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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): July 22, 1998
INFONAUTICS, INC.
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(Exact name of registrant specified in Charter)
Pennsylvania 0-28284 23-2707366
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(State or other (Commission IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
900 West Valley Road, Suite 1000
Wayne, Pennsylvania 19087
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(Address of principal executive offices) Zip Code
Registrant's telephone, including area code: (610) 971-8840
(not applicable)
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(Former name and former address, if changed since last report)
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Item 5. Other Events.
On July 22, 1998, Infonautics, Inc. (the "Company") entered
into a Securities Purchase Agreement with RGC International Investors, LDC
("RGC") under which it agreed to issue up to 5,000 shares of Series A
Convertible Preferred Stock with a stated value of $1,000 per share (the "Series
A Preferred Stock") for an aggregate of $5 million in cash.
Each share of Series A Preferred Stock is convertible into the
number of shares of the Company's Class A common stock (the "Common Stock")
equal to (i) the stated value ($1,000) plus a premium of 5% per annum of the
stated value from the date of issuance of the Series A Preferred Stock divided
by (ii) the Conversion Price. The Conversion Price is equal to the lesser of (i)
the average of the closing bid prices on the Nasdaq National Market ("Nasdaq")
for any five consecutive trading days during either (A) the twenty trading day
period ending one trading day prior to the date that the conversion notice is
sent by a holder to the Company on or before 240 days following the issue date
and (B) the thirty trading day period ending one trading day prior to any
conversion date occurring after 240 days after the issue date, or (ii) the
dollar amount which represents 150% of the average of the closing bid prices
over the 5 trading days immediately preceding the first closing date or, in the
case of any subsequent closing, 130% of the average of the closing bid prices
over the 5 trading days immediately preceding the subsequent closing.
The holders of the Series A Preferred Stock are subject to
limits on the number of shares they can convert at any one time. Unless the
trading price of the Common Stock on Nasdaq on the date of conversion is greater
than or equal to either (i) 120% of the average of the closing bid prices for
any five consecutive trading days during either (A) the twenty trading day
period ending one trading day prior to the date that the conversion notice is
sent by a holder to the Company on or before 240 days following the issue date
and (B) the thirty trading day period ending one trading day prior to any
conversion date occurring after 240 days after the issue date or (ii) the dollar
amount which represents 150% of the average of the closing bid prices over the 5
trading days immediately preceding the first closing date or, in the case of
subsequent closing, 130% of the average of the closing bid prices over the 5
trading days immediately preceding the subsequent closing, and in certain other
limited situations, the following limits apply: Prior to January 22, 1999, the
Series A Preferred Stock may not be converted; beginning on January 23, 1999,
each holder of Series A Preferred Stock may convert up to 25% of its initial
holding of Series A Preferred Stock into Common Stock; beginning on February 23,
1999, it may convert up to 50% of its initial holding into Common Stock;
beginning on March 23, 1999, it may convert up to 75% of its initial holding;
beginning on April 23, 1999, it may convert up to 100% of its initial holding.
The Company also issued to RGC five year warrants to purchase
200,000 shares of Common Stock at a purchase price, subject to adjustment, equal
to 150% for half of the warrants, and 130% for the other half, of the average
closing bid price of the Company's common stock during specified periods.
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The Company has agreed to register under the Securities Act of
1933 the resale of the Common Stock to be issued upon conversion of the Series A
Preferred Stock or exercise of the warrants.
The Certificate of Designations of the Series A Preferred
Stock, Securities Purchase Agreement and Registration Rights Agreement are filed
as exhibits to this Current Report on Form 8-K. This summary description of the
transaction is qualified in its entirety by reference to the documents filed as
exhibits hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
The following are filed as exhibits to this Current Report on Form 8-K:
99.1 Statement with Respect to Shares for Series A Convertible
Preferred Stock of Infonautics, Inc.
99.2 Securities Purchase Agreement, dated as of July 22, 1998, between
Infonautics, Inc. and RGC International Investors, LDC.
99.3 Registration Rights Agreement, dated as of July 22, 1998, between
Infonautics, Inc. and RGC International Investors, LDC.
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.
INFONAUTICS, INC.
By: /s/ David Van Riper Morris
---------------------------
David Van Riper Morris
President and Chief Executive Officer
Dated: July 22, 1998
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Exhibit Index
Exhibit
99.1 Statement with Respect to Shares for Series A Convertible Preferred
Stock of Infonautics, Inc.
99.2 Securities Purchase Agreement, dated as of July 22, 1998 between
Infonautics, Inc. and RGC International Investors, LDC.
99.3 Registration Rights Agreement dated as of July 22, 1998 between
Infonautics, Inc. and RGC International Investors, LDC.
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EXHIBIT A TO STATEMENT WITH RESPECT TO SHARES FOR
SERIES A CONVERTIBLE PREFERRED STOCK
of
INFONAUTICS, INC.
RESOLVED, that pursuant to the authority granted to and vested
in the board of directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Articles of Incorporation, the
Board of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock (the "Preferred Stock"), and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
Series A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 5,000
shares of Preferred Stock, is Series A Convertible Preferred Stock (the
"Series A Preferred Stock") and the stated value shall be One Thousand
Dollars ($1,000) per share (the "Stated Value").
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II. Rank
The Series A Preferred Stock shall rank (i) prior to the
Corporation's Class A common stock, no par value (the "Common Stock") and
Class B common stock, no par value; (ii) prior to any class or series of
capital stock of the Corporation hereafter created (unless, with the consent
of the holders of Series A Preferred Stock obtained in accordance with
Article IX hereof, such class or series of capital stock specifically, by its
terms, ranks senior to or pari passu with the Series A Preferred Stock)
(collectively, with the Common Stock, "Junior Securities"); (iii) pari passu
with any class or series of capital stock of the Corporation hereafter
created (with the consent of the holders of Series A Preferred Stock obtained
in accordance with Article IX hereof) specifically ranking, by its terms, on
parity with the Series A Preferred Stock ("Pari Passu Securities"); and (iv)
junior to any class or series of capital stock of the Corporation hereafter
created (with the consent of the holders of Series A Preferred Stock obtained
in accordance with Article IX hereof) specifically ranking, by its terms,
senior to the Series A Preferred Stock ("Senior Securities"), in each case as
to distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
III. Dividends
The Series A Preferred Stock shall not bear any dividends.
In no event, so long as any Series A Preferred Stock shall remain
outstanding, shall any dividend whatsoever be declared or paid upon, nor
shall any distribution be made upon, any Junior Securities, nor shall any
shares of Junior Securities be purchased or redeemed by the Corporation nor
shall any moneys be paid to or made available for a sinking fund for the
purchase or redemption of any Junior Securities (other than a distribution of
Junior Securities), without, in each such case, the written consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
voting together as a class.
IV. Liquidation Preference
A. Liquidation Event. If the Corporation shall commence a
voluntary case under the Federal bankruptcy laws or any other applicable
Federal or State bankruptcy, insolvency or similar law, or consent to the
entry of an order for relief in an involuntary case under any law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of
its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other
applicable Federal or state bankruptcy, insolvency or similar law resulting
in the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator
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(or other similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and
any such decree or order shall be unstayed and in effect for a period of
thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any
shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto, the holders
of shares of Series A Preferred Stock, subject to Article VI, shall have
received the Liquidation Preference (as defined in Article IV.C) with respect
to each share. If upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of the Series A Preferred
Stock and holders of Pari Passu Securities (including any dividends or
distribution paid on any Pari Passu Securities after the date of filing of
this Statement With Respect To Shares for the Series A Preferred Stock (the
"Statement") shall be insufficient to permit the payment to such holders of
the preferential amounts payable thereon, then the entire assets and funds of
the Corporation legally available for distribution to the Series A Preferred
Stock and the Pari Passu Securities shall be distributed ratably among such
shares in proportion to the ratio that the Liquidation Preference payable on
each such share bears to the aggregate liquidation preference payable on all
such shares. Any prior dividends or distribution made after the date of
filing of this Statement shall offset, dollar for dollar, the amount payable
to the class or series to which such distribution was made.
B. Certain Acts Deemed Liquidation Event. At the option of
any holder of Series A Preferred Stock, the sale, conveyance or disposition
of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, acquisition, merger or other business
combination of the Corporation with or into any other Person (as defined
below) or Persons when the Corporation is not the survivor shall either: (i)
be deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute upon
consummation of and as a condition to such transaction an amount equal to
120% of the Liquidation Preference with respect to each outstanding share of
Series A Preferred Stock in accordance with and subject to the terms of this
Article IV or (ii) be treated pursuant to Article VI.C(b) hereof, provided,
however, that no such distribution pursuant to clause (i) above will be
available and such event will be required to be treated pursuant to clause
(ii) above, where (A) the Corporation undertakes such an event and plans to
account for such event as a "pooling of interests" in accordance with
generally accepted accounting principles; and (B) the value of the
distribution that would have been received pursuant to clause (i) above would
be less than the value of the Common Stock that would be received upon
conversion of the Series A Preferred Stock in accordance with Article VI
below (treating the Trading Day (as defined in Article VI.B) immediately
preceding the date of such distribution as the "Conversion Date" (as defined
in Article VI.B(a)). "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
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C. Liquidation Preference. For purposes hereof, the
"Liquidation Preference" with respect to a share of the Series A Preferred
Stock shall mean an amount equal to the sum of (i) the Stated Value thereof
plus (ii) an amount equal to five percent (5%) per annum of such Stated Value
for the period beginning on the date of issuance of the Series A Preferred
Stock (the "Issue Date") and ending on the date of final distribution to the
holder thereof (prorated for any portion of such period). The liquidation
preference with respect to any Pari Passu Securities shall be as set forth in
this Statement filed in respect thereof.
V. Redemption
A. Mandatory Redemption. If any of the following events
(each, a "Mandatory Redemption Event") shall occur:
(i) The Corporation fails to issue shares of
Common Stock to the holders of Series A Preferred Stock upon exercise by the
holders of their conversion rights in accordance with the terms of this
Statement (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VI.F below and the Corporation is using all commercially reasonable efforts
to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or to cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the holders upon conversion of the Series A Preferred Stock
as and when required by this Statement or the Registration Rights Agreement,
dated as of July 22, 1998, by and among the Corporation and the other
signatories thereto (the "Registration Rights Agreement"), fails to remove
any restrictive legend (or to withdraw any stop transfer instructions in
respect thereof) on any certificate or any shares of Common Stock issued to
the holders of Series A Preferred Stock upon conversion of the Series A
Preferred Stock as and when required by this Statement, the Securities
Purchase Agreement dated as of July 22, 1998, by and between the Corporation
and the other signatories thereto (the "Purchase Agreement") or the
Registration Rights Agreement, or fails to fulfill its obligations pursuant
to Sections 4(c), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement (or makes
any announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for ten (10) business days
after the earlier of (i) the receipt by the Corporation of notice of such
breach from a holder or (ii) the Corporation's actual knowledge of such
breach, irrespective of the receipt of any notice thereof.
(ii) The Corporation fails to obtain effectiveness
with the Securities and Exchange Commission (the "SEC") of the Registration
Statement (as defined in the Registration Rights Agreement) prior to January
22, 1999 or such Registration Statement lapses in effect (or sales otherwise
cannot be made thereunder, whether by reason of the Company's failure to
amend or supplement the prospectus included therein in accordance with the
Registration Rights
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Agreement or otherwise) for more than thirty (30) consecutive days or sixty
(60) days in any twelve (12) month period after such Registration Statement
becomes effective;
(iii) The Corporation shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for all or substantially all of its property or
business; or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against
the Corporation or any subsidiary of the Corporation and such proceedings
remain outstanding for a period of sixty (60) days;
(v) The Corporation shall fail to maintain the
listing of the Common Stock on the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
("NYSE") or the American Stock Exchange ("AMEX") and such failure shall
remain uncured for at least ten (10) days,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
the holders of at least 50% of the then outstanding shares of Series A
Preferred Stock by written notice (the "Mandatory Redemption Notice") to the
Corporation of such Mandatory Redemption Event, or upon the occurrence of any
Mandatory Redemption Event specified in subparagraphs (iii) or (iv), the
Corporation shall purchase each holder's shares of Series A Preferred Stock
for an amount per share equal to the greater of (1) 120% multiplied by the
sum of (a) the Stated Value of the shares to be redeemed plus (b) an amount
equal to five percent (5%) per annum of such Stated Value for the period
beginning on the Issue Date and ending on the date of payment of the
Mandatory Redemption Amount (the "Mandatory Redemption Date"), and (2) the
"parity value" of the shares to be redeemed, where parity value means the
product of (a) the number of shares of Common Stock issuable upon conversion
of such shares in accordance with Article VI below (without giving any effect
to any limitations or conversions of shares set forth in Article VI.A(b)
below, and treating the Trading Day (as defined in Article VI.B.) immediately
preceding the Mandatory Redemption Date as the "Conversion Date" (as defined
in Article VI.B(a)) unless the Mandatory Redemption Event arises as a result
of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the Closing
Price (as defined in Article VI.A(b)) for the Common Stock on such
"Conversion Date" (the greater of such amounts being referred to as the
"Mandatory Redemption Amount").
In the case of a Mandatory Redemption Event, if the
Corporation fails to pay the Mandatory Redemption Amount for each share
within five (5) business days of written notice that such amount is due and
payable, then (assuming there are sufficient authorized shares) in addition
to all other available remedies, each holder of Series A Preferred Stock
shall have the right at any time, so long as the Mandatory Redemption Event
continues, to require the Corporation, upon
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written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series A Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. 19.99% Redemption. If the Series A Preferred Stock
ceases to be convertible as a result of the limitations described in Article
VI.A(c) below (a "19.99% Redemption Event"), and the Corporation has not
prior to, or within thirty (30) days of, the date that such 19.99% Redemption
Event arises, (i) obtained approval of the issuance of the additional shares
of Common Stock by the requisite vote of the holders of the then-outstanding
Common Stock and Class B Common Stock (not including any shares of Common
Stock held by present or former holders of Series A Preferred Stock that were
issued upon conversion of Series A Preferred Stock) or (ii) received other
permission pursuant to Nasdaq Marketplace Rule 4460(i) allowing the
Corporation to resume issuances of shares of Common Stock upon conversion of
Series A Preferred Stock, then the Corporation shall be obligated to redeem
immediately all of the then outstanding Series A Preferred Stock, in
accordance with this Article V.B. An irrevocable Redemption Notice shall be
delivered promptly to the holders of Series A Preferred Stock at their
registered address appearing on the records of the Corporation and shall
state (1) that 19.99% of the Outstanding Common Amount (as defined in Article
VI.A) has been issued upon exercise of the Series A Preferred Stock, (2) that
the Corporation is obligated to redeem all of the outstanding Series A
Preferred Stock and (3) the Mandatory Redemption Date, which shall be a date
within five (5) business days of the date of the Redemption Notice. On the
Mandatory Redemption Date, the Corporation shall make payment of the
Mandatory Redemption Amount (as defined in Article V.A. above) in cash. If
the Corporation fails to redeem in accordance with this Article V.B., then,
in addition to all other remedies available to the holders of the Series A
Preferred Stock, upon request of a majority-in-interest of the Series A
Preferred Stock, the Corporation shall terminate the listing of its Common
Stock on Nasdaq Marketplace (and any other exchange or quotation system with
a rule substantially similar to Rule 4460(i)) and cause its Common Stock to
be eligible for trading on the over-the-counter electronic bulletin board.
C. Redemption in Lieu of Conversion. Notwithstanding
anything to the contrary contained in this Article V, so long as (i) on the
Conversion Date (as defined herein), the Closing Price (as defined herein) is
below $2.80, (ii) no Mandatory Redemption Event shall have occurred and be
continuing and (iii) the Registration Statement is then in effect and has
been in effect and sales can be made thereunder for at least twenty (20) days
prior to the Optional Redemption Date (as defined below), then the
Corporation shall have the right, in lieu of converting the shares of Series
A Preferred Stock submitted for conversion, to redeem such shares of Series A
Preferred Stock in accordance with this Article V. On the date fixed for
redemption (the "Redemption Date"), the Corporation shall make payment of the
Redemption Amount (as defined below) to or upon the order of the holders as
specified by the holders in writing to the Corporation at least one (1)
business day prior to the Redemption Date. If the Corporation exercises its
right to redeem the shares of Series A Preferred Stock, the Corporation shall
make
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payment to the holders of an amount in cash (the "Redemption Amount") equal
to the number of shares of Common Stock that would have been issued upon
conversion multiplied by the Closing Price of the Common Stock on the
Conversion Date. The Corporation will provide to the holders of Series A
Preferred Stock advance notice on a monthly basis as to whether the
Corporation will issue shares of Common Stock upon conversion of shares of
Series A Preferred Stock or redeem such shares in the event the Corporation
elects to redeem the shares of Series A Preferred Stock pursuant to this
Article V.C during the applicable one month period. The Corporation will be
bound by such election for a period of thirty (30) days, at which time its
election may be modified or extended for an additional period of thirty (30)
days. Any notice hereunder shall be delivered to the holders of Series A
Preferred Stock at their registered addresses appearing on the books and
records of the Corporation. A failure to properly provide notice or to
properly modify or extend any prior notice shall be deemed to be an election
not to redeem in lieu of conversion during the applicable thirty (30) day
period.
VI. Conversion at the Option of the Holder
A. Optional Conversion.
(a) Conversion Amount. Subject to the conversion
schedule set forth in Article VI.A(b) below, each holder of shares of Series
A Preferred Stock may, at its option at any time and from time to time, upon
surrender of the certificates therefor, convert any or all of its shares of
Series A Preferred Stock into Common Stock as follows (an "Optional
Conversion"). Each share of Series A Preferred Stock shall be convertible
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (1) the sum of (a) the Stated Value thereof plus (b)
the Premium Amount (as defined below), by (2) the then effective Conversion
Price (as defined below); provided, however, that, unless the holder delivers
a waiver in accordance with the immediately following sentence, in no event
(other than pursuant to the Automatic Conversion (as defined herein)) shall a
holder of shares of Series A Preferred Stock be entitled to convert any such
shares in excess of that number of shares upon conversion of which the sum of
(x) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series A Preferred Stock) and (y) the number of shares of Common
Stock issuable upon the conversion of the shares of Series A Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by a holder and such holder's affiliates of
more than 4.9% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (x) of such proviso. The "Premium Amount" means the
product of the Stated Value, multiplied by .05, multiplied by (N/365), where
"N" equals the number of days elapsed from the Issue Date to and including
the conversion Date (as defined in Article VI.B, below).
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(b) Conversion Restrictions. Each holder of shares
of Series A Preferred Stock may convert only up to that percentage of all of
such holder's shares specified below during the time period set forth
opposite such percentage.
<TABLE>
<CAPTION>
Percentage Time Period
---------- -----------
<S> <C>
0% Issue Date through January 22, 1999
25% January 23, 1999 through February 22, 1999
50% February 23, 1999 through March 22, 1999
75% March 23, 1999 through April 22, 1999
100% On or after April 23, 1999
</TABLE>
; provided, however, that the restrictions on conversion set forth above
shall not apply to, and shall be exclusive of, conversions taking place on
any Conversion Date (i) if on the Conversion Date the Closing Price (as
defined below) of the Common Stock is greater than or equal to (x) 120% of
the then applicable Market Price (as defined herein) or (y) the Fixed
Conversion Price (as defined herein) or (ii) on or after the date the
Corporation makes a public announcement that it intends to merge or
consolidate with any other corporation or sell or transfer substantially all
of the assets of the Corporation or (iii) on or after the date any person,
group or entity (including the Corporation) publicly announces a tender offer
to purchase 50% or more of the Corporation's Common Stock or otherwise
publicly announces an intention to replace a majority of the Corporation's
Board of Directors by waging a proxy battle or otherwise or (iv) on or after
there is a material adverse change in the business, operation, assets,
financial condition or prospects of the Corporation or its subsidiaries,
taken as a whole. "Closing Price," as of any date, means the last sale price
of the Common Stock on the Nasdaq as reported by Bloomberg Financial Markets
or an equivalent reliable reporting service mutually acceptable to and
hereafter designated by the holders of a majority in interest of the shares
of Series A Preferred Stock and the Corporation ("Bloomberg") or, if Nasdaq
is not the principal trading market for such security, the last sale price of
such security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last sale 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 sale price of such security or in the
over-the-counter market on the electronic bulletin board for such security in
any of the foregoing manners the average of the bid prices of any market
makers for such or security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Price cannot be calculated for such
security on such date in the manner provided above, the Closing Price shall
be the fair market value as mutually determined by the Corporation and the
holders of a majority in interest of shares of Series A Preferred Stock being
converted for which the calculation of the Closing Price is required in order
to determine the Conversion Price of such Series A Preferred Stock.
(c) 19.99% Limitation. So long as the Common Stock
is listed for trading on Nasdaq or an exchange or quotation system with a
rule substantially similar to Rule 4460(i) then, notwithstanding anything to
the contrary contained herein if, at any time, the
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aggregate number of shares of Common Stock then issued upon conversion of the
Series A Preferred Stock (including any shares of capital stock or rights to
acquire shares of capital stock issued by the Corporation which are
aggregated or integrated with the Common Stock issued or issuable upon
conversion of the Series A Preferred Stock for purposes of such rule) and
upon exercise of the Warrants issued pursuant to the terms of the Purchase
Agreement equals 19.99% of the Outstanding Common Amount (as hereinafter
defined), the Series A Preferred Stock shall, from that time forward, cease
to be convertible into Common Stock in accordance with the terms of this
Article VI and Article VII below, unless the Corporation (i) has obtained
approval of the issuance of the Common Stock upon conversion of the Series A
Preferred Stock by a majority of the total votes cast on such proposal, in
person or by proxy, by the holders of the then outstanding Common Stock and
Class B Common Stock (not including any shares of Common Stock held by
present or former holders of Series A Preferred Stock that were issued upon
conversion of Series A Preferred Stock), or (ii) shall have otherwise
obtained permission to allow such issuances from Nasdaq in accordance with
Rule 4460(i). If the Corporation's Common Stock is not then listed on Nasdaq
or an exchange or quotation system that has a rule substantially similar to
Rule 4460(i) limitations set forth herein shall be inapplicable and of no
force and effect. For purposes of this paragraph, "Outstanding Common Amount"
means (i) the number of shares of the Common Stock outstanding on the Initial
Closing Date (as defined in the Purchase Agreement) plus (ii) any additional
shares of Common Stock issued thereafter in respect of such shares pursuant
to a stock dividend, stock split or similar event. The maximum number of
shares of Common Stock issuable as a result of the 19.99% limitation set
forth herein is hereinafter referred to as the "Maximum Share Amount." With
respect to each holder of Series A Preferred Stock, the Maximum Share Amount
shall refer to such holder's pro rata share thereof determined in accordance
with Article X below. In the event that Corporation obtains Shareholder
Approval or the approval of Nasdaq, by reason of the inapplicability of the
rules of Nasdaq or otherwise and concludes that it is able to increase the
number of shares to be issued above the Maximum Share Amount (such increased
number being the "New Maximum Share Amount"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to the greater New
Maximum Share Amount. In the event that Shareholder Approval is not obtained,
there are insufficient reserved or authorized shares or a registration
statement covering the additional shares of Common Stock which constitute the
New Maximum Share Amount is not effective prior to the Maximum Share Amount
being issued (if such registration statement is necessary to allow for the
public resale of such securities), the Maximum Share Amount shall remain
unchanged; provided, however, that the Holder may grant an extension to
obtain a sufficient reserved or authorized amount of shares or of the
effective date of such registration statement. In the event that (a) the
aggregate number of shares of Common Stock issued pursuant to the outstanding
Series A Preferred Stock represents at least twenty percent (20%) of the
Maximum Share Amount and (b) the sum of (x) the aggregate number of shares of
Common Stock issued upon conversion of Series A Preferred Stock plus (y) the
aggregate number of shares of Common Stock that remain issuable upon
conversion of Series A Preferred Stock, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Corporation will use its best efforts to seek and obtain Shareholder Approval
(or obtain such other relief as will allow conversions hereunder in excess
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of the Maximum Share Amount) as soon as practicable following the Triggering
Event and before the Mandatory Redemption Date.
B. Conversion Price. The "Conversion Price" shall be the
lesser of the Applicable Percentage (as defined below) of the Market Price
(as defined herein) and the Fixed Conversion Price (as defined herein),
subject to adjustments pursuant to the provisions of Article VI.C below.
"Applicable Percentage" shall mean 100%; provided, however, that for any
conversions effected in reliance on the exclusions set forth in the proviso
to Article VI.A(b) above, the Applicable Percentage shall mean 105%. "Market
Price" shall mean the average of the Closing Bid Prices for any five (5)
consecutive Trading Days, as designated by the holder, during the applicable
Pricing Period (as defined below). The "Pricing Period" means(i) the twenty
(20) Trading Day period ending one (1) Trading Day prior to the date (the
"Conversion Date") the Conversion Notice is sent by a holder to the
Corporation via facsimile in respect of any Conversion Date occurring on or
before 240 days following the Issue Date and (ii) the thirty (30) Trading Day
period ending one (1) Trading Day prior to the Conversion Date in respect of
any Conversion Date occurring after 240 days following the Issue Date. "Fixed
Conversion Price" shall mean 150% of the average of the Closing Bid Prices
over the ten (10) Trading Days beginning on July 16, 1998 or, in the case of
any Subsequent Closing (as defined in the Purchase Agreement), 130% of the
average of the Closing Bid Prices over the five (5) Trading Days immediately
preceding the Subsequent Closing. "Closing Bid Price" means, for any security
as of any date, the closing bid price on Nasdaq as reported by Bloomberg or,
if Nasdaq is not the principal trading market for such security, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or
if the foregoing do not apply, the closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security or
in any of the foregoing manners, the average of the bid prices of any market
makers for such security or as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date in the manner provided above, the Closing Bid Price
shall be the fair market value as mutually determined by the Corporation and
the holders of a majority in interest of shares of Series A Preferred Stock
being converted for which the calculation of the Closing Bid Price is
required in order to determine the Conversion Price of such Series A
Preferred Stock. "Trading Day" shall mean any day on which the Common Stock
is traded for any period on Nasdaq, or on the principal securities exchange
or other securities market on which the Common Stock is then being traded.
C. Adjustments to Conversion Price. The Conversion Price
shall be subject to adjustment from time to time as follows:
(a) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If at any time when Series A Preferred Stock is
issued and outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Trading Price (as defined below)
to all
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holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price
for any Optional Conversion or Automatic Conversion of the Series A Preferred
Stock, then the Conversion Price shall be calculated giving appropriate
retroactive effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date
thereof.
(b) Adjustment Due to Merger, Consolidation, Etc.
If, at any time when Series A Preferred Stock is issued and outstanding and
prior to the conversion of all Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of
the assets of the Corporation other than in connection with a plan of
complete liquidation of the Corporation, then the holders of Series A
Preferred Stock shall thereafter have the right to receive upon conversion of
the Series A Preferred Stock, upon the bases and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the holders of Series A Preferred Stock would have been entitled
to receive in such transaction had the Series A Preferred Stock been
converted in full (without regard to any limitations on conversion contained
herein) immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the holders of Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock) shall thereafter be applicable,
as nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion of Series A Preferred Stock. The
Corporation shall not effect any transaction described in this subsection (b)
unless (a) it first gives, to the extent practical, thirty (30) days' prior
written notice (but in any event at least fifteen (15) business days prior
written notice) of such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets
(during which time the holders of Series A Preferred Stock shall be entitled
to convert the Series A Preferred Stock) and (b) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this subsection (b). The above provisions shall similarly
apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) Adjustment Due to Distribution. Subject to
Article III, if the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise
(including any dividend or distribution to the Corporation's shareholders in
cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "Distribution"), then the holders of Series A
Preferred Stock shall be entitled, upon any conversion of shares of Series A
Preferred Stock after the date of record for determining
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shareholders entitled to such Distribution, to receive the amount of such
assets which would have been payable to the holder with respect to the shares
of Common Stock issuable upon such conversion had such holder been the holder
of such shares of Common Stock on the record date for the determination of
shareholders entitled to such Distribution.
(d) Purchase Rights. Subject to Article III, if at
any time when any Series A Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock, then the holders of Series A
Preferred Stock 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 Series A Preferred Stock (without
regard to any limitations on conversion contained herein) 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.
(e) Adjustment for Restricted Periods. In the
event that (1) the Corporation fails to obtain effectiveness with the
Securities and Exchange Commission of the Registration Statement (as defined
in the Registration Rights Agreement) in a timely manner, as set forth in the
Registration Rights Agreement, or (2) such Registration Statement lapses in
effect through no fault of the holders of Series A Preferred Stock, or sales
otherwise cannot be made thereunder, whether by reason of the Corporation's
failure or inability to amend or supplement the prospectus (the "Prospectus")
included therein in accordance with the Registration Rights Agreement or
otherwise, after such Registration Statement becomes effective (including,
without limitation, during an Allowed Delay (as defined in Section 3(f) of
the Registration Rights Agreement), then the Pricing Period shall be
comprised of, (i) in the case of an event described in clause (1), the thirty
(30) Trading Days preceding the required effectiveness date under the
Registration Rights Agreement, plus all Trading Days through and including
the third Trading Day following the date of effectiveness of the Registration
Statement; and (ii) in the case of an event described in clause (2), the
number of Trading Days preceding the date on which the holder of the Series A
Preferred Stock is first notified that sales may not be made under the
Prospectus that would otherwise then be included in the Pricing Period in
accordance with the definition thereof set forth in Article VI.B(a), plus all
Trading Days through and including the third Trading Day following the date
on which the Holder is first notified that such sales may again be made under
the Prospectus. If a holder of Series A Preferred Stock determines that sales
may not be made pursuant to the Prospectus (whether by reason of the
Corporation's failure or inability to amend or supplement the Prospectus) it
shall so notify the Corporation in writing and, unless the Corporation
provides such holder with a written opinion of the Corporation's counsel to
the contrary, such determination shall be binding for purposes of this
paragraph.
(f) Notice of Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Article VI.C, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment
and
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showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series A Preferred Stock, furnish to such holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price
at the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Series A Preferred Stock.
D. Trading Price. For purposes of Article VI.C(a) above,
"Trading Price," which shall be measured as of the record date in respect of
the rights offering means (i) the average of the last reported sale prices
for the shares of Common Stock on Nasdaq as reported by Bloomberg, as
applicable, for the five (5) Trading Days immediately preceding such date, or
(ii) if Nasdaq is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the principal trading
market for the Common Stock during the same period as reported by Bloomberg,
or (iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Trading Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or, (b) at the option of a majority-in-interest of the holders of
the outstanding Series A Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
E. Mechanics of Conversion. In order to convert Series A
Preferred Stock into full shares of Common Stock, a holder of Series A
Preferred Stock shall: (i) submit a copy of the fully executed notice of
conversion in the form attached hereto as Exhibit A ("Notice of Conversion")
to the Corporation by facsimile dispatched on the Conversion Date (or by
other means resulting in notice to the Corporation on the Conversion Date) at
the office of the Corporation or its designated Transfer Agent for the Series
A Preferred Stock that the holder elects to convert the same, which notice
shall specify the number of shares of Series A Preferred Stock to be
converted, the applicable Conversion Price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the first page of each certificate to be converted) prior to 9:00 p.m., New
York City time (the "Conversion Notice Deadline"), on the date of conversion
specified on the Notice of Conversion; and (ii) surrender the original
certificates representing the Series A Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion to the office of the Corporation or the Transfer Agent
for the Series A Preferred Stock as soon as practicable thereafter. The
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion, unless either the
Preferred Stock Certificates are delivered to the Company or its Transfer
Agent as provided above, or the holder notifies the Corporation or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (a) below). In the case of a
dispute as to the calculation of the Conversion Price, the Corporation shall
promptly issue such number of shares of Common Stock that are not disputed in
accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business
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days of receipt of the Notice of Conversion. The accountant shall review the
calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by
the Corporation of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series A Preferred
Stock, and of indemnity reasonably satisfactory to the Corporation, and upon
surrender and cancellation of the Preferred Stock Certificate(s), if
mutilated, the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon
the surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days
after such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of agreement and indemnification pursuant to
subparagraph (a) above) (the "Delivery Period"), deliver (or cause its
Transfer Agent to so issue and deliver) to or upon the order of the holder
(i) that number of shares of Common Stock for the portion of the shares of
Series A Preferred Stock converted as shall be determined in accordance
herewith and (ii) a certificate representing the balance of the shares of
Series A Preferred Stock not converted, if any. In addition to any other
remedies available to the holder, including actual damages and/or equitable
relief, the Corporation shall pay to a holder $1,500 per day in cash for each
day beyond a two (2) day grace period following the Delivery Period that the
Corporation fails to deliver Common Stock (a "Conversion Default") issuable
upon surrender of shares of Series A Preferred Stock with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock (the "Conversion Default Payments"). Such cash amount shall be paid to
such holder by the fifth day of the month following the month in which it has
accrued or, at the option of the holder (by written notice to the Corporation
by the first day of the month following the month in which it has accrued),
shall be convertible into Common Stock in accordance with the terms of this
Article VI.
In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Corporation's
Transfer Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the holder
and its compliance with the provisions contained in Article VI.A. and in this
Article VI.E., the Corporation shall use its best efforts to cause its
Transfer Agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery and penalties described in the immediately
preceding paragraph shall apply to the electronic transmittals described
herein.
(c) No Fractional Shares. If any conversion of
Series A Preferred Stock would result in a fractional share of Common Stock
or the right to acquire a fractional share of
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Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon Conversion of the Series A Preferred
Stock shall be the next higher number of shares or the Company at its option
may pay cash in lieu of such fractional shares.
(d) Conversion Date. The "Conversion Date" shall
be the date specified in the Notice of Conversion, provided that the Notice
of Conversion is submitted by facsimile (or by other means resulting in
notice) to the Corporation or its Transfer Agent before 9:00 p.m., New York
City time, on the Conversion Date. The person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the shares of Series A
Preferred Stock surrendered shall forthwith terminate except the right to
receive the shares of Common Stock or other securities or property issuable
on such conversion and except that the holders preferential rights as a
holder of Series A Preferred Stock shall survive to the extent the
corporation fails to deliver such securities.
F. Reservation of Shares. A number of shares of the
authorized but unissued Common Stock sufficient to provide for the conversion
of the Series A Preferred Stock outstanding at the then current Conversion
Price shall at all times be reserved by the Corporation, free from preemptive
rights, for such conversion or exercise. As of the date of issuance of the
Series A Preferred Stock, 2,580,646 authorized and unissued shares of Common
Stock have been duly reserved for issuance upon conversion of the Series A
Preferred Stock (the "Reserved Amount"). The Reserved Amount shall be
increased from time to time in accordance with the Company's obligations
pursuant to Section 4(h) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Preferred Stock shall be convertible at the then
current Conversion Price, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of
shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred
Stock submits a Notice of Conversion, and the Corporation does not have
sufficient authorized but unissued shares of Common Stock available to effect
such conversion in accordance with the provisions of this Article VI (a
"Conversion Default"), the Corporation shall issue to the holder (or holders,
if more than one holder submits a Notice of Conversion in respect of the same
Conversion Date, pro rata based on the ratio that the number of shares of
Series A Preferred Stock then held by each such holder bears to the aggregate
number of such shares held by such holders) all of the shares of Common Stock
which are available to effect such conversion. The number of shares of Series
A Preferred Stock included in the Notice of Conversion which exceeds the
amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms
hereof until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation to permit
such conversion, at which time the
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Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in
the authorized number of shares of Common Stock as soon as possible following
a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the
amount of (a) (N/365), multiplied by (b) the sum of the Stated Value plus the
Premium Amount per share of Series A Preferred Stock through the
Authorization Date (as defined below), multiplied by (c) the Excess Amount on
the day the holder submits a Notice of Conversion giving rise to a Conversion
Default (the "Conversion Default Date"), multiplied by (d) .24, where (i) N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series A Preferred Stock. The Corporation shall send notice to the holder of
the authorization of additional shares of Common Stock, the Authorization
Date and the amount of holder's accrued Conversion Default Payments. The
accrued Conversion Default Payment for each calendar month shall be paid in
cash or shall be convertible into Common Stock at the Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such
payment in cash, cash payment shall be made to holder by the fifth day of the
month following the month in which it has accrued; and
(b) In the event the holder elects to take such
payment in Common Stock, the holder may convert such payment amount into
Common Stock at the Conversion Price (as in effect at the time of Conversion)
at any time after the fifth day of the month following the month in which it
has accrued in accordance with the terms of this Article VI (so long as there
is then a sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue
actual damages for the Corporation's failure to maintain a sufficient number
of authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
G. Notice of Conversion Price Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Article VI, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other
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securities or property which at the time would be received upon conversion of
a share of Series A Preferred Stock.
H. Status as Shareholders. Upon submission of a Notice of
Conversion by a holder of Series A Preferred Stock, (i) the shares covered
thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such holder's allocated portion of the Reserved Amount)
shall be deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series A Preferred Stock shall
cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Statement. Notwithstanding the
foregoing, if a holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration of the
Delivery Period with respect to a conversion of shares of Series A Preferred
Stock for any reason, then (unless the holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Corporation) the
holder shall regain the rights of a holder of such shares of Series A
Preferred Stock with respect to such unconverted shares of Series A Preferred
Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series A Preferred Stock to the holder or, if such
shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and
remedies (including, without limitation, the right to receive Conversion
Default Payments pursuant to Article IV.E. to the extent required thereby for
such Conversion Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is effective and
there is not then a continuing Mandatory Redemption Event, each share of
Series A Preferred Stock issued and outstanding on July 22, 2001, subject to
any adjustment pursuant to Article V.A.(ii) (the "Automatic Conversion
Date"), automatically shall be converted into shares of Common Stock on such
date at the then effective Conversion Price in accordance with, and subject
to, the provisions of Article VI hereof (the "Automatic Conversion"). The
Automatic Conversion Date shall be delayed by one (1) Trading Day each for
each Trading Day occurring prior thereto and prior to the full conversion of
the Series A Preferred Stock that (i) sales cannot be made pursuant to the
Registration Statement (whether by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance
with the terms of the Registration Rights Agreement or otherwise
[including any Allowed Delays (as defined in Section 3(f) of the Registration
Rights Agreement]) or (ii) any Default Event (as defined in Article V.A.)
exists, without regard to whether any cure periods shall have run. The
Automatic Conversion Date shall be the Conversion Date for purposes of
determining the Conversion Price and the time within which certificates
representing the Common Stock must be delivered to the holder.
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VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting
power whatsoever, except as otherwise provided by the Pennsylvania Business
Corporation Law ("PBCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide
each holder of Series A Preferred Stock with prior notification of any
meeting of the shareholders (and copies of proxy materials and other
information sent to shareholders). In the event of any taking by the
Corporation of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger, consolidation or recapitalization) any share of
any class or any other securities or property, or to receive any other right,
or for the purpose of determining shareholders who are entitled to vote in
connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation
shall mail a notice to each holder, at least ten (10) days prior to the
record date specified therein, of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the PBCL the vote of the holders
of the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the
shares of the Series A Preferred Stock then outstanding represented at a duly
held meeting at which a quorum is present or by written consent of a majority
of such shares of Series A Preferred Stock (except as otherwise may be
required under the PBCL) shall constitute the approval of such action by the
class. To the extent that under the PBCL holders of the Series A Preferred
Stock are entitled to vote on a matter with holders of Common Stock, voting
together as one class, each share of Series A Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of
such vote of shareholders as the date as of which the Conversion Price is
calculated. Holders of the Series A Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which
they would be entitled to vote, which notice would be provided pursuant to
the Corporation's bylaws and the PBCL.
IX. Protective Provisions
So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by the PBCL of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock):
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(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock or any Senior Securities so as to
affect adversely the Series A Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the Series A Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital
stock ranking pari passu with the Series A Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of
Series A Preferred Stock; or
(e) do any act or thing not authorized or
contemplated by this Statement which would result in taxation of the holders
of shares of the Series A Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of
Series A Preferred Stock, pursuant to subsection (a) above, so as to affect
the Series A Preferred Stock, then the Corporation will deliver notice of
such approved change to the holders of the Series A Preferred Stock that did
not agree to such alteration or change (the "Dissenting Holders") and
Dissenting Holders shall have the right for a period of thirty (30) days to
convert pursuant to the terms of this Statement as they exist prior to such
alteration or change or continue to hold their shares of Series A Preferred
Stock.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount (including
any increases thereto) shall be allocated by the Corporation pro rata among
the holders of Series A Preferred Stock based on the number of shares of
Series A Preferred Stock then held by each holder relative to the total
aggregate number of shares of Series A Preferred Stock then outstanding.
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IN WITNESS WHEREOF, this Statement is executed on behalf of
the Corporation this 22nd day of July, 1998.
INFONAUTICS, INC.
By: /s/ David Van Riper Morris
---------------------------------------
David Van Riper Morris
President and Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______
shares of Series A Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Infonautics, Inc., (the "Corporation") according to the
conditions of the Statement of Series A Preferred Stock, as of the date
written below. If securities are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee
will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Series A Preferred Stock have been or shall be made only
pursuant to a registration of the securities under the Securities Act of
1933, as amended (the "Act") (in which case the undersigned has complied or
will comply with all applicable prospectus delivery requirements), or
pursuant to an exemption from registration under the Act.
Date of Conversion:
---------------------------
Applicable Conversion Price:
------------------
Number of Shares of
Common Stock to be Issued:
--------------------
Signature:
------------------------------------
Name:
-----------------------------------------
Address:
--------------------------------------
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or
its Transfer Agent. The Corporation shall issue and deliver shares of Common
Stock to an overnight courier not later than two (2) business days following
receipt of the original Preferred Stock Certificate(s) to be converted, and
shall make payments pursuant to the Statement for the number of business days
such issuance and delivery is late.
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 22,
1998, by and among Infonautics, Inc., a Pennsylvania corporation, with
headquarters located at 900 West Valley Road, Suite 400, Wayne, Pennsylvania
19087 ("Company"), and RGC International Investors, LDC (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under 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 preferred stock,
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), having the rights, preferences and privileges set forth in the
Statement With Respect To Shares attached hereto as Exhibit "A" (the "Preferred
Stock Statement");
C. The Preferred Stock is convertible into shares of Class A Common
Stock, no par value, of the Company (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in the Preferred Stock
Statement;
D. The Company has authorized the issuance to the Buyer of (i)
warrants, in the form attached hereto as Exhibits "B-1" and "B-2", to purchase
an aggregate of Two Hundred Thousand (200,000) shares of Common Stock (the
"Initial Closing Warrants") and (ii) additional warrants to purchase shares of
Common Stock in such number as will be determined based upon the amount invested
at each Subsequent Closing (as defined herein), in the form attached hereto as
Exhibit "C", issuable at such Subsequent Closings (the "Additional Warrants"
and, collectively with the Initial Closing Warrants, the "Warrants");
E. The Buyer desires to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, an aggregate of
up to Five Thousand (5,000) shares of Preferred Stock (the "Preferred Shares"),
together with such Warrants as are issuable hereunder, for an aggregate purchase
price of up to Five Million Dollars ($5,000,000);
F. The Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, the number of Preferred Shares and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and
<PAGE>
G. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "D" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. The
Company shall issue and sell to the Buyer and the Buyer agrees to purchase from
the Company such number of Preferred Shares, together with such number of
Warrants as are issuable hereunder in connection therewith, for the aggregate
purchase price (the "Purchase Price") of Five Million Dollars ($5,000,000). The
issuance, sale and purchase of the Preferred Shares and Warrants shall take
place at one or more closings, the first of which is hereinafter referred to as
the "First Closing." Each subsequent closing, if any, is hereinafter referred to
as a "Subsequent Closing". The aggregate number of Preferred Shares to be issued
at the First Closing is Three Thousand (3,000) and the aggregate number of
Initial Closing Warrants to be issued at the First Closing is Two Hundred
Thousand (200,000) for an aggregate purchase price of Three Million Dollars
($3,000,000) and the aggregate number of Preferred Shares to be issued at the
Subsequent Closings, if any, is up to Two Thousand (2,000) for an aggregate
purchase price of Two Million Dollars ($2,000,000). At each Subsequent Closing,
if any, the Preferred Shares will be issued with such number of Additional
Warrants equal to the amount invested at each Subsequent Closing (but not more
than $1,000,000 in the aggregate) divided by the closing bid price of the Common
Stock on the trading day immediately preceding such Subsequent Closing. Subject
to the satisfaction (or waiver) of the conditions thereto set forth in Sections
6 and 7 below, (i) at the First Closing, the Company shall issue and sell to the
Buyer and the Buyer shall purchase from the Company 3,000 Preferred Shares and
the Initial Closing Warrants for a price equal to $3,000,000 and (ii) at the
Subsequent Closings, if any, the Company shall issue and sell to the Buyer and
the Buyer shall purchase from the Company up to an aggregate of 2,000 Preferred
Shares, together with the Additional Warrants issuable hereunder in connection
therewith, for an aggregate price up to $2,000,000.
b. Form of Payment. On each Closing Date (as defined
below), (i) the Buyer shall pay the Purchase Price for the Preferred Shares and
the Warrants to be issued and sold to it at the applicable Closing (as defined
below) by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed certificates representing such number of Preferred Shares and
Warrants which the Buyer is purchasing and (ii) the Company shall deliver such
certificates and Warrants duly executed on behalf of the Company, to the Buyer,
against delivery of such Purchase Price.
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<PAGE>
c. Closing Dates. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the dates and times of the issuance and sale of the Preferred Shares and the
Warrants pursuant to this Agreement (each, a "Closing Date") shall be (i) in the
case of the First Closing, 12:00 noon Eastern Standard Time on July 22, 1998 or
such other mutually agreed upon time and (ii) in the case of a Subsequent
Closing, 12:00 noon Eastern Standard Time within five (5) business days
following the satisfaction (or waiver) of the conditions to such Subsequent
Closing set forth in Sections 6(b) and 7(b) below. Each Closing of the
transactions contemplated by this Agreement (each, a "Closing") shall occur on
the Closing Date at the offices of the Company, or at such other location as may
be agreed to by the parties.
2. BUYER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The Buyer represents and warrants to the Company and covenants and
agrees solely as to the Buyer that:
a. Investment Purpose. As of the date hereof, the
Buyer is purchasing the Preferred Shares and the shares of Common Stock issuable
upon conversion thereof (the "Conversion Shares") and the Warrants and the
shares of Common Stock issuable upon exercise thereof (the "Warrant Shares" and,
collectively with the Preferred Shares, Warrants and Conversion Shares the
"Securities") for its own account for investment only and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act.
b. Accredited Investor Status. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that
the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The 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 the Buyer or its advisors. The Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. As a result, the Buyer and its advisors, if any, are able to
evaluate the merits and risks of purchasing the Preferred Shares and the
Warrants in order to make a fully informed decision with respect to such
purchase. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's
3
<PAGE>
right to rely on the Company's representations and warranties contained in
Section 3 below. The Buyer understands that its investment in the Securities
involves a significant degree of risk, and is able to bear the economic risk of
such investment. In connection with the investment contemplated by this
Agreement, the Buyer has reviewed the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the "Form 10-K").
e. Governmental Review. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. Transfer or Resale. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the 1933 Act or any applicable state
securities laws, and may not be sold, transferred or pledged unless (a)
subsequently included in an effective registration statement thereunder, (b) the
Buyer shall have delivered to the Company an opinion of counsel (which opinion
shall be reasonably acceptable to the Company) to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, (c) sold or transferred to on "affiliate" (as defined in
Rule 144 promulgated under the 1933 Act (or a successor rule) ("Rule 144")) or
(d) sold pursuant to Rule 144; (ii) any sale of such Securities made in reliance
on Rule 144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such 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 (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement,
provided, however, that the Buyer hereby covenants and agrees that such pledge
shall be in conformity with Rule 144.
g. Legends. The Buyer understands that the Preferred
Shares and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or
an opinion of
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<PAGE>
counsel, in form, substance and scope reasonably acceptable to
the Company, that registration is not required under said Act
or unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the 1933 Act and such sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 under the 1933
Act (or a successor rule thereto) without any restriction as to the number of
Securities acquired as of a particular date that can then be immediately sold.
The Buyer covenants and agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors' rights from time to time in effect, and subject to
general equity principals.
i. Legal Power. The Buyer has the requisite
corporate, partnership, trust or fiduciary power, as appropriate, and is
authorized, if the Buyer is a corporation, partnership, trust, to enter into
this Agreement and the Registration Rights Agreement, to purchase the Preferred
Shares hereunder, and to carry out and perform its obligations under the terms
of this Agreement and the Registration Rights Agreement.
j. Residency. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and
each of its Subsidiaries (as defined below) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, has all requisite corporate power and authority to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and
5
<PAGE>
is in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the business,
operations, assets or financial condition of the Company or its Subsidiaries,
taken as a whole. "Subsidiaries" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company owns, directly or
indirectly, more than 50% of the outstanding equity or other ownership interests
in such corporation or other organization, including but not limited to each of
the Subsidiaries listed in Exhibit 21 to the Form 10-K.
b. Authorization; Enforcement. (i) The Company has
all requisite corporate power and authority to file and perform its obligations
under the Preferred Stock Statement and to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, except for any shareholder
approval that may be required pursuant to applicable rules of The Nasdaq Stock
Market, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement and the Warrants 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 issuance and
reservation for issuance of the Conversion Shares and Warrant Shares issuable
upon conversion or exercise thereof) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, or its shareholders is required, except for any shareholder
approval that may be required pursuant to applicable rules of The Nasdaq Stock
Market, (iii) this Agreement has been duly executed and delivered and the
Preferred Stock Statement has been duly filed by the Company, and (iv) each of
this Agreement and the Preferred Stock Statement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement and the
Warrants, each of such instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors' rights from time to time in
effect, and subject to general equity principals.
c. Capitalization. As of June 30, 1998, the
authorized capital stock of the Company consists of (i) 25,000,000 shares of
Common Stock of which 9,520,827 shares are issued and outstanding, 2,600,000
shares are reserved for issuance pursuant to the Company's stock option plans,
none of which are reserved for issuance pursuant to securities (other than the
Preferred Shares and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 3,030,646 shares are reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(h) below); (ii) 100,000 shares of Class B Common Stock, 100,000 of which
shares are issued and outstanding; and (iii) 1,250,000 Preferred Shares, none of
which shares are issued and outstanding. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. The terms,
6
<PAGE>
designations, powers, preferences and relative, participating and optional or
special rights, and the qualifications, limitations and restrictions of each
series of preferred stock of the Company (other than the Preferred Stock) are as
stated in the Articles of Incorporation, filed on or prior to the date hereof,
and the Bylaws. The terms, designations, powers, preferences and relative,
participating and optional or special rights, and the qualifications,
limitations and restrictions of the Preferred Stock are as stated in the
Preferred Stock Statement. No shares of capital stock of the Company are subject
to preemptive rights or any other similar rights of the shareholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed in Schedule 3(c), as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, 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, and (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Preferred Shares, the Warrants, the Conversion Shares or Warrant Shares. The
Company has furnished to the Buyer true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("Articles of
Incorporation"), 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 of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's President and Chief Executive
Officer on behalf of the Company as of each Closing Date.
d. Issuance of Shares. The Preferred Shares,
Conversion Shares and Warrant Shares are duly authorized by all requisite
corporate action of the Company and, upon issuance in accordance with the terms
of this Agreement (including the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the Preferred Stock
Statement and the Warrant Shares upon exercise of the Warrants in accordance
with the terms thereof) will be validly issued, fully paid and non-assessable,
and free from all taxes, liens and charges with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
shareholders of the Company. The term Conversion Shares and Warrant Shares
includes the shares of Common Stock issuable upon conversion of the Preferred
Shares or exercise of the Warrants, including without limitation, such
additional shares, if any, as are issuable as a result of the events described
in Article V, VI.D(b) or Article VI.E of the Preferred Stock Statement and
Section 2(c) of the Registration Rights Agreement. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion or exercise
of the Preferred Shares or Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares
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upon conversion of the Preferred Shares or exercise of the Warrants in
accordance with and subject to the terms of this Agreement, the Preferred Stock
Statement and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company.
e. No Conflicts. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the filing of
the Preferred Stock Statement and the issuance and reservation for issuance of
the Conversion Shares and Warrant Shares) will not (i) conflict with or result
in a violation of any provision of the Articles of Incorporation or By-laws or
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Articles of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the Company or any
of its Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party or by which any property or assets of the Company or
any of its Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being conducted
in violation of any material law, ordinance or regulation of any governmental
entity (except for such violations which would not, individually or in the
aggregate, have a Material Adverse Effect). Except as specifically contemplated
by this Agreement and as required under the 1933 Act and any applicable state
securities laws, 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 this Agreement, the
Registration Rights Agreement or the Warrants in accordance with the terms
hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in material violation of the
listing requirements of the Nasdaq National Market ("Nasdaq") and does not
reasonably anticipate that the Common Stock will be delisted by the Nasdaq in
the foreseeable future. The Company and
8
<PAGE>
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.
f. SEC Documents, Financial Statements. Since
December 31, 1996, the Company has timely filed all reports and all other
material required to be filed by it with the SEC pursuant to the reporting
requirements under Sections 13, 14 and 15(d) of the Exchange Act of 1934, as
amended (the "1934 Act") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents (other than exhibits) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to the Buyer true and complete copies of the SEC Documents, except for
such exhibits and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. 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 and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles 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 not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to March 31, 1998 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
such financial statements, which, individually or in the aggregate, would not
have a Material Adverse Effect.
g. Absence of Certain Changes. Since December 31,
1997, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition or results of operations of the Company or any of its
Subsidiaries.
h. Absence of Litigation. Except as set forth on
Schedule 3(h), there is no action, suit, claim, 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 or any
of its
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Subsidiaries that could have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
i. Patents, Copyrights, etc. The Company and each of
its Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent rights, inventions, know-how, trade secrets, trademarks, service
marks, service names, trade names and copyrights ("Intellectual Property")
necessary to enable it to conduct its business; there is no claim or action by
any person pertaining to, or proceeding pending, or to the Company's knowledge
threatened which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its
business; and to the Company's knowledge, the Company's or its Subsidiaries',
current and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
j. Tax Status. Except as set forth on Schedule 3(j),
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, except for any returns, reports or
declarations as to which the consequences of any failure to file would not have
a Material Adverse Effect on the Company, and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
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.
k. Certain Transactions. Except as set forth in the
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders to be held
on May 28, 1998 dated April 30, 1998 (the "Proxy Statement") and except for
arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant 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.
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l. Disclosure. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company prior to the date hereof but
which has not been so publicly announced or disclosed (assuming for this
purposes that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
m. Acknowledgment Regarding Buyer's Purchase of
Securities. The Company acknowledges and agrees that the Buyer is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that the
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by the Buyer or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyer's purchase of the
Securities. The Company further represents to the Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives and on the representations,
warranties and covenants of the Buyer.
n. 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 in any security or solicited any
offers to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyer. The issuance
of the Securities to the Buyer will not be integrated with any other issuance of
the Company's securities (past, current or future) which requires stockholder
approval under the rules of The Nasdaq Stock Market.
o. No Brokers. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions, finder's
fees or similar payments relating to this Agreement or the transactions
contemplated hereby.
p. Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the
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Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December 31,
1997, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
q. Environmental Matters. Except as set forth in
Schedule 3(q), there are, to the Company's knowledge, with respect to the
Company or any of its Subsidiaries, no past or present violations of
Environmental Laws (as defined below), or releases of any Hazardous Material (as
defined below) into the environment, which are likely to give rise to any common
law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state or local laws. Neither the Company nor any of its Subsidiaries
has received any notice by governmental authorities with respect to any of the
foregoing, nor is any action pending or, to the Company's knowledge, threatened
in connection with any of the foregoing. The term "Environmental Laws" means all
federal, state or local laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
r. Title to Property. The Company and its
Subsidiaries have good and marketable title to all personal property owned by
them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects except such as
would not have a Material Adverse Effect. Any facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect. The Company owns no real property.
s. Insurance. 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
believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
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t. Internal Accounting Controls. The Company and each
of its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that transactions are executed in accordance
with management's general or specific authorizations and transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability.
u. Foreign Corrupt Practices. Neither the Company,
nor any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
4. COVENANTS.
a. Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
b. Form D; Blue Sky Laws. 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 the Buyer promptly after such filing. The Company
shall, on or before the Closing Date with respect to the First Closing, take
such action as the Company shall reasonably determine is necessary to qualify
the Securities for sale to the Buyer at the applicable closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyer on or prior to the
Closing Date with respect to the First Closing.
c. Reporting Status; Eligibility to Use Form S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as the Buyer beneficially owns any of the Securities, the Company shall
timely 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 permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the
proceeds from the sale of the Preferred Shares and the Warrants for working
capital and general corporate purposes.
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e. Additional Equity Capital; Right of First Refusal.
Subject to the exceptions described below, the Company will not, without the
prior written consent of the Buyer, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to the
market price of the Common Stock on the date of issuance, (B) the issuance of
convertible securities that are convertible into an indeterminate number of
shares of Common Stock or (C) the issuance of warrants during the period (the
"Lock-up Period") within (i) three (3) months from the Closing Date with respect
to any Subsequent Closing and (ii) nine (9) months from the date any
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective. In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt with an equity
component) ("Future Offerings") until six (6) months following the date any
Registration Statement is declared effective and during the period beginning on
the Closing Date with respect to any Subsequent Closing, and ending six months
after such Closing Date, unless it shall have first delivered to the Buyer, at
least fifteen (15) days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection therewith, and providing the Buyer an option during the five (5) day
period following delivery of such notice to purchase its pro rata share (based
on the ratio that the number of Preferred Shares purchased by it hereunder bears
to the aggregate number of Preferred Shares purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence are collectively referred to as the "Capital Raising Limitations"). In
the event the terms and conditions of a proposed Future Offering are amended in
any material respect after delivery of the notice to the Buyer concerning the
proposed Future Offering, the Company shall deliver a new notice to the Buyer
describing the amended terms and conditions of the proposed Future Offering and
the Buyer thereafter shall have an option during the ten (10) day period
following delivery of such new notice to purchase its pro rata share of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act), or
(ii) issuances of securities as consideration for a merger, acquisition,
consolidation or sale of assets, or in connection with any strategic
investments, joint venture or similar commercial relationship. The Capital
Raising Limitations shall not apply to (i) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (ii) to the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan or agreement or (iii) the issuance of
securities as consideration for services rendered by a third party provided that
such issuance is approved by a majority of the Company's disinterested
directors.
f. Expenses. The Company shall reimburse Rose Glen
Capital Management, L.P. ("Rose Glen") for all expenses incurred by it in
connection with the
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negotiation, preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith, including,
without limitation, attorneys' and consultants' fees and expenses. The Company's
obligation to reimburse Rose Glen's expenses under this Section 4(f) shall be
limited to Twenty Five Thousand Dollars ($25,000), of which Five Thousand
Dollars ($5,000) was advanced previously.
g. Financial Information. If requested by the Buyer,
the Company agrees to forward promptly the following reports to the Buyer until
the Buyer transfers, assigns, or sells all of the Securities: (i) within ten
(10) days after the filing with the SEC, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K;
(ii) within one (1) day after release, copies of all press releases issued by
the Company or any of its Subsidiaries; and (iii) contemporaneously with the
making available or giving to the stockholders of the Company, copies of any
notices or other information the Company makes available or gives to such
stockholders.
h. Reservation of Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise
of the outstanding Preferred Shares and Warrants and issuance of the Conversion
Shares and Warrant Shares in connection therewith (based on the Conversion Price
of the Preferred Shares or Exercise Price of the Warrants in effect from time to
time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of Preferred Shares and exercise of the
Warrants without the consent of the Buyer. The Company shall use its best
efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number that is then
actually issuable upon full conversion of the Preferred Shares and exercise of
the Warrants (based on the Conversion Price of the Preferred Shares or Exercise
Price of the Warrants in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Conversion Shares and Warrant Shares issued and issuable upon conversion of
the Preferred Shares and exercise of the Warrants (based on the Conversion Price
of the Preferred Shares or Exercise price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain shareholder
approval of such an increase in the authorized number of shares.
i. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares 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) and shall
use its best efforts to maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares and Warrant Shares
from time to time issuable upon conversion of the Preferred Shares or exercise
of the Warrants. The Company will obtain and use its best efforts to maintain
the listing and trading of its Common
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Stock on Nasdaq, the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York
Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply
in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to the Buyer copies of any notices it receives from Nasdaq and any other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
j. Corporate Existence. So long as the 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, acquisition or consolidation
or sale of all or substantially all of the Company's assets, where (i) the
surviving or successor entity in such transaction (A) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (B) is a publicly traded corporation whose Common Stock
is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX (a "Publicly
Traded Corporation") or (ii) if the survivor or successor entity in such
transaction is not a Publicly Traded Corporation, such event shall be treated as
a Liquidation Event (as defined in the Preferred Stock Statement) and, as a
condition to the consummation of such transaction, the Company redeems the
Preferred Shares held by the Buyer in accordance with the provisions of the
Preferred Stock Statement.
k. No Integration. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities
solely for purposes of Rule 4460(i) of the Nasdaq Stock Market.
l. Solvency. The Company (both before and after
giving effect to the transactions contemplated by this Agreement) is solvent
(i.e., its assets have a fair market value in excess of the amount required to
pay its probable liabilities on its existing debts as they become absolute and
matured) and currently the Company has no information that would lead it to
reasonably conclude that the Company would not have, nor does it intend to take
any action that would impair, its ability to pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end.
m. Trading Guidelines. The Buyer will conduct all
transactions in the Common Stock in compliance with applicable securities laws
and will not execute a trade at or below the then low trading price of the
Common Stock on any given trading day.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of the Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by the Buyer to the
Company upon conversion of the Preferred Shares or
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exercise of the Warrants in accordance with the terms thereof (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
and 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
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act), will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreements set forth in Sections 2(f), 2(g) and 4(m)
hereof to comply with Rule 144 and all applicable prospectus delivery
requirements, if any, upon resale of the Securities and the trading restrictions
applicable to the Buyer. If the Buyer provides the Company with an opinion of
counsel, reasonably satisfactory to the Company in form, substance and scope,
that registration of a resale by the Buyer of any of the Securities is not
required under the 1933 Act, the Company shall permit the transfer, and, in the
case of the Conversion Shares and Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by the Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the 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 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyer shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate 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
Warrants to the Buyer at the First Closing and each of the Subsequent Closings,
as applicable, is subject to the satisfaction, at or before the Closing Date in
respect of such closing, of each of the following conditions thereto, 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:
a. With respect to the First Closing and each
Subsequent Closing:
(i) The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(ii) The applicable Buyer shall have delivered
the Purchase Price in accordance with Section 1(b) above.
(iii) The Preferred Stock Statement shall have
been accepted for filing with the Secretary of the Commonwealth of the
Commonwealth of Pennsylvania.
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(iv) The representations and warranties of the
applicable Buyer shall be true and correct in all material respects 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
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
(v) No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
b. With respect to each Subsequent Closing:
(i) At least ninety (90) days and not more than
three hundred sixty (360) days shall have elapsed since the Closing Date with
respect to the First Closing.
(ii) The closing bid price of the Common Stock
shall be at least $5.60 for ten (10) consecutive trading days through the
Closing Date with respect to the applicable Subsequent Closing.
(iii) Since the Closing Date with respect to the
First Closing, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition or results of operations of the Company or any of its
Subsidiaries.
(iv) The Company shall elect to proceed with such
Subsequent Closing by providing written notice to the Buyer to such effect,
which notice shall set forth the number of Preferred Shares to be issued on the
proposed Closing Date with respect to such Subsequent Closing.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The
obligation of the Buyer hereunder to purchase the Preferred Shares and Warrants
at the First Closing and each of the Subsequent Closings, as applicable, is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the Buyer's
sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. With respect to the First Closing and each
Subsequent Closing:
(i) The Company shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Buyer.
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(ii) The Company shall have delivered to
the Buyer duly executed certificates (in such denominations as the Buyer shall
request) representing the Preferred Shares and Warrants in accordance with
Section 1(b) above.
(iii) The Preferred Stock Statement shall
have been accepted for filing with the Secretary of the Commonwealth of the
Commonwealth of Pennsylvania, and a copy thereof certified by such Secretary of
the Commonwealth shall have been delivered to the Buyer.
(iv) The Irrevocable Transfer Agent
Instructions, in form and substance satisfactory to the Buyer, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
(v) The representations and warranties of
the Company shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Buyer shall have received a certificate or certificates of the Company, executed
on behalf of the Company 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 may
be reasonably requested by the Buyer including, but not limited to similar
certificates with respect to the Company's Articles of Incorporation, Bylaws and
Board of Directors' resolutions relating to the transactions contemplated
hereby.
(vi) No litigation, statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
(vii) The Company shall have filed with
Nasdaq to have the Conversion Shares and the Warrant Shares included for
quotation on Nasdaq and trading in the Common Stock on Nasdaq shall not have
been suspended by the SEC or Nasdaq.
(viii) The Buyer shall have received an
opinion of the Company's counsel, dated as of the Closing Date, in form, scope
and substance reasonably satisfactory to the Buyer and in substantially the same
form as Exhibit "E" attached hereto.
(ix) The Buyer shall have received an
officer's certificate described in Section 3(c) above, dated as of the Closing
Date.
b. With respect to each Subsequent Closing:
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(i) At least ninety (90) days and not more
than three hundred sixty (360) days shall have elapsed since the Closing Date
with respect to the First Closing.
(ii) The closing bid price of the Common
Stock shall be at least $5.60 for ten (10) consecutive trading days through the
Closing Date with respect to the applicable Subsequent Closing.
(iii) Since the Closing Date with respect
to the First Closing, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition or results of operations of the Company or any
of its Subsidiaries.
(iv) The notice described in Section
6(b)(iv) above shall have been delivered and not more than 2,000 Preferred
Shares in not more than two Subsequent Closings shall be issued.
(v) The Company shall have prepared, and
shall have obtained all necessary consents to file, a Registration Statement
covering the resale of the shares of Common Stock underlying the Preferred
Shares and Warrants to be issued in such Subsequent Closing, and a copy of such
Registration Statement shall have been provided to the Buyer for its review.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the principles of conflict of laws. The parties hereto hereby
submit to the jurisdiction of the United States Federal Courts located in the
Eastern District of Pennsylvania with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile. This
Agreement may be executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
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.
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
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or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and
the exhibits and schedules and other documents referenced herein or to be
executed in connection herewith 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 the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Infonautics, Inc.
900 West Valley Road, Suite 1000
Wayne, Pennsylvania 19087
Attention: President and Chief Executive Officer
Facsimile: 610-293-3910
With copy to:
Morgan Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Attention: David R. King, Esq.
Facsimile: 215-963-5299
If to the Buyer: To the address set forth immediately below
the Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor the Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written
21
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consent of the other. Notwithstanding the foregoing, subject to Section 2(f),
the Buyer may assign its rights hereunder to any person that purchases
Securities in a private transaction from the Buyer or to any of its
"affiliates," as that term is defined under the 1934 Act, without the consent of
the Company.
h. 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. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive notwithstanding any due diligence investigation conducted by or on
behalf of the Buyer.
j. Publicity. The Company and the Buyer shall have
the right to review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, 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 the Buyer, to make any
press release or SEC, Nasdaq or NASD filings with respect to such transactions
as is required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release prior to its
release and shall be provided with a copy thereof and be given an opportunity to
comment thereon).
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. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Buyer and the Company have
caused this Agreement to be duly executed as of the date first above written.
INFONAUTICS, INC.
By: /s/ David Van Riper Morris
-------------------------------------
David Van Riper Morris
President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
------------------------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 3,000
Number of Warrants: 200,000
Aggregate Purchase Price: $3,000,000
23
<PAGE>
EXHIBIT D
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 22,
1998, by and among Infonautics, Inc., a Pennsylvania corporation, with its
headquarters located at 900 West Valley Road, Suite 400, Wayne, Pennsylvania
19087 and RGC International Investors, LDC (together with its respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors in one or more closings (i)
shares of its Series A Convertible Preferred Stock (the "Preferred Stock") that
are convertible into shares (the "Conversion Shares") of the Company's common
stock, no par value (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in the Statement With Respect To Shares for
the Preferred Stock (the "Preferred Stock Statement") and (ii) warrants (the
"Warrants") to acquire Common Stock (the "Warrant Shares"), upon the terms and
conditions and subject to the limitations and conditions set forth in such
Warrants; and
B. To induce the Initial Investors 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 Initial Investors hereby agree as follows:
<PAGE>
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investors" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares (including any shares issued pursuant to Articles VI.E(b) and VI.F of the
Preferred Stock Statement) and Warrant Shares issued or issuable upon conversion
or exercise, as applicable, of Preferred Stock and Warrants issued or issuable
pursuant to the Stock Purchase Agreement and any shares of capital stock issued
or issuable as a dividend on or in exchange for or otherwise with respect to any
of the foregoing.
(iv) "Registration Statement" means a registration
statement of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to the date which is twenty (20) days after the date of the First
Closing under the Securities Purchase Agreement and on or prior to each date
which is ten (10) business days after the date of a Subsequent Closing (the date
of the First Closing and of each Subsequent Closing are each hereinafter
referred to as a "Closing Date"), file with the SEC a Registration Statement on
Form S-3 (or, if Form S-3 is not then available, on such form of Registration
Statement as is then available to effect a registration of the Registrable
Securities, subject to the consent of the Initial Investors, which consent will
not be unreasonably withheld) covering the resale of the Registrable Securities
underlying the shares of Preferred Stock and the Warrants issued or issuable in
connection therewith pursuant to the First Closing and each Subsequent Closing,
as the case may be, under the Securities Purchase Agreement, which Registration
Statement, to the extent allowable under the 1933 Act and the Rules promulgated
thereunder (including Rule 416), shall
2
<PAGE>
state, to the extent permitted by law and the SEC, that each Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock and exercise
of the Warrants (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the Conversion
Price of the Preferred Stock in accordance with the terms thereof or the
exercise price of the Warrants in accordance with the terms thereof. The number
of shares of Common Stock initially included in such Registration Statement
shall be no less than 1.75 times the sum of the number of Conversion Shares and
Warrant Shares that are then issuable upon conversion of the Preferred Stock and
the exercise of the Warrants issued pursuant to the closing in respect of which
it is filed, without regard to any limitation on the Investor's ability to
convert the Preferred Stock or exercise the Warrants. The Company acknowledges
that the number of shares initially included in the Registration Statement
represents a good faith estimate of the maximum number of shares issuable upon
conversion of the Preferred Stock and exercise of the Warrants.
b. Payments by the Company. The Company shall use its best
efforts to obtain effectiveness of each Registration Statement as soon as
practicable. If (i) any Registration Statement covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC within one hundred twenty (120) days after
the Closing Date in respect of which it is filed or if, after any Registration
Statement has been declared effective by the SEC, sales cannot be made pursuant
to such Registration Statement, or (ii) the Common Stock is not listed or
included for quotation on the Nasdaq National Market ("Nasdaq"), the Nasdaq
SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange (the "NYSE") or
the American Stock Exchange (the "AMEX") after being so listed or included for
quotation, then the Company will make payments to the Investors in such amounts
and at such times as shall be determined pursuant to this Section 2(b) as
partial relief for the damages to the Investors by reason of any such delay in
or reduction of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity). The
Company shall pay to each holder of the Preferred Stock or Registerable
Securities an amount equal to the then outstanding principal amount of the
Preferred Stock (and, in the case of holders of Registerable Securities, the
principal amount of Preferred Stock from which such Registerable Securities were
converted) ("Aggregate Share Price") multiplied by the Applicable Percentage (as
defined below) times the sum of: (i) the number of months (prorated for partial
months) after the end of such 120-day period and prior to the date any
Registration Statement is declared effective by the SEC, provided, however, that
there shall be excluded from such period any delays which are solely
attributable to changes required in any Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution, or to the failure of the Investors to conduct their
review of any Registration Statement pursuant to Section 3(h) below in a
reasonably prompt manner or other matters relating to the Investors or their
manner of sale; (ii) the number of months (prorated for partial months) that
sales cannot be made pursuant to any Registration Statement after any
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement, but excluding Allowed Days (as defined in Section
3
<PAGE>
3(e)); and (iii) the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the Nasdaq, Nasdaq
SmallCap, NYSE or AMEX or that trading thereon is halted after any Registration
Statement has been declared effective. The term "Applicable Percentage" means
twenty hundredths (.020) with respect to each thirty (30) day period of any
calculation under clause (i) of the sentence in which the term is used. (For
example, if a Registration Statement becomes effective one (1) month after the
end of such 120-day period, the Company would pay $20,000 for each $1,000,000 of
Aggregate Share Price. If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month, the Company
would pay an additional $20,000 for each $1,000,000 of Aggregate Share Price.)
Such amounts shall be paid in cash or, at each Investor's option, may be added
to the principal amount of the Preferred Stock and thereafter be convertible
into Common Stock at the "Conversion Price" (as defined in the Preferred Stock
Statement) in accordance with the terms of the Preferred Stock). Any shares of
Common Stock issued upon conversion of such amounts shall be Registrable
Securities. If the Investor desires to convert the amounts due hereunder into
Registrable Securities, it shall so notify the Company in writing within two (2)
business days of the date on which such amounts are first payable in cash and
such amounts shall be so convertible (pursuant to the mechanics set forth in the
Preferred Stock Statement, beginning on the last day upon which the cash amount
would otherwise be due in accordance with the following sentence). Payments of
cash pursuant hereto shall be made within five (5) business days after the end
of each period that gives rise to such obligation, provided that, if any such
period extends for more than thirty (30) days, interim payments shall be made
for each such thirty (30) day period.
c. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(c),if at any time prior to the expiration of any Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(c) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding
4
<PAGE>
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(c) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(c) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
the Registration Statement to be filed pursuant to Section 2(a) in accordance
with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and
warrants that it meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than twenty (20) days after each Closing Date, a Registration
Statement with respect to the number of Registrable Securities provided in
Section 2(a), and thereafter use its best efforts to cause such Registration
Statement relating to Registrable Securities to become effective as soon as
possible after such filing, and keep each Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities included on such Registration
Statement have been sold and (ii) the date on which the Registrable Securities
included on such Registration Statement (in the opinion of counsel to the
Initial Investors) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the 1933 Act (each a "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 not misleading.
5
<PAGE>
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with each
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during each 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 each Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in each Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover 125% the Registrable Securities issued or issuable upon
conversion of the Preferred Stock and exercise of the Warrants issued at the
First Closing or at any Subsequent Closing, as the case may be, the Company
shall amend such Registration Statement, or file a new Registration Statement
(on the short form available therefore, if applicable), or both, so as to cover
all of the Registrable Securities, in each case, as soon as practicable, but in
any event within ten (10) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. The provisions of
Section 2(b) above shall be applicable with respect to such obligation, with the
one hundred twenty (120) days running from the day after the date on which the
Company reasonably first determines (or reasonably should have determined) the
need therefor.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of such Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of any Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
6
<PAGE>
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by each Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (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 each Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during each 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 (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any 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 not misleading, and use its best
efforts promptly to prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than twenty (20) consecutive
trading days (or a total of not more than forty five (45) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company,the best interests of the Company (an
"Allowed Delay"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(e) with respect to the information giving rise
thereto.
f. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
7
<PAGE>
g. The Company shall permit a single firm of counsel
designated by the Initial Investors to review each Registration Statement and
all amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of each Registration Statement
covering information with respect to the Investors, the Investors' beneficial
ownership of securities of the Company or the Investors' intended method of
disposition of Registrable Securities shall be the responsibility of the
Investors, provided that the information contained in the Registration Statement
conforms to the information provided to the Company by each of the Investors.
h. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (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.
i. The Company shall make available for inspection by (i) any
Investor, (ii) one firm of attorneys and one firm of accountants or other agents
retained by the Initial Investors, and (iii) one firm of attorneys and one firm
of accountants or other agents retained by all other 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 to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided, however,
that each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) 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, (b) the release of such Records is ordered pursuant to a subpoena or
other 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. 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 (in form and substance satisfactory to the Company)
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. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
8
<PAGE>
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 order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. 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 notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
k. The Company shall (i) cause all the Registrable Securities
covered by each Registration Statement to be listed on each national 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 the designation and
quotation, of all the Registrable Securities covered by each Registration
Statement on the Nasdaq or, if not eligible for the Nasdaq on the Nasdaq
SmallCap 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 respect to such Registrable
Securities.
l. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of each Registration Statement.
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to each 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, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an instruction in the form attached hereto as Exhibit 1 and an
opinion of such counsel in the form attached hereto as Exhibit 2.
n. At the request of the holders of a majority-in-interest of
the Registrable Securities, 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
9
<PAGE>
connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.
o. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities of the
Company to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the holders of a majority-in-interest of the
Registrable Securities.
p. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. 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, and to update such
information as necessary. At least three (3) business days prior to the first
anticipated filing date of each Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such Investor.
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 the preparation and filing of each
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 the Registration Statement.
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the
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Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from a Registration Statement.
d. 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(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to each Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualification fees, printers and
accounting fees, the fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company, provided that such fees and expenses shall be counted against the
maximum amount of fees and expenses to be reimbursed pursuant to Section 4(f) of
the Securities Purchase Agreement.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such
Registrable Securities, (ii) the directors, officers, partners, employees,
agents and each person who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"),
if any, (iii) any underwriter (as defined in the 1933 Act) for the Investors,
and (iv) the directors, officers, partners, employees and each person who
controls any such underwriter within the meaning of
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the 1933 Act or the 1934 Act, if any (each, an "Indemnified Person"), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated 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 (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees 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 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 any Indemnified Person
for such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, which shall include the information set forth in the prospectus about
the Investors, the interests of the Investors in the Company, and the Investors'
intended plan of distribution, but only to the extent that any of the foregoing
information is furnished by the Investors in writing expressly for use in
connection with such Registration Statement, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (ii) 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; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
such corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. 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.
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b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, 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(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) 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) 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 Agreement (including this Section 6(b) and Section 7) for only
that amount 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 preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary 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 (including any governmental action), 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 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. The
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indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investors holding a majority-in-interest of the
Registrable Securities included in such Registration Statement to which the
Claim relates (with the approval of a majority-in-interest of the Initial
Investors), if the Investors are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
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
actually prejudiced in its ability to defend such action. 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 such expense,
loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent the 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 contribution shall be made under circumstances where the indemnifying
party would not have been liable for indemnification under the fault standards
set forth in Section 6, (ii) 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 such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement) 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.
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:
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 for the applicable provisions of Rule 144; and
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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 so filed by the
Company, 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) 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, including providing necessary updates under
Section 4(a) hereof, (v) such transfer shall have been made in accordance with
the applicable requirements of the Securities Purchase Agreement, and (vi) such
transferee shall be an "accredited investor" as that term defined in Rule 501 of
Regulation D promulgated under the 1933 Act.
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 written consent of the Company, a
majority of the Initial Investors (to the extent such Initial Investor still
owns Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities 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.
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b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Infonautics, Inc.
900 West Valley Road, Suite 1000
Wayne, Pennsylvania 19087
Attention: President and Chief Executive Officer
Facsimile: 610-293-3910
With copy to:
Morgan Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Attention: David R. King, Esq.
Facsimile: 215-963-5299
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
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. This Agreement shall be enforced, governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule
of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other
provision hereof. The parties hereto hereby submit to the jurisdiction of the
United States Federal Courts located in the Eastern District of Pennsylvania
with respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with
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respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement and the Securities Purchase Agreement
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 hereof, this
Agreement shall inure to the benefit of and be binding upon the 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 two or more
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. Except as otherwise provided herein, all consents and
other determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable Securities,
determined as if the all of the shares of Preferred Stock then outstanding
have been converted into for Registrable Securities.
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.
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IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
INFONAUTICS, INC.
By: /s/ David Van Riper Morris
__________________________________
David Van Riper Morris
President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
__________________________________
Wayne D. Bloch
Managing Director
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