Sale entitling such Buyer to receive a number of shares of Common Stock at
least equal to the number of shares of Common Stock sold in such Short Sale;
(IV) with respect to any transaction involving options on the Common Stock; (V)
on or after any date on which the Company fails to pay the Company's Election
Redemption Price (as defined in Section 6 of the Statement of Designations)
within two (2) Business Days of the applicable Company's Election Redemption
Date (as defined in Section 6 of the Statement of Designations) in accordance
with a Redemption at Company's Election pursuant to Section 6 of the Statement
of Designations; (VI) on or after the first date on which the Company fails to
comply with its obligations under Section 4(m); or (VII) on or after the
Stockholder Meeting Deadline if the Company fails to receive the Stockholder
Approval on or prior to the Stockholder Meeting Deadline. "Short Sale Release
Date" means the date of the occurrence of (A) the first date on which there
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shall have occurred a Triggering Event described in clause (i), (ii), (iii),
(vii) or (viii) of Section 3(b) of the Statement of Designations or an event
that with the passage of time and without being cured would constitute a
Triggering Event described in clause (i), (ii), (iii) or (vii) of Section 3(b)
of the Statement of Designations or (B) the first date after the Closing Date on
which there shall have occurred the consummation of a Hostile Tender Offer (as
defined in Section 6 of the Statement of Designations) or announcement by the
Company of a pending, proposed or intended Change of Control (as defined in
Section 4(b) of the Statement of Designations) other than a Hostile Tender
Offer. On any date during the period beginning on the date of the first
occurrence of a Short Sale Release Date after the Closing Date and ending on the
earlier of (i) the first date on which such Buyer no longer holds any Preferred
Shares and (ii) the date which is two (2) years after the Closing Date, but not
more than once during any calendar month, the Company may request in writing to
such Buyer that it disclose to the Company the number of shares of Common Stock
which such Buyer and its affiliates have outstanding as Short Sales as of the
date such Buyer receives such written request from the Company. Such Buyer shall
disclose such Short Sale information to the Company within five (5) Business
Days of such Buyer's receipt of the Company's written request made in accordance
with the immediately preceding sentence.
o. Trading Restrictions. Each Buyer agrees that, subject to
the exceptions described below, during the period beginning on the date which is
455 days after the Closing Date and ending on the earlier of (i) the first date
on which such Buyer no longer holds any Preferred Shares and (ii) the date which
is two (2) years after the Closing Date neither such Buyer nor any of its
affiliates shall engage directly in any Short Sale of the Common Stock provided,
however, that each Buyer and its affiliates are entitled to engage in
transactions which constitute Short Sales to the extent that following such
transaction the aggregate short position of such Buyer and its affiliates does
not exceed the sum of (A) the number of shares of Common Stock equal to the
aggregate number of shares of Common Stock which such Buyer and its affiliates
have the right to acquire upon exercise of the Warrants held by such Buyer and
its affiliates (without regard to any limitations on exercises of the Warrants),
plus (B) the number of shares of Common Stock equal to the quotient of (I) the
aggregate Conversion Amount with respect to the Preferred Shares held by such
Buyer and its affiliates, divided by (II) the lowest Conversion Price during the
period beginning on and including the date which is 455 days after the Closing
Date and ending on and including the date which is the earlier of (x) the first
date on which such Buyer no longer holds any Preferred Shares and (y) the date
which is two (2) years after the Closing Date. Each Buyer agrees that, subject
to the exceptions described below, during the period beginning on the date which
is 455 days after the Closing Date and ending on the earlier of (i) the first
date on which such Buyer no longer holds any Preferred Shares and (ii) the date
which is two (2) years after the Closing Date neither such Buyer nor any of its
affiliates shall directly effect any Short Sale of the Common Stock on any
trading day (a "Sale Day") at a price which is less than each sale price of the
Common Stock on such Sale Day by sellers other than such Buyer and its
affiliates. Notwithstanding the foregoing, the restriction on Short Sales set
forth in the first sentence of this Section 4(o) and the trading restrictions
set forth in the second sentence of this Section 4(o) shall not apply (a) on and
after the first date on which there shall have occurred (I) a Triggering Event
or (II) an event that with the passage of time and without being cured would
constitute a Triggering Event (other than a Triggering Event described in
Section 3(b)(viii)); (b) on or after the date on which there shall have occurred
(x) the consummation of a Hostile Tender Offer or (y) the announcement by the
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Company of a pending, proposed or intended Change of Control (other than a
Hostile Tender Offer) which the Company has not accurately and publically
announced as being consummated, terminated or abandoned; (c) on or after a
Liquidity Default Date (as defined in the Statement of Designations); (d) on or
after the date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities or Options (other than Exempt Convertible
Securities (as defined in the Statement of Designations)) that are convertible
into or exercisable or exchangeable for shares of Common Stock at a conversion
or exercise price which varies or may vary with the market price of the Common
Stock, including by way of one or more reset(s) to a fixed price; (e) with
respect to a Short Sale so long as such Buyer delivers a Conversion Notice
within two (2) Business Days of such Short Sale entitling such Buyer to receive
a number of shares of Common Stock at least equal to the number of shares of
Common Stock sold in such Short Sale; (f) with respect to any transaction
involving options on the Common Stock; (g) on or after any date on which the
Company fails to pay the Company's Election Redemption Price within two (2)
Business Days of the Company's Election Redemption Date in accordance with a
Redemption at Company's Election pursuant to Section 6 of the Statement of
Designations; (h) on or after the first date on which the Company fails to
comply with its obligations under Section 4(m); or (i) on or after the
Stockholder Meeting Deadline if the Company fails to receive the Stockholder
Approval on or prior to the Stockholder Meeting Deadline.
p. Right to Exchange Preferred Shares. So long as any
Preferred Shares remain outstanding, if the Company issues or agrees to issue
any New Equity Securities (as defined below), the Company shall provide written
notice thereof via facsimile and overnight courier to each holder of Preferred
Shares ("New Financing Notice") at least ten (10) days prior to the date that
the Company enters into any agreement with respect to any New Equity Securities
or issues any New Equity Securities. Within one business day after each issuance
of New Equity Securities, the Company shall make an irrevocable exchange offer
to each holder of Preferred Shares on such terms and conditions as each such
holder shall reasonably require to exchange any or all of such holder's
Preferred Shares for a like amount (based on the following formula to value each
Preferred Share: the Stated Value plus any accrued and unpaid dividends) of the
New Equity Securities. Each such exchange offer shall remain open until the
earlier of (i) the date which is 15 business days after the receipt by each
holder of Preferred Shares of the New Financing Notice or (ii) such time as all
of the holders of Preferred Shares accept or reject, in writing, such exchange
offer. "New Equity Securities" means Convertible Securities or Options, other
than Excluded Securities (as defined in the Statement of Designations), where
the conversion, exercise or exchange price of such securities may not be less
than the market price of the Common Stock on the date of issuance of such
securities nor may the conversion, exercise or exchange price of such securities
be reduced or adjusted down after the date of issuance of such securities (other
than in connection with a stock split, stock dividend or other similar
transaction).
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
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registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (in the form attached hereto as Exhibit E, the
"Irrevocable Transfer Agent Instructions") unless such issuance is prohibited by
Section 5 or Section 15 of the Statement of Designations. Prior to registration
of the Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act) will be given by
the Company to its transfer agent with respect to the Conversion Shares and the
Warrant Shares and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. If a Buyer provides the Company
with an opinion of counsel, in a form reasonably satisfactory to the Company,
that registration of a resale by such Buyer of any of such Securities is not
required under the 1933 Act or such Buyer provides the Company with reasonable
assurances that the Securities can be sold pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the affected
Buyer by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 would be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5, that the affected Buyer shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and the Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of this Agreement and
the Registration Rights Agreement and delivered the same to the
Company.
(ii) Such Buyer shall have delivered to the Company the
Purchase Price (less, with respect to HFTP Investment L.L.C., the
amounts withheld pursuant to Section 4(i)) for the Preferred Shares and
the related Warrants being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
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(iii) The representations and warranties of such Buyer
contained herein shall be true and correct as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Preferred Shares and the related Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company and each Buyer with prior written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Statement of Designations shall have been filed with
the Secretary of State of the Commonwealth of Pennsylvania, and a copy
thereof certified by the Secretary of State of the Commonwealth of
Pennsylvania shall have been delivered to such Buyer.
(iii) The Common Stock shall be listed on NYSE and since
August 20, 1999, shall not have been suspended from trading on or
delisted from such exchange nor shall delisting or suspension by such
exchange have been threatened either (A) in writing by such exchange or
(B) by falling below the minimum listing maintenance requirements of
such exchange. The Company shall have complied with the listing
requirements of NYSE for the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise of the Preferred Shares and the
related Warrants, as the case may be.
(iv) The representations and warranties of the Company
contained herein shall be true and correct as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents and the Statement of Designations to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as such Buyer may
reasonably request, including, without limitation, an update as of the
Closing Date regarding the representation contained in Section 3(c)
above.
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(v) Such Buyer shall have received the opinion of Duane,
Morris & Heckscher LLP dated as of the Closing Date, in substantially
the form of Exhibit D, attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates for the Preferred Shares and the related
Warrants being purchased by such Buyer at the Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above in a form reasonably
acceptable to such Buyer (the "Resolutions").
(viii) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and exercise of the
Warrants, at least 1,900,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each United States Subsidiary in such corporation's state
of organization issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate, dated as of the Closing Date, certifying as to
(A) the Resolutions, (B) the Articles of Incorporation and (C) the
By-laws, each as in effect at the Closing Date.
(xii) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the Commonwealth of Pennsylvania within ten days
of the Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Closing
Date.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably
request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
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Documents and the Statement of Designations, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities
and all of their stockholders, officers, directors, employees and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or Statement of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or the Statement of Designations or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee (other than a
cause of action, suit or claim which is (x) brought or made by the Company and
(y) is not a shareholder derivative suit) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of the Transaction
Documents or the Statement of Designations, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities or (iii) solely from the status of such Buyer or
holder of the Securities as an investor in the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
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<PAGE>
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other parties; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein. This Agreement and the instruments referenced herein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Buyers which purchased at least two-thirds (2/3) of the Preferred Shares on the
Closing Date, or their assigns or, if prior to the Closing Date, the Buyers
listed on the Schedule of Buyers as being obligated to purchase at least
two-thirds (2/3) of the Preferred Shares. No provision hereof may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares or Warrants
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Statement of Designations unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of the Securities, as the case may be.
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<PAGE>
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Entrade Inc.
500 Central Avenue
Northfield, Illinois 60093
Telephone: (847) 784-3335
Facsimile: (847) 441-6959
Attention: Anthony E. Rothschild, General Counsel
With a copy to:
Duane, Morris & Hecksher LLP
227 West Monroe Street, Suit 3400
Chicago, Illinois 60606
Telephone: (312) 499-6700
Facsimile: (312) 499-6701
Attention: Eric M. Fogel, Esq.
If to the Transfer Agent:
Chase Mellon Shareholder Services, L.L.C.
111 Founders Plaza, Suite 1100
East Hartford, Connecticut 06108
Telephone: (860) 282-3509
Facsimile: (860) 528-6472
Attention: Lynore LeConche
If to a Buyer, to it at the address and facsimile number set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or at such other address and/or facsimile number
and/or to the attention of such other person(s) as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communications, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
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g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares and the related
Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder, including by merger or consolidation, without the prior
written consent of the Buyers which purchased at least two-thirds (2/3) of the
Preferred Shares on the Closing Date, or their assigns. The rights under this
Agreement are assignable by a Buyer without the consent of the Company;
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption, which consent
shall not be unreasonably withheld. Notwithstanding anything to the contrary
contained in the Transaction Documents or the Statement of Designations, Buyers
shall be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by the Securities.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and each Buyer contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as the Company reasonably believes, after consulting with its counsel, to be
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before one (1) Business Day after the
date hereof due to the Company's or a Buyer's failure to satisfy the conditions
set forth in Sections 6 and 7 above (and the non-breaching party's failure to
waive such unsatisfied condition(s)), the non-breaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to reimburse a non-breaching
Buyer for expenses up to the amount described in Section 4(i) above.
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m. Placement Agent. The Company acknowledges that it has
engaged J.C. Bradford & Co. as a placement agent in connection with the sale of
the Preferred Shares and the Warrants. The Company shall be responsible for the
payment of any placement agent's fees or brokers' commissions relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorneys' fees and out of pocket expenses) arising in
connection with any such claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Statement of Designations and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to the Registration
Rights Agreement, the Statement of Designations or the Warrants or such Buyer
enforces or exercises its rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company or to a trustee, receiver or any other person under any
law (including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then, to the extent of any such
restoration, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
* * * * * *
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<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
ENTRADE INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By:
Name:______________________
Title:_____________________ By:______________________
James F. O'Brien, Jr.
Managing Member
FISHER CAPITAL LTD.
By: ______________________
Name: Daniel J. Hopkins
Its: Authorized Signatory
WINGATE CAPITAL LTD.
By: ______________________
Name: Daniel J. Hopkins
Its: Authorized Signatory
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By: ______________________
Name: Michael L. Gordon
Its: Chief Operating Officer
29
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number Number
of of
Investor Address Preferred Warrant Investor's Representatives' Address
Investor Name and Facsimile Number Shares Shares and Facsimile Number
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. 10,000 133,334 Promethean Investment Group, L.L.C.
750 Lexington Avenue, 22nd Floor 750 Lexington Avenue, 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
John M. Floegel John M. Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. 6,500 86,666 Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attention: Robert J. Brantman, Esq.
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Residence: Cayman Islands
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. 3,500 46,667 Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel J. Hopkins Attention: Robert J. Brantman, Esq.
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Residence: Cayman Islands
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. 10,000 133,333 c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attn: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attention: Adam J. Chill, Esq.
Telephone: (212) 806-5400
Facsimile: (212) 806-6006
</TABLE>
30
<PAGE>
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(f) - SEC Documents
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(m) - Executive Officers
Schedule 3(n) - Intellectual Property
Schedule 3(q) - Tax Status
Schedule 3(r) - Transactions with Affiliates
Schedule 3(w) - Liens
Schedule 3(x) - Insurance
Schedule 3(aa) - Certain Agreements
Schedule 4(d) - Use of Proceeds
EXHIBITS
Exhibit A - Form of Statement of Designations
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinion
Exhibit E - Form of Irrevocable Transfer Agent Instructions
