United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from to
------- -------
Commission File Number 0-24030
THE PANDA PROJECT, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0323354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 YAMATO ROAD
BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(561) 994-2300
(Registrant's telephone number)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes x No .
----- -----
Applicable Only to Issuers Involved In Bankruptcy
Proceedings During The Preceding Five Years
Indicate by check mark whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No .
---- ----
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value - 14,729,606 shares as of August 18, 1998
<PAGE>
Page 2
THE PANDA PROJECT, INC.
Index
Page
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Condensed Balance Sheets - June 30, 1998 and
December 31, 1997 and Pro Forma June 30, 1998 3
Condensed Statements of Operations - Three and Six
months ended June 30, 1998 and June 30, 1997 4
Condensed Statements of Cash Flows - Six months
ended June 30, 1998 and June 30, 1997 5
Notes to Condensed Financial Statements -
June 30, 1998 6-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 15
Part II - Other Information
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 17
Exhibit Index 18
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<TABLE>
The Panda Project, Inc.
Condensed Balance Sheets
<CAPTION>
Pro Forma
June 30, December 31, June 30,
1998 1997 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 398,785 $ 619,683 $ 398,785
Accounts receivable-trade (net of allowance
of $10,000 at June 30, 1998 and $10,006 at
December 31, 1997) 165,954 224,851 165,954
Inventory 1,583,951 965,199 1,583,951
Other receivables 141,326 105,825 141,326
Prepaid expenses and other current assets 398,243 378,242 398,243
----------- ----------- -----------
Total current assets 2,688,259 2,293,800 2,688,259
----------- ----------- -----------
Property and equipment, net 2,828,164 2,818,218 2,828,164
Restricted cash 110,000 260,000 110,000
Debt issuance costs, net 352,025 340,513 352,025
Other assets 61,578 1,299 61,578
----------- ----------- -----------
Total assets $ 6,040,026 $ 5,713,830 $ 6,040,026
=========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE
SECURITIES, AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,517,694 $ 1,651,540 $ 1,517,694
Notes payable 1,750,000 1,000,000 1,750,000
Accrued expenses and other current
liabilities 894,977 964,586 894,977
----------- ----------- -----------
Total current liabilities 4,162,671 3,616,126 4,162,671
----------- ----------- -----------
Mandatorily Redeemable Series A Convertible
Preferred Stock, no shares issued at December
31, 1997 and 600 shares issued and outstanding
at June 30, 1998 5,504,850 - -
----------- ----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized: 1,000
shares designated as Series A, no
shares issued at December 31, 1997
and 600 shares issued and outstanding
at June 30, 1998 - - 5,504,850
Common Stock, $.01 par value, 50,000,000 shares
authorized: 12,247,783 shares at June 30,
1998 and 12,215,522 shares at December 31,
1997 issued and outstanding 122,479 122,155 122,479
Additional paid-in capital 66,542,929 64,841,102 66,542,929
Accumulated deficit (70,292,903) (62,865,553) (70,292,903)
----------- ----------- -----------
Total stockholders' equity (deficit) (3,627,495) 2,097,704 1,877,355
----------- ----------- -----------
Total liabilities, mandatorily redeemable
securities, and stockholders' equity $ 6,040,026 $ 5,713,830 $ 6,040,026
=========== =========== ===========
The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements of the Company at that date.
See Notes to Condensed Financial Statements.
</TABLE>
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<TABLE>
The Panda Project, Inc.
Condensed Statements of Operations (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 196,164 $ 308,530 $ 321,918 $ 434,417
Contract research and
development revenues 117,257 394,254 135,673 559,254
----------- ----------- ----------- -----------
Net revenues $ 313,421 $ 702,784 $ 457,591 $ 993,671
Costs and expenses:
Cost of sales 234,045 343,820 394,452 515,039
Research and
development 1,023,689 1,152,240 2,028,520 2,088,119
Selling, general and
administrative 2,252,381 1,946,383 4,240,244 4,257,506
Amortization of debt
issuance costs 421,000 - 1,229,514 -
Costs associated with
asset impairments - - - 585,000
----------- ----------- ----------- -----------
Total costs and expenses 3,931,115 3,442,443 7,892,730 7,445,664
----------- ----------- ----------- -----------
Operating loss (3,617,694) (2,739,659) (7,435,139) (6,451,993)
Interest expense (11,477) (907,317) (42,597) (907,317)
Other income 13,132 77,214 50,386 133,150
----------- ----------- ----------- -----------
Net loss $(3,616,039) $(3,569,762) $(7,427,350) $(7,226,160)
----------- ----------- ----------- -----------
Dividends and amortization
of beneficial conversion
feature related to
mandatorily redeemable
convertible preferred
stock (333,403) - (511,841) -
----------- ----------- ----------- -----------
Net loss applicable to
common stock $(3,949,442) $(3,569,762) $(7,939,191) $(7,226,160)
=========== =========== =========== ===========
Basic and diluted loss
per common share $ (.32) $ (.35) $ (.65) $ (.65)
=========== =========== =========== ===========
Weighted average shares
outstanding 12,240,684 10,339,127 12,230,798 11,069,899
=========== =========== =========== ===========
See Notes to Condensed Financial Statements.
</TABLE>
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The Panda Project, Inc.
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1998 1997
Net cash used by operating activities $ (6,184,561) $ (4,820,385)
Cash flows from investing activities:
Additions to property and equipment (652,936) (148,357)
-------------- --------------
Net cash used by investing activities (652,936) (148,357)
Cash flows from financing activities:
Proceeds from issuance of mandatorily
redeemable convertible preferred
stock 6,000,000 -
Proceeds from issuance of debentures - 4,800,000
Proceeds from issuance of common
stock 59,612 -
Proceeds from issuance of notes
payable 2,750,000 -
Repayment of notes payable (2,000,000) -
Payments of mandatorily redeemable
convertible preferred stock
issuance costs (193,013) (25,500)
-------------- --------------
Net cash provided by (used in)
financing activities 6,616,599 4,774,500
-------------- --------------
Net increase (decrease) in cash and
cash equivalents (220,898) (194,242)
Cash and cash equivalents at
beginning of period 619,683 5,114,015
-------------- --------------
Cash and cash equivalents at end
of period $ 398,785 $ 4,919,773
============== ==============
See Notes to Condensed Financial Statements.
<PAGE>
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The Panda Project, Inc.
Notes to Condensed Financial Statements (Unaudited)
June 30, 1998
1. Basis of Presentation
The accompanying condensed financial statements of The Panda Project,
Inc. ("the Company") have been prepared in accordance with generally
accepted accounting principles on a basis consistent in all material
respects with those applied in the Transition Report on Form 10-K for
the nine months ended December 31, 1997. The interim financial
information is unaudited, but reflects all normal and recurring
adjustments which are, in the opinion of management, necessary to
provide a fair statement of results of operations for the interim
periods presented. The interim financial statements should be read in
connection with the financial statements in the Company's Transition
Report on Form 10-K for the nine months ended December 31, 1997.
Change in Fiscal Year
- - ---------------------
During 1997, the Company changed its fiscal year from April 1 through
March 31 to January 1 through December 31.
2. Pro Forma Balance Sheet
The unaudited Pro Forma Balance Sheet as of June 30, 1998 gives effect
to the reclassification of the Series A Preferred shares to permanent
equity as if the amended terms as described in Note 5 had been
effective as of June 30, 1998.
3. Inventory
June 30, 1998 December 31, 1997
----------------------------------
Raw materials $ 1,234,877 $ 879,756
Work in process 267,795 14,024
Finished goods 81,278 71,419
----------------------------------
$ 1,583,951 $ 965,199
==================================
The agreement between the Company and a third-party for the
manufacture and assembly of the Company's computer systems expired in
September 1996. A dispute arose regarding liability for certain
inventory allegedly purchased on behalf of the Company. During
February 1998, the Company settled this dispute by purchasing
inventory from the contract manufacturer for $520,000. Inventory is
valued at net realizable value, which is net of obsolescence reserves
of approximately $566,000 at June 30, 1998 and $600,000 at December
31, 1997.
<PAGE>
Page 7
4. Notes Payable
During December 1997 and January 1998, the Company received two short-
term loans in the amount of $1,000,000 each from Helix (PEI) Inc.
("Helix"). On February 27, 1998, the Company fully repaid both of
these loans using a portion of the proceeds from the issuance of
preferred stock (see Note 5). The Company received additional short-
term loans from Helix during the quarter ended June 30, 1998 which
aggregated $1,750,000, and an additional $250,000 was received in July
1998. The loans are secured by the Company's intellectual property.
In connection with the issuance of these notes, the Company issued
warrants to Helix to purchase an aggregate of 850,000 shares of the
Company's common stock at exercise prices ranging from $1.63 to $2.125
per share, as adjusted. The warrants have a term of two years and
were recorded as debt issuance costs at an aggregate value of
approximately $1,645,000 (including $404,000 recorded during the
period ended December 31, 1997 but excluding $159,000 to be recorded
subsequent to June 30, 1998). Total debt issuance costs, including
the value of the warrants, charged to amortization expense during the
quarters ended March 31, 1998 and June 30, 1998 amounted to
approximately $808,000 and $421,000, respectively.
On August 7, 1998, Helix agreed to extend the maturity date of all
outstanding notes payable to February 15, 1999, from their original
due date in August 1998, in exchange for the issuance of a warrant to
purchase up to 2,000,000 shares of the Company's common stock at an
exercise price equal to the fair market value of the Company's common
stock at the date of issuance ($2.125). The warrant has a term of two
years. The value of the warrant will be charged to amortization
expense through the revised maturity date.
Helix and its affiliates currently hold approximately 10% of the
Company's common stock. James T. A. Wooder, a director of the
Company, is a Vice President of Helix's parent, Helix Investments
(Canada), Inc.
5. Mandatorily Redeemable Convertible Preferred Stock
On February 11, 1998, the Company issued 600 shares of its Series A
Convertible Preferred Stock ("Series A Preferred") and Common Stock
Purchase Warrants ("Warrants") to purchase an aggregate of 150,000
shares of common stock for a total purchase price of $6,000,000. The
purchase price was allocated to the Series A Preferred and Warrants
based on their relative fair value. The Warrants, which have a term
of five years and an exercise price, subject to adjustment for stock
splits and similar events, of $6.10 per share, were valued at $411,000
using the Black-Scholes option pricing model. Issuance costs of
approximately $193,000 were deducted on a pro rata basis from the
gross proceeds assigned to the Series A Preferred and the Warrants.
Holders of Series A Preferred are entitled to a dividend of 5% per
annum of the purchase price for the shares, payable either in cash or
<PAGE>
Page 8
as an accrual to the purchase price utilized in computing the number
of shares of Series A Preferred issuable upon conversion. Dividends
payable for the quarter ended June 30, 1998 in the amount of $75,286
have been accrued and added to the purchase price of the Series A
Preferred in lieu of a cash payment.
Shares of Series A Preferred are convertible into shares of common
stock pursuant to a formula whereby the purchase price of the shares
to be converted plus any such dividends is divided by a conversion
price defined as the lower of (i) $3.50 subject to adjustment in the
event of certain dilutive issuances of securities by the Company or
for stock splits or similar events (the "Fixed Conversion Price"), or
(ii) a percentage of the average closing bid price of the common stock
for the five days immediately preceding conversion equal to 92%, if
conversion occurs in the period beginning 120 days and ending 180 days
after issuance of the Series A Preferred, or 90%, if conversion occurs
after 180 days from issuance of the Series A Preferred ("the Floating
Conversion Price"). Through June 30, 1998, no conversions had taken
place. From July 1, 1998 through July 31, 1998, 40 shares of Series A
Preferred were converted into an aggregate of 159,795 shares of common
stock of the Company.
The Company may require that all unconverted shares of Series A
Preferred be converted at any time if the closing bid price of common
stock is equal to or greater than $12.00 per share for a period of
twenty consecutive trading days. In addition, on February 11, 2003,
the Company may, at its option, require the holders to convert the
Series A Preferred shares which remain outstanding on such date (plus
accrued and unpaid dividends) or redeem such shares of Series A
Preferred.
In the event certain conditions are met, the Company has the right to
cause the issuance of an additional 400 shares of Series A Preferred
for an aggregate purchase price of $4,000,000. In such event, the
Company would be required to issue Warrants to the purchasers of
Series A Preferred to purchase an additional 100,000 shares of common
stock.
Under the terms of the transaction, as modified on July 2, 1998,
without the prior written approval of the holders of 66 2/3% of the
Series A Preferred shares, the Company shall not (1) consolidate or
merge with another corporation or other entity or person, whereby the
shareholders of the Company own in the aggregate less than 50% of the
ultimate parent or surviving entity, 2)transfer all or substantially
all of the Company's assets to another corporation or other entity or
person, or 3) fix a record date for the declaration of a distribution
or dividend, whether payable in cash, securities or assets (other than
shares of common stock).
In addition, a "Triggering Event" shall be deemed to have occurred
under the following circumstances: (1) the Company does not issue
shares of common stock registered for resale for any reason, including
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Page 9
(a) the Company does not have a sufficient number of shares of common
stock authorized and available, (b) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange or
interdealer quotation system from issuing such shares or (c) fails to
have a sufficient number of shares of common stock registered for
resale under a registration statement, and if such condition remains
unremedied for a period of 30 days, (2) suspension for a period of 30
consecutive days of a registration statement covering shares issuable
upon conversion of Series A Preferred, (3) failure of the Common Stock
to be listed, or suspension of trading in the Company's Common Stock
on the Nasdaq National Market or the Nasdaq SmallCap Market for a
period of five consecutive days, or (4) notice by the Company to any
holder of Series A Preferred of its intention not to comply with
proper requests for conversion of Series A Preferred. After a
Triggering Event, the Company shall pay the holders $100,000 on the
first day of each month until the Triggering Event is remedied.
In the event the Company is unable to issue shares of its common stock
pursuant to a request for conversion for any reason, including,
without limitation, because the Company (1) does not have sufficient
number of shares of common stock authorized and available, (2) is
otherwise prohibited by applicable law or by the rules or regulations
of any stock exchange from issuing such shares, or (3) fails to have a
sufficient number of shares of common stock registered for resale
under a registration statement, and if such condition remains
unremedied for a period of 30 days, the dividend rate for all shares
of Series A Preferred that cannot be converted into shares of common
stock pursuant to such limitations will increase on a formula basis
until such securities have been duly converted.
In connection with this transaction, the Company filed a registration
statement with the Securities and Exchange Commission ("SEC") to
effect the registration for resale of the common stock issuable upon
conversion of the Series A Preferred and upon exercise of the
Warrants. Such Registration Statement has been declared effective by
the Securities and Exchange Commission.
The beneficial conversion feature associated with the Series A
Preferred shares has been recognized and allocated to additional paid-
in capital. The amount of the beneficial conversion feature of
approximately $510,000 was calculated using the most favorable
conversion rate as defined by the terms of the Series A Preferred
stock and is being amortized over a period of six months. The amount
of amortization ($397,103 for the second quarter of 1998) is
reflected, along with accrued dividends, as an increase to net loss in
the Statement of Operations. The accounting for this transaction has
no effect on cash.
The Company also agreed to use its best efforts to obtain shareholder
approval prior to October 31, 1998 of the issuance of shares of common
stock in excess of the number of shares that are issuable pursuant to
Nasdaq rules without shareholder approval.
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6. Commitments and Contingent Matters
There are various legal proceedings and claims pending against the
Company, including disputes with a former director of the Company and
former employees. While it is not possible to determine the ultimate
outcome of these matters, it is the opinion of management, based on
advice from counsel, that the resolution of such matters will not have
an aggregate material adverse effect on the Company's financial
position.
7. Subsequent Events
On August 14, 1998, the Company completed an agreement for the sale of
2,346,626 shares of its common stock in a private placement to
accredited investors with gross proceeds of approximately $3.8 million
of which all but $200,000 has been funded as of the date hereof.
Expenses of the private placement amounted to approximately $230,000.
In addition to the shares of common stock purchased by each investor
in the placement, such investor received a warrant to purchase an
equal number of shares of common stock, subject to adjustment for
stock splits and similar events, at an exercise price of $2.55 per
share. Upon exercise of the warrant, the investors may elect to
receive a reduced number of shares of common stock in lieu of
tendering the warrant exercise price in cash. The warrants have a
term of five years. Issuance of shares of common stock pursuant to
exercise of these warrants requires the approval of the Company's
shareholders.
Under the terms of the Securities Purchase Agreement, in the event the
price of the Company's common stock decreases from the date of closing
to the six month and/or twelve month anniversary dates, the Company
will be required to issue additional common stock to the investors
("Fill-Up"). Issuance of additional shares of common stock by the
Company pursuant to these provisions requires the approval of the
Company's shareholders.
The Company also agreed to seek the necessary shareholder approval
prior to October 31, 1998 of issuance of shares of common stock
pursuant to the exercise of the warrants and pursuant to the Fill-Up
provisions. In the event (i) the common shares issued are delisted or
suspended from trading on Nasdaq, (ii) the common shares issuable in
accordance with the Fill-Up provisions and upon exercise of the
warrants are not issuable or are not listed with Nasdaq , or (iii) if
the Company fails to issue additional shares pursuant to the Fill-Up
provisions, then the Company shall pay to the initial investors
$100,000 for each full 30-day period that the condition continues.
The Company has agreed to file a registration statement with the
Securities and Exchange Commission to effect the registration for
resale of the common stock issued in the private placement and the
common stock issuable upon exercise of the warrants and pursuant to
the Fill-Up provisions. If the registration statement is not declared
effective by the SEC within 90 days after the Closing Date of the
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Page 11
private placement, the Company may be liable to investors for penalty
payments for each month that such registration statement has not been
declared effective.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Panda Project, Inc. (the "Company") is a technology company
engaged in the development, manufacture and sale of computer systems,
including the Archistrat line of powerful, modular workstations and
the recently announced Rock City line of desktop computers ("the
Computer Systems"), and the Company's proprietary semiconductor
packaging and interconnect devices ("the Technology Products"). During
1997, the Company changed its fiscal year from April 1 through March
31 to January 1 through December 31.
Statements in this Report on Form 10-Q that are not historical are to
be regarded as forward-looking statements which are based on
information available to the Company as of the date hereof and involve
a number of risks and uncertainties. Among the important factors that
could cause actual results to differ materially from those indicated
by such forward-looking statements are delays in product development,
competitive pressures, general economic conditions, risks of
intellectual property litigation, and the factors detailed below or
set forth from time to time in the Company's periodic reports and
registration statements filed with the Securities and Exchange
Commission.
Results of Operations - Quarter and Six Months Ended June 30, 1998 and
1997
Net revenues decreased during the quarter ended June 30, 1998 (the
"second quarter of 1998") to approximately $313,000 as compared to
$703,000 for the quarter ended June 30, 1997 (the "second quarter of
1997"). For the six months ended June 30, 1998, net revenues
decreased to approximately $496,000 as compared to $994,000 for the
same period in the prior year. The decrease for the quarter and six
month period was primarily attributable to a reduction in revenue
associated with the agreement with the Defense Advanced Research
Projects Agency which was successfully completed during April 1998.
The Company has refocused its efforts with regards to the Computer
Systems toward the recently announced Rock City product line which
became available for sale during the second quarter of 1998. The
efforts made during the six months ended June 30, 1998 have been
strategic in nature and encompassed building the infrastructure to
support the launch of Rock City computers, negotiations with suppliers
and contract manufacturers, development of the initial marketing
campaigns and promotional efforts, as well as making refinements to
the product configurations and components.
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Research and development ("R&D") expenses decreased to approximately
$1,024,000 for the second quarter of 1998 as compared to $1,152,000
for the second quarter of 1997. For the six months ended June 30,
1998 R&D decreased to approximately $2,029,000 as compared to
$2,088,000 for the same period in the prior year. While the aggregate
amount of R&D spending decreased 11% and 3% respectively, development
expenses related to the Technology Products, including the design of
new versions of VSPA for specific customer applications and the
refinement of manufacturing equipment for VSPA, increased
approximately $224,000 and $587,000, respectively, while R&D related
to Computer Systems decreased.
Selling, general and administrative (SG&A) expenses for the second
quarter of 1998 increased approximately $308,000, or 16%, to
$2,254,000 as compared to $1,946,000 for the second quarter of 1997.
The net increase for the second quarter is primarily due to
approximately $276,000 of marketing expenses related to the Rock City
product line which began selling during the second quarter of 1998.
For the six months ended June 30, 1998, SG&A decreased less than 1% to
approximately $4,240,000 compared to $4,258,000 for the same period in
the prior year.
Total debt issuance costs associated with short-term borrowings from
Helix, including the value of the warrants issued in connection with
such borrowings, charged to amortization expense during the quarter
and six months ended June 30, 1998 amounted to approximately $421,000
and $1,229,000, respectively. The valuation of the warrants and
related amortization expense represents a noncash transaction.
During the quarter ended March 31, 1997, the Company determined that,
due to various events and changes in circumstances (including efforts
to streamline operations and to increase the use of strategic
alliances to manufacture and market the Company's products), certain
long-lived assets were impaired. As a result, in the first quarter of
1997, the Company recorded a charge of approximately $585,000.
For purposes of determining net loss applicable to common stock for
the quarter and six months ended June 30, 1998, accrued dividends
payable in the amount of approximately $75,000 and $115,000,
respectively, and amortization of the beneficial conversion feature of
$258,000 and $397,000, respectively, related to the issuance of the
Series A Preferred Stock have been added to the net loss. Both amounts
represent noncash transactions. Basic and diluted loss per share has
been calculated on the basis of net loss applicable to common stock.
Liquidity and Capital Resources
During February 1998, the Company completed a private placement of
$6.0 million of Series A Preferred stock and received net proceeds of
approximately $5.8 million. The shares of preferred stock are
convertible into common stock at the lower of $3.50 per share (in
accordance the revised terms effective July 2, 1998) or a floating
conversion price. Through July 31, 1998, 40 shares of preferred stock
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Page 13
were converted into an aggregate of 159,795 shares of the Company's
common stock.
The Company may require that all unconverted shares of Series A
Preferred be converted at any time if the closing bid price of common
stock is equal to or greater than $12.00 per share for a period of
twenty consecutive trading days. In addition, on February 11, 2003,
the Company may, at its option, require the holders to convert the
Series A Preferred shares which remain outstanding on such date (plus
accrued and unpaid dividends) or redeem such shares of Series A
Preferred. The terms of the Series A Preferred, as revised on July 2,
1998, provide that upon the occurrence of certain Triggering Events,
as defined, the Company may be required to pay the holders $100,000
per month until such time that the Triggering Event has been remedied.
Any requirement that the Company pay such amounts could have a
material adverse impact on the Company in the event the Triggering
Event causing such payment is not remedied on a timely basis.
On August 14, 1998, the Company completed an agreement for the sale of
2,346,626 shares of its common stock in a private placement to
accredited investors with gross proceeds of approximately $3.8 million
of which all but $200,000 has been funded as of the date hereof.
Expenses of the private placement amounted to approximately $230,000.
In addition to the shares of common stock purchased by each investor
in the placement, such investor received a warrant to purchase an
equal number of shares of common stock, subject to adjustment for
stock splits and similar events, at an exercise price of $2.55 per
share. Upon exercise of the warrant, the investors may elect to
receive a reduced number of shares of common stock in lieu of
tendering the warrant exercise price in cash. The warrants have a
term of five years.
The Company recently announced that the Board of Directors had
approved a $15 million equity line financing arrangement. A letter of
intent has been executed with a New York based investment group and,
subject to execution of definitive documentation, closing is currently
scheduled to occur within thirty days. The duration of the agreement
is two years. Under the terms of the letter of intent, the equity line
would provide the Company the option of drawing funds on a periodic
basis, solely at the Company's discretion subject to certain
limitations and conditions at the time of each draw. However, there
can be no assurance that the Company will complete the proposed equity
line financing arrangement on the timetable anticipated by the Company
or at all, or that the Company will be able to draw funds as
necessary.
During May, June and July 1998, the Company borrowed an aggregate of
$2 million from Helix. During August 1998, Helix agreed to extend the
maturity date of all outstanding notes payable to February 15, 1999,
from their original due date in August 1998, in exchange for the
issuance of a warrant to purchase up to 2,000,000 shares of the
Company's common stock at an exercise price equal to the fair market
value of the Company's common stock at the date of issuance ($2.125).
<PAGE>
Page 14
The warrant has a term of two years. The loans are secured by the
Company's intellectual property. The inability of the Company to
repay Helix loans when due would have a material adverse impact on the
Company.
During the remainder of 1998, the Company expects to continue
development of its Technology Products, commence the commercial
production and sale of its VSPA semiconductor package and its new Rock
City line of computer systems. The Company anticipates that sales of
its VSPA semiconductor package and shipments of its Computer Systems
and the related revenue, as well as licensing and royalty revenue,
will provide additional resources to at least partially fund its
activities during 1998. However, there can be no assurance that
revenues from any or all of these sources will in fact be realized on
the timetable anticipated by the Company. In addition, no additional
revenues associated with the cooperative development agreement entered
into with the U.S. Government during 1996 will be recognized during
the remainder of 1998 as the agreement was successfully completed
during April 1998.
In the event the Company's working capital, as augmented by proceeds
from the recent sale of common stock described above and any sales
revenue, prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems, or otherwise), the Company
would be required to draw funds on the equity line to the extent
available, if at all, or seek additional financing. Furthermore,
depending upon the Company's progress in the development of its
products and technology and manufacturing capabilities, acceptance of
its products and technology by third parties, and the state of the
capital markets, the Company may also determine that it is advisable
to raise additional equity capital. In addition, in the event that the
Company receives a larger than anticipated number of purchase orders
for its Computer Systems or VSPA semiconductor package, it may require
resources substantially greater than it currently has or than are
otherwise available to the Company, and the Company may be required to
raise additional capital or engage third parties (as to which
engagement there can be no assurance) to assist the Company in meeting
such orders.
The Company is dependent upon the success of the efforts discussed
above to expand its marketing activities in order to obtain additional
orders for its VSPA semiconductor package and Computer Systems, to
continue efforts that may lead to the commercialization of additional
products and technologies and to finance other working capital
requirements. There can be no assurance that additional financing
will be available to the Company when needed on commercially
reasonable terms or at all. The inability of the Company to obtain
additional financing when needed would have a material adverse effect
on the Company, including possibly requiring the Company to
significantly curtail or cease its operations.
The common stock of the Company is listed on the Nasdaq National
Market ("NMS") and as such, the Company must comply with the NMS
listing requirements including the maintenance of net tangible assets
<PAGE>
Page 15
of at least $4,000,000. As of June 30, 1998, the Company was not in
compliance with the listing requirements of NMS. However, in
connection with the revised terms of the Series A Preferred shares as
described in Note 5 to the accompanying financial statements, which
became effective July 2, 1998, all provisions for redemption and
liquidated damages were eliminated. These revisions allow for the
reclassification of the balance of Series A Preferred shares to
permanent equity as of the effective date of the revised terms. In
addition, Company subsequently issued shares of common stock in a
private placement transaction and received net proceeds of $3.6
million. In the event the Company is unable to maintain appropriate
listing requirements, its common stock could be subject to delisting
from the NMS. If this were to occur, the Company's common stock could
be adversely affected and the Company's ability to raise additional
capital could be limited. In addition, delisting would cause the
Company to incur material penalty payments pursuant to its agreements
with investors as described in Notes 5 and 7 to the accompanying
condensed financial statements.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
On February 11, 1998, the Company issued in a private placement 600
shares of its Series A Convertible Preferred Stock ("Series A
Preferred") for an aggregate purchase price of $6,000,000. See Note 5
to the accompanying condensed financial statements for a description
of the Series A Preferred stock.
During May 1998, all holders of Series A Preferred exchanged their
shares for Series A-1 Preferred shares. The rights, preferences,
privileges, and terms of the Series A-1 Preferred shares are set forth
in the Company's Fifth Articles of Amendment of Amended and Restated
Articles of Incorporation and are the same as those of the Series A
Preferred except as follows; the Company has the option of paying
specified liquidated damages in lieu of redeeming the preferred
shares, if requested by the holders, upon the occurrence of certain
Triggering Events, as defined in the agreement, and upon the
occurrence of other specified events Any payment of liquidated
damages would be made in eight equal installments over a period of
seven months subsequent to the triggering event with interest accruing
at the rate of 8% per annum on the outstanding balance. The total
amount of liquidated damages payable over the seven month period would
<PAGE>
Page 16
approximate the amount of the respective redemption values as
described above.
On July 2, 1998, all holders of Series A-1 Preferred shares exchanged
their shares for Series A-2 Preferred shares. The rights,
preferences, privileges, and terms of the Series A-2 Preferred shares
are set forth in the Company's Sixth Articles of Amendment of Amended
and Restated Articles of Incorporation and are the same as those of
the Series A-1 Preferred except as generally described in Note 5 to
the accompanying financial statements.
On August 18, 1998, all holders of Series A-2 Preferred shares
exchanged their shares for Series A-3 Preferred shares. The rights,
preferences, privileges, and terms of the Series A-3 Preferred shares
are set forth in the Company's Seventh Articles of Amendment of
Amended and Restated Articles of Incorporation and are the same as
those of the Series A-2 Preferred except that the requirement to
convert a minimum number of shares of Series A-3 Preferred stock at a
particular time was eliminated.
On August 14, 1998, the Company completed an agreement for the sale of
2,346,626 shares of its common stock in a private placement to
accredited investors with gross proceeds of approximately $3.8 million
of which all but $200,000 has been funded as of the date hereof. In
addition to the shares of common stock purchased by each investor in
the placement, such investor received a warrant to purchase an equal
number of shares of common stock, subject to adjustment for stock
splits and similar events, at an exercise price of $2.55 per share.
Upon exercise of the warrant, the investors may elect to receive a
reduced number of shares of common stock in lieu of tendering the
warrant exercise price in cash. The warrants have a term of five
years. Under the terms of the Securities Purchase Agreement, in the
event the price of the Company's common stock decreases from the date
of closing to the six month and/or twelve month anniversary dates, the
Company will be required to issue additional common stock to the
investors. Issuance of additional shares of common stock by the
Company pursuant to these provisions requires the approval of the
Company's shareholders. The common stock and warrants were issued
pursuant to a private placement under section 4(2) of the Securities
Act of 1933.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
Not Applicable
<PAGE>
Page 17
Item 6. Exhibits and Reports on Form 8-K.
(a) See the Exhibit Index included immediately preceding the
Exhibits to this report, which is incorporated herein by reference.
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THE PANDA PROJECT, INC.
Date: August 19, 1998
By: /s/ KEVIN J. CALHOUN
-------------------------
Kevin J. Calhoun
Chief Financial Officer
(On behalf of the Registrant
and as Principal Financial
and Accounting Officer)
<PAGE>
Page 18
EXHIBIT INDEX
Exhibit Description of Exhibit
- - ------- ----------------------
3.1 Amended and Restated Articles of Incorporation of the
Company, as amended (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-3 filed with
the Securities and Exchange Commission on November 3,
1997) *
3.2 Fourth Articles of Amendment of Amended and Restated
Articles of Incorporation (filed as Exhibit 4.1 to the
Company's Form 8-K filed on February 23, 1998) *
3.3 Fifth Articles of Amendment of Amended and Restated
Articles of Incorporation (filed as Exhibit 3.1 to the
Company's Quarterly Report of Form 10-Q for the period
ended March 31, 1998) *
3.4 Sixth Articles of Amendment of Amended and Restated
Articles of Incorporation (filed as Exhibit 3.2 to the
Company's amended Quarterly Report of Form 10-Q for the
period ended March 31, 1998 filed on July 2, 1998) *
3.5 Seventh Articles of Amendment of Amended and Restated
Articles of Incorporation
3.6 Amended and Restated By-Laws of the Company (filed as
Exhibit 3.2 to the Company's Registration Statement on
Form S-3 filed with the Securities and Exchange
Commission on November 3, 1997) *
4.1 Form of Common Stock Purchase Warrant issued in a
private placement transaction completed on August 14,
1998 (the "Private Placement")
4.2 Common Stock Purchase Warrant dated August 7, 1998
issued to Helix (PEI) Inc.
10.1 Securities Purchase Agreement dated August 13, 1998
between the Company and investors in the Private
Placement
10.2 Registration Rights Agreement dated August 13, 1998
between the Company and investors in the Private
Placement
27 Financial Data Schedule
________________
* Incorporated herein by reference
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 398,785
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,583,951
<CURRENT-ASSETS> 2,688,259
<PP&E> 5,639,606
<DEPRECIATION> 3,831,070
<TOTAL-ASSETS> 6,040,026
<CURRENT-LIABILITIES> 4,162,671
<BONDS> 0
5,504,850
0
<COMMON> 122,479
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,040,026
<SALES> 321,918
<TOTAL-REVENUES> 457,591
<CGS> 394,452
<TOTAL-COSTS> 394,452
<OTHER-EXPENSES> 7,498,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,597
<INCOME-PRETAX> (7,427,350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,427,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,427,350)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated
as of August 13, 1998 by and among THE PANDA PROJECT, INC., a
Florida corporation, with headquarters located at 901 Yamato
Road, Boca Raton, Florida 33431 (the "Company"), and the Buyers
set forth on the signature page hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"), and Rule 506
under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the
1933 Act;
B. Buyers desire, upon the terms and conditions stated
in this Agreement, (a) to purchase shares of the Company's common
stock, par value $0.01 per share (the "Common Stock" or "Common
Shares"), for $1.63 per share for an aggregate purchase price
from all investors of up to Four million U.S. Dollars
($4,000,000) (the "Purchase"); and (b) to receive Stock Purchase
Warrants (the "Warrants"), in the form attached hereto as Exhibit
A, to acquire additional shares of Common Stock. The shares of
Common Stock issuable upon exercise of or otherwise pursuant to
the Warrants are referred to herein as "Warrant Shares"; and
C. Contemporaneously 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 B (the "Registration Rights Agreement"), pursuant to
which the Company has agreed to provide certain registration
rights under the Securities Act, the rules and regulations
promulgated thereunder and applicable state securities laws.
NOW, THEREFORE, the Company and each Buyer hereby agree as
follows:
ARTICLE I
PURCHASE
1.1 PURCHASE OF COMMON SHARES AND WARRANTS. Subject to
the terms and conditions of this Agreement, the Common Stock and
Warrants issuable in connection with the Purchase shall be issued
and delivered in a closing (the "Closing"). On the date of the
Closing, subject to the satisfaction or waiver of the conditions
set forth in Article VII and Article VIII, the Company shall
issue and sell to the Buyers, and each Buyer agrees, on a several
and not a joint basis, to purchase from the Company, shares of
Common Stock (the "Purchase Common Shares"), at a purchase price
per share equal to 80% of the "Closing Price," which is defined
as the average closing bid price for the Common Stock (as
reported by Bloomberg, LP) over the five (5) trading days
immediately preceding the Closing Date, and Warrants to purchase
One Common Share for each Common Share purchased in the Closing.
1.2 [This Section intentionally left blank.]
1.3 FORM OF PAYMENT. The Buyers shall pay their
respective purchase price for the Purchase Common Shares, by wire
transfer to the account designated pursuant to the Escrow
Agreement by and among the Company, the Buyers, and the escrow
agent ("Escrow Agent") designated therein in the form attached
hereto as EXHIBIT C (the "Escrow Agreement"), upon delivery to
the Escrow Agent of the applicable Common Shares and Warrants or
irrevocable instructions to the Company's transfer agent to
deliver such securities, all in accordance with the terms of the
Escrow Agreement, and upon satisfaction of the other conditions
to the Closing.
1.4 CLOSING DATE. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Article VII and
Article VIII below, and further subject to the terms and
conditions of the Escrow Agreement, the date and time of the
Closing shall be 10:00 a.m., Pacific Standard Time, on August 13,
1998 (the "Closing Date"), or such other mutually agreed upon
date or time.
ARTICLE II
FILL-UP AND ISSUANCE LIMITATIONS
2.1 ADDITIONAL SHARES. If on either the six month or
the one year anniversary of the date of the Closing (each an
"Anniversary Date") the 20 trading day average closing bid price
of the Common Stock (as reported by Bloomberg, L.P.) for the
period ending on the trading day prior to the applicable
Anniversary Date (the "Anniversary Price") is less than the
Closing Price or the prior Anniversary Price, respectively, then
the Company shall issue a number of shares of Common Stock,
within 10 days after the Anniversary Date, equal to the product
of (i) the dollar amount that would result from the calculations
in the following formula, with respect to such Buyer, divided by
(ii) (x) the applicable Anniversary Price multiplied by (y) .85.
P = ((C - A) * .85) * S
where:
P = the aggregate dollar value of shares to be
issued;
C = the Closing Price or, if the measurement date is
the 12 month Anniversary Date and the six month
Anniversary Price was less than the Closing
Price, the six month Anniversary Price;
A = the applicable Anniversary Price; and
S = the aggregate number of the Common Shares
purchased by Buyer and not sold or assigned
(other than to an affiliate of the Purchaser).
The foregoing P, C, A and S shall be equitably adjusted to
reflect the effect of any stock dividends, stock splits, reverse
stock splits, discounted equity offerings or actions similar to
any of the foregoing. The issuance of Common Stock hereunder
will only be required or permitted to the extent that (x) such
issuance will not result in any Buyer, or any group which such
entity will be deemed under the Securities Act to be a part of,
solely as a result of the issuance of such additional shares, the
Common Shares and the Warrant Shares, having beneficial ownership
(as defined in Section 13(d) of the Securities Act) of more than
4.9% of the Common Stock, provided that this condition may be
waived in the sole discretion of the applicable Buyer (except
that a Buyer that is subject to the Bank Holding Company Act of
1956, as amended may not waive this condition except to the
extent permitted under such act and the regulations thereunder),
or Buyer in its discretion may, by notice to the Company, defer
such Buyer's receipt of such number of Common Shares as indicated
by it for a period of up to 180 days from the date of
determination that such shares are due for delivery; and (y) the
Company shall issue only freely tradable, registered and
unlegended Common Stock. The Company shall provide each Buyer,
prior notice of an issuance of Common Stock hereunder.
Notwithstanding anything in this Section 2.1 to the
contrary, no holder of any shares of Common Stock other than the
initial Buyers signatory hereto and any permitted assignee who
receives restricted securities pursuant to Section 9.7 shall be
entitled to payments or additional shares of Common Stock from
the Company pursuant to this Section 2.1. The Company shall have
no obligation under this Section 2.1 with respect to the Warrants
or the Warrant Shares.
2.2 ISSUANCE LIMITATIONS. Prior to closing the Escrow
the Company will have obtained the approval for listing of
2,500,000 Purchase Common Shares on the Nasdaq representing 19.9%
of the current outstanding shares of Common Stock (the "Common
Share Limit"). Notwithstanding anything else in this Agreement
to the contrary, the issuance and listing of Common Shares or
Warrant Shares in excess of the Common Share Limit under this
Agreement will only be required upon the Company obtaining the
Requisite Shareholder Approval (as defined in Section 5.7).
Thereafter such issuance and listing shall be required in
accordance with the terms hereof and the Common Share Limit shall
cease to apply or be effective for any purpose.
2.3 ADDITIONAL RIGHTS. If (x) the Purchase Common
Shares are delisted or suspended from trading on Nasdaq, AMEX or
NYSE, (y) the Common Shares issuable pursuant to Section 2.1 and
Warrant Shares that are to be issuable and listed (on any of such
exchanges) after the October, 1998 shareholders' meeting, are not
so issuable (if and to the extent they are to be issued) or
listed within 12 days of such meeting, for any reason, including
pursuant to Section 2.2 hereof because of failure to receive the
Requisite Shareholder Approval or (z) if the Company fails to
issue Additional Shares pursuant to Section 2.1, then the Company
shall pay to the Buyers their pro rata share (based on purchases
hereunder) of $100,000 for each full 30-day period that either of
the conditions in (x) ,(y) or (z) continues.
ARTICLE III
BUYER'S REPRESENTATIONS AND WARRANTIES
Each Buyer represents and warrants to the Company as of the
date hereof and as of the Closing, severally and solely with
respect to itself and its purchase hereunder and not with respect
to any other Buyer, as set forth in this Article III. Each Buyer
makes no other representations or warranties, express or implied,
to the Company in connection with the transactions contemplated
hereby, and any and all prior representations and warranties, if
any, which may have been made by the Buyers to the Company in
connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement, and any such prior
representations and warranties, if any, shall not survive the
execution and delivery of this Agreement.
3.1 INVESTMENT PURPOSE. Buyer (for this article III to
include Buyer or those for whom Buyer is acting as agent) is
purchasing the Common Shares and the Warrant Shares
(collectively, the "Securities") for its own account for
investment only and not with a view towards the public sale or
distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act.
3.2 ACCREDITED INVESTOR STATUS. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of
Regulation D.
3.3 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.
3.4 INFORMATION. The Buyer and its advisors, if any,
have been furnished with (or have had access to) 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 including,
without limitation, the SEC Documents (as defined below). 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. 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 right to
rely on the Company's representations and warranties contained in
Article IV below. The Buyer acknowledges and understands that
its investment in the Securities involves a significant degree of
risk, including the risks reflected in the SEC Documents.
3.5 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.
3.6 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 consequently
the Buyer may have to bear the risk of owning the Securities for
an indefinite period of time, and the Securities may not be
transferred unless (a) subsequently included in an effective
registration statement under the 1933 Act, (b) the Buyer shall
have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) 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 under Rule 144 promulgated under the 1933 Act (or a
successor rule) or (d) sold or transferred to an affiliate (as
defined in Rule 144) of the Buyer; (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. The Buyer covenants it will not make any sale,
transfer or other disposition of the Securities in violation of
federal or state securities laws.
3.7 LEGENDS. The Buyer understands that the certificates
representing the Purchase Common Shares, Warrants and, until such
time as the Warrant Shares have been registered under the 1933
Act or otherwise may be sold by the Buyer under Rule 144, as
contemplated by the Registration Rights Agreement, the 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, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. 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 APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD
OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of
any certificate upon which it is stamped, if, unless otherwise
required by applicable state securities laws, (a) the Securities
represented by such certificate are 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 customary for opinions of counsel in
comparable transactions, to the effect that a public sale or
transfer of such Securities may be made without registration
under the 1933 Act and such sale either has occurred or may occur
without restriction on the manner of such sale or transfer or (c)
such holder provides the Company with assurances in form and
substance reasonably satisfactory to the Company that such
Security can be sold under Rule 144(k) under the 1933 Act (or a
successor rule thereto). The Buyer 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, or otherwise in
compliance with the requirements for an exemption from
registration under the 1933 Act and the rules and regulations
promulgated thereunder.
3.8 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 the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and the
application of general principles of equity.
3.9 RESIDENCY. The Buyer is a resident of or has its
principal place of business in the jurisdiction set forth
immediately below such Buyer's name on the signature pages
hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyers that:
4.1 ORGANIZATION AND QUALIFICATION. Each of the Company
and its Subsidiaries (as defined below), if any, is duly
incorporated, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, with full
power and authority (corporate and other) 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 4.1
sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. Each of the
Company and its Subsidiaries is duly qualified to do business and
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 (i) the business,
operations, assets or financial condition of the Company or its
Subsidiaries, if any, taken as a whole, or (ii) the ability of
the Company to perform its obligations hereunder or under the
agreements or instruments to be entered into or filed in
connection herewith, or (iii) the Securities. "Subsidiaries"
means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or
indirectly, 50% or more of the equity or other ownership
interests.
4.2 AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform
its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Warrants, to consummate
the transactions contemplated hereby and thereby, and to issue
the Securities, in accordance with the terms hereof and thereof,
(ii) the execution, delivery and performance 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 Purchase Common Shares and the Warrants, and
the issuance and reservation for issuance of the Warrant Shares
issuable upon exercise of the Warrants) 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, (iii) this Agreement, the Registration
Rights Agreement, the Escrow Agreement and the Warrants have been
duly executed, and (iv) each of this Agreement, the Registration
Rights Agreement, the Escrow Agreement, and the Warrants
constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or moratorium or similar laws affecting the
rights of creditors generally and the application of general
principles of equity.
4.3 CAPITALIZATION. As of July 20, 1998, the authorized
capital stock of the Company consists of (i) 50,000,000 shares of
Common Stock of which 12,255,122 shares are issued and
outstanding, 1,579,326 shares are reserved for issuance pursuant
to the Company's employee and director stock option plans,
2,926,112 shares are reserved for issuance pursuant to securities
(other than securities issued under the foregoing plans, the
Preferred Shares and the Warrants) exercisable for, or
convertible into or exchangeable for shares of Common Stock and
3,000,000 shares are reserved for issuance upon conversion of the
Preferred Shares and exercise of the Warrants (subject to
antidilution adjustment); (ii) 2,000,000 shares of preferred
stock par value $.01 of which 600 shares designated as Series A-2
Convertibles Preffered Stocks 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. No shares of capital stock of the Company,
including the Securities, are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed in SCHEDULE 4.3 (or in
the SEC Documents) and except for the transactions contemplated
hereby, as of the 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,
exercisable for, 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 Purchase
Common Shares, Warrants or Warrant Shares. The Company has
furnished to the Buyers true and correct copies of the Company's
Articles of Incorporation, as amended, 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.
4.4 ISSUANCE OF SECURITIES. The Purchase Common Shares,
Warrants and Warrant Shares are duly authorized and, upon
issuance in accordance with the terms of this Agreement
(including, without limitation any additional shares of Common
Stock issuable as a result of Section 2(c) of the Registration
Rights Agreement) will be validly issued, fully paid and non-
assessable, and free from all taxes, liens, claims, encumbrances,
and charges with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal
liability on the holders thereof.
4.5 NO CONFLICTS. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement,
the Escrow Agreement and the Warrants by the Company and the
consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance
and reservation for issuance of the Purchase Common Shares,
Warrants, 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) except as described in SCHEDULE
4.5 (or in the SEC Documents), 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 (including, without limitation, the
triggering of any anti-dilution provision), acceleration or
cancellation of, any 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 U.S. federal and state securities laws and
regulations, and regulations of any self-regulatory organizations
to which the Company or its securities are subject) 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, breaches, 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 (and no event has
occurred which, without notice or lapse of time or both) would
give to others any rights of termination, amendment, acceleration
or cancellation of any agreement, indenture or instrument to
which the Company or any of its Subsidiaries is a party or 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, and shall not be
conducted so long as a Buyer owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental
entity, the failure to comply with which would, 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 or any
listing agreement with any securities exchange or automated
quotation system, 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 each case in
accordance with the terms hereof or thereof. Except as set forth
in SCHEDULE 4.5 (or in the SEC Documents), or as contemplated by
this Agreement, 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. Except as set forth on SCHEDULE 4.5 (or in
the SEC Documents), the Company is not in violation of the
listing requirements of Nasdaq (as defined below) and does not
reasonably anticipate that the Common Stock will be delisted by
Nasdaq in the foreseeable future. Except as set forth in
SCHEDULE 4.5 (or in the SEC Documents), the Company and its
Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. Prior to closing the
Escrow the Company will have obtained approval from Nasdaq for
the listing of the Purchase Common Shares.
4.6 SEC DOCUMENTS, FINANCIAL STATEMENTS. Since December
31, 1997, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all
of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto
and documents (other than exhibits) incorporated by reference
therein, being hereinafter referred to herein as the "SEC
Documents"). The Company has delivered to each 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 or the 1933 Act, as the case may be,
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 U.S. generally
accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may 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, 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 included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business subsequent to
December 31, 1997, of the type required under generally accepted
accounting principles to be reflected in such financial
statements. Such liabilities incurred subsequent to December 31,
1997 are not, in the aggregate, material to the financial
condition or results of operations of the Company.
4.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
the SEC Documents, 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, prospects or results of operations of the
Company or any of its Subsidiaries.
4.8 ABSENCE OF LITIGATION. 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 Subsidiaries or any of its officers or
directors acting as such that could, individually or in the
aggregate, have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries are aware of any facts or
circumstances which would reasonably be expected to give rise to
any action or proceeding described in the foregoing sentence.
SCHEDULE 4.8 contains a complete list and summary description of
any pending or, to the knowledge of the Company, threatened
litigation against the Company or any of its Subsidiaries (or
litigation in which the Company or any of its Subsidiaries is
named), without regard to whether it could have a Material
Adverse Effect.
4.9 PATENTS, COPYRIGHTS, ETC. Each of the Company and
its Subsidiaries owns or possesses the requisite licenses or
rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and
copyrights ("Intellectual Property") necessary to enable it to
conduct its business as now operated (and, except as set forth in
SCHEDULE 4.9 hereof (or in the SEC Documents), to the best of the
Company's knowledge, as presently contemplated to be operated in
the future); 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 as now operated (and, except as
set forth in SCHEDULE 4.9 hereof (or in the SEC Documents), to
the best of the Company's knowledge, as presently contemplated to
be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' 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 be reasonably expected to
give rise to any of the foregoing. Each of the Company and its
Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of their Intellectual
Property.
4.10 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the reasonable judgment of the
Company's officers has or is expected in the future, individually
or in the aggregate, to have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any
contract or agreement which, in the reasonable judgment of the
Company's officers, has or is expected to have a Material Adverse
Effect.
4.11 TAX STATUS. Except as set forth in Schedule 4.11
(or in the SEC Documents), each of the Company and its
Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and
only to the extent that each of the Company and its Subsidiaries
has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested
in good faith and has set aside on its books 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. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment
or collection of any foreign, federal, state or local tax.
Except as set forth in Schedule 4.11 (or in the SEC Documents),
none of the Company's tax returns is presently being audited by
any taxing authority.
4.12 CERTAIN TRANSACTIONS. Except as disclosed in the SEC
Documents or as set forth in Schedule 4.12 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 or the ownership of other securities
and rights disclosed in SCHEDULE 4.3 (or in the SEC Documents),
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
employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer,
director, or employee has a substantial interest or is an
officer, director, trustee or partner.
4.13 DISCLOSURE. All information relating to or
concerning the Company or any of its Subsidiaries set forth in
this Agreement and provided to the Buyers pursuant to Section 3.4
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 information
exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, operations or financial
conditions, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming
for this purpose 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).
4.14 ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each 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 no 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 advice given by any
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 and has not
been relied on by the Company in any way. The Company further
represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on an independent
evaluation by the Company and its representatives.
4.15 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 Buyers. To the
knowledge of the Company the issuance of the Securities to the
Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of
the 1933 Act or any applicable rules of Nasdaq.
4.16 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, except for
fees to be paid in connection with the investments of certain of
the Buyers, except for fees payable to Shipley Raidy Capital
Partners, LP.
4.17 PERMITS; COMPLIANCE. Each of the Company and its
Subsidiaries is in possession of all 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 except those the
failure of which to possess would not, individually or in the
aggregate, have a Material Adverse Effect (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 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.
4.18 TITLE TO PROPERTY. The Company and its Subsidiaries
have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by
them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in SCHEDULE
4.18 (or in the SEC Documents) or such as would not have a
Material Adverse Effect. Any real property and 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.
4.19 INSURANCE. Each of the Company and its Subsidiaries
is 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.
4.20 INTERNAL ACCOUNTING CONTROLS. Each of the Company
and its Subsidiaries maintains a system of internal accounting
controls sufficient, in the judgment of the Company's board of
directors, to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
4.21 EMPLOYMENT MATTERS. The Company and its Subsidiaries
are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices,
terms and conditions of employment, and wages and hours except
where failure to be in compliance would not have a Material
Adverse Effect. There are no pending investigations involving
the Company or any of its Subsidiaries by the U.S. Department of
Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and
regulations. There is no unfair labor practice charge or
complaint against the Company or any of its Subsidiaries pending
before the National Labor Relations Board, or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving the Company or any of its
Subsidiaries. Except as set forth in SCHEDULE 4.21 (or in the
SEC Documents), no representation question exists respecting the
employees of the Company or any of its Subsidiaries, and no
collective bargaining agreement or modification thereof is
currently being negotiated by the Company or any of its
subsidiaries. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of
the Company or any of its Subsidiaries. No material labor
dispute with the employees of the Company or any of its
Subsidiaries exists or, to the knowledge of the Company, is
imminent.
4.22 ERISA Matters. Except as set forth in Schedule 4.22
(or in the SEC Documents), the Company has no "employee benefit
plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, or intended
to be qualified under Section 401(a) of the Internal Revenue
Code.
4.23 INVESTMENT COMPANY STATUS. The Company is not and,
upon consummation of the sale of the Securities, will not be an
"investment company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company" as such
terms are defined in the Investment Company Act of 1940, as
amended.
4.24 NO GENERAL SOLICITATION. Neither the Company nor any
distributor participating on the Company's behalf in the
transactions contemplated hereby (if any) nor any person acting
for the Company, or any such distributor, has conducted any
"general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
ARTICLE V
COVENANTS
5.1 COMMERCIALLY REASONABLE EFFORTS. The parties shall
use their commercially reasonable efforts to satisfy timely each
of the conditions described in Sections 7 and 8 of this
Agreement.
5.2 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 each Buyer promptly
after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine
is necessary to qualify the Securities for sale to the Buyers
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 Buyers on or prior to the Closing
Date. The Company agrees to file a Form 8-K or 10-Q disclosing
this Agreement and the transactions contemplated hereby with the
SEC within ten (10) business days following the Closing Date.
5.3 REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Company's Common Stock is registered under Section 12(b) of the
1934 Act. Throughout the Registration Period (as defined in the
Registration Rights Agreement), 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
reasonably necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions
to Form S-3.
5.4 USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Common Shares and Warrants in the manner set
forth in SCHEDULE 5.4 attached hereto and made a part hereof and
shall not otherwise, directly or indirectly, use such proceeds
for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection
with its direct or indirect Subsidiaries), except for certain
broker's fees to be paid in connection with investments made by
certain of the Buyers.
5.5 EXPENSES. The Company and the Buyers shall each be
liable for their own expenses incurred in connection with the
negotiation, preparation, execution and delivery of this
Agreement and the other agreements to be executed in connection
herewith, including, without limitation, attorneys' and
consultants' fees and expenses.
5.6 FINANCIAL INFORMATION. The Company agrees to file
all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act. The financial statements of the
Company will be prepared in accordance with generally accepted
accounting principles, consistently applied, and will fairly
present in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries and
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). The Company agrees to send the
following reports to each Buyer until such 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.
5.7 RESERVATION OF SHARES. Subject to the Common Share
Limit (unless authorization is given to issue additional Common
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 exercise of the
Warrants and the issuance of the Warrant Shares in connection
therewith (based upon the 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
exercise of the Warrants without the consent of the Buyers
(unless required to comply with the rules or regulations of the
NASD), which consent will not be unreasonably withheld. The
Company shall at all times maintain the number of shares of
Common Stock so reserved for issuance at no less than the lesser
of (i) the Common Share Limit and (ii) the number of Common
Shares that are then issuable based upon the number of Warrant
Shares that are then issuable upon exercise of all of the
outstanding Warrants (based on the 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 Common Shares calculated pursuant to the
foregoing formula, including without limitation because of the
Common Share Limit, 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 5.7, in the case of an
insufficient number of authorized shares, and using its best
efforts to obtain shareholder approval of an increase in such
authorized number of shares. In this regard the Company shall
include in its October, 1998 shareholders' meeting a motion for
approvals necessary to permit the issuance and listing on Nasdaq
of all Common Shares (including those pursuant to Article II) and
Warrant Shares contemplated by this Agreement (the "Requisite
Shareholder Approval").
5.8 LISTING. The Company shall, on or before 12
business days following the date it obtains the Requisite
Shareholder Approval, secure the listing of the Common Shares and
Warrant Shares to be issued pursuant to the terms of this
Agreement 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
maintain a listing on the Nasdaq, AMEX or NYSE (as defined below)
of all Common Shares and Warrant Shares from time to time
issuable upon exercise of the Warrants. The Company will use
commercially reasonable efforts to obtain and maintain the
listing and trading of its Common Stock on the Nasdaq National
Market System or the Nasdaq Small Cap Market (collectively,
"Nasdaq"), the American Stock Exchange ("AMEX") or the New York
Stock Exchange ("NYSE"), and to comply in all respects with the
Company's reporting, filing and other obligations under the
bylaws or rules of the Nasdaq or other exchanges, as applicable.
The Company shall promptly provide to each Buyer copies of any
notices it receives regarding the continued eligibility of the
Common Stock for listing on the Nasdaq or other principal
exchange or quotation system on which the Common Stock is listed
or traded.
5.9 SOLVENCY; COMPLIANCE WITH LAW. 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 will
conduct its business in compliance with all applicable laws,
rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all
applicable local, state and federal environmental laws and
regulations the failure to comply with which would have a
Material Adverse Effect.
5.10 INSURANCE. The Company shall maintain liability,
casualty and other insurance (subject to customary deductions and
retentions) with responsible insurance companies against such
risk of the types and in the amounts customarily maintained by
companies of comparable size to the Company.
5.11 No Integration: The Company will not conduct any
future offering of securities that will be integrated with the
issuance of Securities hereunder such that the offer and sale of
the Securities issued hereunder would be required to be
registered under the 1933 Act.
5.12 EQUITY LINE. In the event that the Company
formalizes an equity line facility currently contemplated by the
Company, then the Company will not utilize such equity line prior
to January 1, 1999.
ARTICLE VI
TRANSFER AGENT INSTRUCTIONS
Subject to the Common Share Limit, the Company shall issue
irrevocable instructions to its transfer agent to issue
certificates, registered in the name of each Buyer or its
nominee, for the Warrant Shares in such amounts as specified from
time to time by such Buyer to the Company upon exercise of the
Warrants on and following the date that is 90 days following the
Closing Date, or such earlier date as a registration statement is
effective with respect to the Purchase Common Shares and/or
Warrant Shares, respectively (the "Irrevocable Transfer Agent
Instructions"). All such certificates shall bear the restrictive
legend as and when specified in Section 3.7 of this Agreement.
The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this
Article VI, and stop transfer instructions to give effect to
Section 3.7 hereof (in the case of the Purchase Common Shares or
Warrant Shares, prior to registration of the Purchase Common
Shares or 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 agreement set forth
in Section 3.7 hereof to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Securities. If
a Buyer provides the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration of a resale by such
Buyer of any of the Securities is not required under the 1933
Act, or the Buyer provides the Company with reasonable assurance
that such Securities may be sold under Rule 144, the Company
shall permit the transfer, and, in the case of the Purchase
Common Shares or Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer. 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 Article VI 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.
ARTICLE VII
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell
the Common Shares and the Warrants to a Buyer at the Closing and
pursuant to the Fill-Up provisions is subject to the
satisfaction, at or before such date 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:
7.1 On or before the Closing, the applicable Buyer shall
have executed this Agreement, the Registration Rights Agreement
and the Escrow Agreement, and delivered the same to the Company
and the Escrow Agent.
7.2 The applicable Buyer shall have delivered the
Purchase Price to the Escrow Agent in accordance with this
Agreement.
7.3 [This Section intentionally left blank.]
7.4 The representations and warranties of the applicable
Buyer shall be true and correct in all material respects as of
the Closing as though made at that time (except for
representations and warranties that speak as of a specific date
which representations and warranties shall be correct as of such
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.
7.5 No 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.
ARTICLE VIII
CONDITIONS TO THE BUYERS' OBLIGATION TO PURCHASE
The obligation of each Buyer hereunder to purchase the
Common Shares and the Warrants on the Closing is subject to the
satisfaction, at or before each such date of each of the
following conditions, provided that these conditions are for each
such Buyer's respective benefit and may be waived by each such
Buyer at any time in its sole discretion:
8.1 On or before the Closing, the Company shall have
executed this Agreement, the Registration Rights Agreement and
the Escrow Agreement, and delivered the same to the Buyer.
8.2 [This section intentionally left blank.]
8.3 The Company shall have delivered to the Escrow Agent
duly executed certificates (in such denominations as the
applicable Buyer shall reasonably request) representing the
Common Shares and/or the Warrants being so purchased or
irrevocable instructions to deliver such certificates to the
Company's transfer agent.
8.4 The representations and warranties of the Company
shall be true and correct in all material respects as of the
Closing as though made at such time (except for representations
and warranties that speak as of a specific date which
representations and warranties shall be true and correct as of
such 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.
8.5 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.
8.6 Trading and listing of the Common Stock on Nasdaq
shall not have been suspended by the SEC or Nasdaq and 2,500,000
of the Purchase Common Shares will have been approved for listing
by Nasdaq, prior to closing the Escrow.
8.7 The Buyers shall have received an opinion of the
Company's counsel, dated as of the Closing, respectively, in
form, scope and substance reasonably satisfactory to the Buyers
and in substantially the same form as EXHIBIT D attached hereto.
8.8 The Common Stock required to be authorized and
reserved pursuant to this Agreement shall have been duly
authorized and reserved by the Company.
8.9 The Buyers shall have received proxies or other
evidence satisfactory to the Buyers of a commitment to vote for
the Requisite Shareholder Approval agenda items from each of Mr.
and Mrs. Crane and such other shareholders as identified by the
Buyers to the Company prior to the date hereof.
8.10 The Buyers shall have received evidence that Helix
has agreed to extend the terms of its loan to the Company.
ARTICLE IX
GOVERNING LAW; MISCELLANEOUS
9.1 GOVERNING LAW; JURISDICTION. This Agreement shall
be governed by and interpreted in accordance with the laws of New
York State without regard to the principles of conflicts of law.
The parties hereto hereby submit to the exclusive jurisdiction of
the United States federal and state courts located in New York,
New York, with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or
the transactions contemplated hereby or thereby.
9.2 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.
9.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
9.4 SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement or the validity
or enforceability of this Agreement in any other jurisdiction.
9.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and
the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any
representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the
party to be charged with enforcement.
9.6 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:
The Panda Project, Inc.
901 Yamato Road
Boca Raton, FL 33431
Attn: Chief Executive Officer
Phone: (561) 994-2300
Fax: (561) 994-2436
With a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48th Floor
New York, NY 10012
Attn: Steven R. Shoemate, Esq.
Phone: (212) 351-3879
Fax: (212) 351-4035
If to a Buyer: To the address set forth immediately below
such Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any
change in address.
9.7 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 any Buyer shall
assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding
the foregoing, the Buyer may assign all or part of its rights and
obligations hereunder to any of its "affiliates," as that term is
defined under the Securities Act, without the consent of the
Company so long as such affiliate is an accredited investor
(within the meaning of Regulation D under the Securities Act) and
agrees in writing to be bound by this Agreement. This provision
shall not limit the Buyer's right to transfer the Securities
pursuant to the terms of this Agreement or to assign the Buyer's
rights hereunder to any such transferee pursuant to the terms of
the Agreement.
9.8 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.
9.9 SURVIVAL/REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company and the agreements
and covenants set forth herein shall survive the closing
hereunder. The Company makes no representations or warranties in
any oral or written information provided to Buyers, other than
the representations and warranties included herein. The Company
agrees to indemnify and hold harmless each Buyer and all such
Buyer's respective officers, directors, employees, partners,
members, affiliates, and agents for loss or damage arising as a
result of or related to any breach by the Company of any of its
representations, warranties, covenants and obligations under this
Agreement or the Registration Rights Agreement.
9.10 PUBLICITY. The Company and each Buyer shall have
the right to review, in a reasonable period of time before
issuance thereof, any press releases, relevant portions of any
SEC or Nasdaq 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 Buyers, to make any press release or SEC or
Nasdaq filings with respect to such transactions as are required
by applicable law and regulations including NASD requirements
(although the Company shall make reasonable efforts to consult
with the Buyers in connection with any such press release prior
to its release and filing, and shall be provided with a copy
thereof and be given an opportunity to comment thereon).
9.11 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.
9.12 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.
9.13 EQUITABLE RELIEF. The Company recognizes that in
the event that it fails to perform, observe, or discharge any or
all of its obligations under this Agreement, any remedy at law
may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to temporary
and permanent injunctive relief in any such case without the
necessity of proving actual damages.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date
first above written.
COMPANY:
THE PANDA PROJECT, INC.
901 Yamato Road
Boca Raton, FL 33431
By:
Name:
Title:
[SIGNATURES CONTINUED ONTO NEXT PAGE]
EXHIBIT 10.2
EXHIBIT B
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of August 13, 1998 by and between THE PANDA PROJECT, INC., a
Florida corporation (the "Company"), and the undersigned
investors (together with their affiliates and any assignee or
transferee of all of their rights hereunder, the "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 (i) shares of the
Company's common stock, par value $.01 per share (the "Common
Stock" or "Common Shares"), for an aggregate purchase price of
Four Million U.S. Dollars ($4,000,000) (the "Initial Purchase"),
and to receive in connection with each closing warrants (the
"Warrants") to acquire additional shares of Common Stock (the
"Warrant Shares"), upon the terms and subject to the limitations
and conditions set forth in the Warrants dated of even date
herewith; 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 the Initial Investors hereby agree
as follows:
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
Common Shares and the Warrant Shares (including any Warrant
Shares issuable under the anti-dilution provisions of the
Warrants and including without limitation Common Shares issued
pursuant to the Fill-Up provisions of Article II of the
Securities Purchase Agreement) and any shares of capital stock
issued or issuable, from time to time (with any adjustments), as
a distribution on or in exchange for or otherwise with respect to
any of the foregoing. As to any particular securities, such
Securities shall cease to be Registrable Securities when they
have been sold pursuant to an effective registration statement or
in compliance with Rule 144 or are eligible to be sold by the
investor holding such securities pursuant to Rule 144(k) under
the 1933 Act (or any similar rule then in force).
(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 ten (10) business
days after the date of the Closing of the Purchase under the
Securities Purchase Agreement (the "Closing Date"), file with the
SEC a Registration Statement on Form S-3 and pursuant to Rule 415
(or, if Form S-3 is not then available, on Form S-1 (at the time
provided for in Section 2(e)), to effect a registration of all of
the Registrable Securities covering the resale of the Registrable
Securities issued or issuable pursuant to the Securities Purchase
Agreement, which Registration Statement, to the extent allowable
under the 1933 Act and the Rules promulgated thereunder
(including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon the Fill-Up
provisions of the Securities Purchase Agreement and upon 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 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 (x) the number of Common Shares issued in the Purchase,
plus (y) the number of Common Shares that are then issuable upon
exercise of all of the outstanding Warrants (based on the
Exercise Price of the Warrants in effect at that time).
b. Underwritten Offering. If any offering pursuant
to a Registration Statement pursuant to Section 2(a) hereof
involves an underwritten offering, the Investors who hold a
majority in interest of the Registrable Securities subject to
such underwritten offering, with the consent of the Investors,
shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the
Company.
c. Payments by the Company. The Company shall use
commercially reasonable efforts to (A) obtain effectiveness of
the Registration Statement as soon as practicable, (B) exclusive
of Allowed Delays, maintain the effectiveness of such
Registration Statement and the ability of the Investors to sell
Registrable Securities pursuant thereto, and (C) maintain the
listing of the Common Stock for quotation on the Nasdaq, NYSE or
AMEX and trading thereon after the Registration Statement has
been declared effective. If (i) the Registration Statement(s)
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 ninety (90) days after the Closing Date or
(ii), after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the
Registration Statement, or (iii) the Common Stock is not listed
or included for quotation on any one or more of the Nasdaq
National Market or the Nasdaq Small Cap Market (collectively
"Nasdaq"), the New York Stock Exchange (the "NYSE") or the
American Stock Exchange (the "AMEX") after being so listed or
included for quotation and after effectiveness of the
Registration Statement, 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(c) 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 but shall be included as part of an
award of damages in any such forum). The Company shall pay to
the holders of the Registrable Securities an amount equal to the
purchase price paid for the Common Shares issued in the Closing
(the "Purchase Price") multiplied by two hundredths (.020) (or,
solely for the first month of any period of delay in the initial
effectiveness of the Registration Statement after the end of such
90-day period, one hundredth (.010), and thereafter three
hundredths (.030)) times the sum of: (i) the number of months
(prorated for partial months) after the end of such 90-day period
and prior to the date the 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 by the Investors in the
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 the Registration Statement pursuant to Section
3(h) below in a reasonably prompt manner; (ii) exclusive of
Allowed Delays (as defined below), the number of months (prorated
for partial months) that sales cannot be made pursuant to the
Registration Statement after the 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 or when such prospectus
otherwise contains a material misstatement or omission) and (iii)
exclusive of Allowed Delays the number of months (prorated for
partial months) that the Common Stock is not listed or included
for quotation on the Nasdaq, NYSE or AMEX or that trading thereon
is halted after the Registration Statement has been declared
effective. For example, if the Registration Statement becomes
effective one (1) month after the end of such 90-day period, the
Company would pay $10,000 for each $1,000,000 of Purchase Price.
If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month
(exclusive of Allowed Delays), the Company would pay an
additional $20,000 for each $1,000,000 of Purchase Price.
Payments of cash pursuant hereto shall be made within five (5)
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.
If at any time during the Registration Period (as defined in
Section 3(a) below), counsel to the Company should determine in
good faith that the filing of the Registration Statement or the
compliance by the Company with its disclosure obligations in
connection with the Registration Statement may require the
disclosure of information which the Board of Directors of the
Company has identified as material and which the Board of
Directors has determined that the Company has a bona fide
business purpose for preserving as confidential, 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 and (ii) advise the Investors in writing to cease all
sales under the Registration Statement until such information is
disclosed to the public or ceases to be material. In such
instance, the Company's obligation to make payments under this
Section 2(c) shall be suspended for a period (an "Allowed Delay")
expiring upon the earlier to occur of (A) the date on which such
material information is disclosed to the public or ceases to be
material or the Company is able to so comply with its disclosure
obligations or (B) 15 trading days after the Company first
notifies the Investor of such good faith determination. There
shall not be more than two (2) Allowed Delays in any twelve (12)
month period nor more than three (3) Allowed Delays in any
twenty-four (24) month period, provided, however, that there may
be one additional Allowed Delay if the delay is the result of
requesting confidential treatment from the SEC for a document
being publicly disclosed.
d. Piggy-Back Registrations. If at any time prior
to the expiration of the Registration Period (as hereinafter
defined) at which time no Registration Statement is then
effective with respect to the Registrable Securities, the Company
shall file with the SEC a Registration Statement relating to an
offering for its own account or the account of others (unless
inclusion therein would require the consent of such other party,
and the Company is unable, despite exercise of good faith
efforts, to obtain such consent) 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, stock purchase or other employee benefit plans), the
Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) 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 to the extent permissible under
applicable laws, 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; provided, however, that the Company
shall not exclude any Registrable Securities unless the Company
has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such
Registration Statement; 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 not subject to a similar cut-back provision. No right
to registration of Registrable Securities under this Section 2(d)
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(d) 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.
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 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. In the event
that the Company is advised by the SEC that it is not eligible to
use Form S-3 in connection with the registration of the
Registrable Securities, it shall file a Registration Statement
covering the Registrable Securities on Form S-1 or other
available form as promptly as practicable and not more than 20
business days after such advice from the SEC, and the Company
shall use commercially reasonable efforts to obtain eligibility
to use Form S-3 as promptly as practicable thereafter and shall
convert the Form S-1 Registration Statement to a Form S-3
Registration Statement as soon as it is permitted to do so
thereafter.
f. Rule 416. The Company and the Investors each
acknowledge that, absent guidance from the SEC or other
definitive authority to the contrary, an indeterminate number of
Registrable Securities shall be registered pursuant to Rule 416
under the Securities Act so as to include in such Registration
Statement any and all Registrable Securities which may become
issuable as a result of stock splits, stock dividends or similar
transactions (collectively, the "Rule 416 Securities"). In this
regard, the Company agrees to take all steps necessary to ensure
that all Registrable Securities are registered pursuant to Rule
416 under the Securities Act in the Registration Statement and,
absent guidance from the SEC or other definitive authority to the
contrary, the Company shall affirmatively support and not take
any action adverse to the position that the Registration
Statements filed hereunder cover all of the Rule 416 Securities.
If the Company determines that the Registration Statements filed
hereunder do not cover all of the Rule 416 Securities, the
Company shall immediately provide to each Investor written notice
(a "Rule 416 Notice") setting forth the basis for the Company's
position and the authority therefor.
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 and, on or prior to
the date which is ten (10) business days after the First Closing
Date, file with the SEC, a Registration Statement with respect to
the number of Registrable Securities provided in Section 2(a),
and thereafter use its commercially reasonable efforts to cause
such Registration Statement relating to Registrable Securities to
become effective as soon as possible after such filing, and keep
the 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 have been sold and (ii) the
date on which the Registrable Securities (in the opinion of
counsel to the Investors) may be immediately sold without
restriction (including without limitation as to volume by each
holder thereof) without registration under the 1933 Act (the
"Registration Period"), which Registration Statement (including
any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein not
misleading.
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 the Registration Statement as may be necessary
to keep the Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the 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 the
Registration Statement. In the event that Rule 416 is determined
by the SEC not to permit the registration of an indeterminate
number of shares, and the number of shares available under a
Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities issued or
issuable in connection with the Purchase or exercise of the
Warrants, the Company shall amend the 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 twenty (20) 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 commercially reasonable 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(c) above shall be
applicable with respect to such obligation, with the ninety (90)
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 the Registration Statement
and, if requested by such investor, 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 the
Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or
supplement thereto, and, in the case of the 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.
d. The Company shall use commercially reasonable
efforts to (i) register and qualify the Registrable Securities
covered by the 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 the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided however, that the Company shall not be
required in connection therewith or as a condition thereto to (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. In the event Investors who hold a two-thirds
majority-in-interest of the Registrable Securities being offered
in an offering registered hereunder select underwriters for the
offering, the Company shall enter into and perform its
obligations under an underwriting agreement (including management
participation in marketing efforts), in usual and customary form,
including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
f. 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 the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and use commercially reasonable efforts promptly (but
subject to Allowed Delays as set forth in Section 2(c)) to
prepare a supplement or amendment to the 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.
g. The Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, 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.
h. The Company shall permit a single firm of
counsel and a single firm of accountants designated by the
Investors to review the Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time (in light
of the filing deadline) 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
the 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 conform to the information
provided to the Company by the Investors.
i. 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 accordance 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.
j. At the request of any Investor, the Company
shall furnish, on the date that Registrable Securities are
delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) an opinion, dated as of such date,
from counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed
to the underwriters and the Investors and (ii) a letter, dated
such date, from the Company's independent certified public
accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters and
the Investors.
k. The Company shall make available for inspection
by (i) any Investor, (ii) any underwriter participating in any
disposition pursuant to the Registration Statement, (iii) one
firm of attorneys and one firm of accountants or other agents
retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (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(k).
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.
1. 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.
m. The Company shall (i) cause all the Registrable
Securities covered by the 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 the
Registration Statement on the Nasdaq National Market System or,
if not eligible for the Nasdaq National Market System on the
Nasdaq Small Cap and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register
with respect to such Registrable Securities.
n. 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 the Registration
Statement.
o. The Company shall cooperate with the Investors
who hold Registrable Securities being offered and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be offered pursuant to the Registration Statement
and enable such certificates to be in such denominations or
amounts, as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and
registered in such names as the managing underwriter or
underwriters, if any, or 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 from such counsel and a letter from the Company,
which letter has been acknowledged by the Company's transfer
agent as sufficient to permit the issuance of unlegended Common
Shares and Warrant Shares which are not subject to a stop
transfer notation in the form attached hereto as Exhibit 2.
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.
q. At the reasonable request of any Investor, the
Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with
the Registration Statement as may be necessary in order to change
the plan of distribution set forth in such Registration
Statement.
r. The Company shall comply with all applicable
laws related to a Registration Statement and offering and sale of
securities and all applicable rules and regulations of
governmental authorities in connection therewith (including
without limitation the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated by the SEC).
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable
Securities, the Investors shall each, on a several and not a
joint basis, 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. At
least five (5) business days prior to the first anticipated
filing date of the 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 the 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 two-thirds
majority-in-interest of the Registrable Securities being
registered (with the approval of a majority-in-interest of the
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 Company in writing of such Investor's election
to exclude all of such Investor's Registrable Securities from the
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 the
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, including any lock-up
agreement with respect to any Registrable Securities not being
sold in such underwriting as may reasonably be requested by the
managing underwriter, 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, other than underwriting discounts
and commissions, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and
disbursements of counsel for the Company shall be borne by the
Company. The Company shall not pay for the Investor's legal fees
or expenses incurred in connection with entering into this
Agreement or in connection with the filing of the Registration
Statement. In addition, and notwithstanding the foregoing, the
Company shall pay all of the Investors' reasonable costs
(including legal fees) incurred in connection with the successful
enforcement of the Investors' rights hereunder.
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
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 each
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) or Section 6(b): (i)
shall not apply to a Claim by an Indemnified Person arising out
of or based upon a Violation which relates solely to information
included in the Registration Statement in reliance upon and in
conformity with information furnished in writing to the Company
by such Indemnified Person expressly for use with the preparation
of the Registration Statement or any such amendment thereof or
supplement thereto, 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 prospectus, shall not inure to the
benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in a preliminary prospectus
or final prospectus or any supplement thereto was corrected on a
timely basis in the prospectus, as then amended or supplemented
as required by Section 3(f), 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 or incomplete 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.
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 relates solely to information
included in the Registration Statement 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; and provided, further, that the
Investor's liability hereunder shall be limited in amount to the
net amount of proceeds received by such seller from the sale of
Registrable Securities. 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.
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 such
indemnifying party shall not be entitled to assume such defense
and 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 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 the Registration Statement to
which the Claim relates (with approval of the 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.
If the indemnification provided for in Section 6 is for any
reason unavailable to, or insufficient to hold harmless, an
Indemnified Person or Indemnified Party in respect of any losses,
claims, damages or liabilities referred to therein, then each
Indemnifying Person or Indemnified Party under such paragraphs,
in lieu of indemnifying such Indemnified Person or Indemnified
Party thereunder and in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by
such Indemnified Person or Indemnified Party as a result of such
losses, claims, damages or liabilities in such proportion as is
appropriate to reflect (i) the relative benefits received by the
Indemnifying Person(s) on the one hand and the Indemnified
Person(s) or Indemnified Party(s) on the other from the offering
of the Securities or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only
such relative benefits but also the relative fault of the
Indemnifying Person(s) on the one hand and the Indemnified
Person(s) or Indemnified Party(s) on the other in connection with
the statements or omissions or alleged statements or omissions
that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault the parties shall
be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information on supplied by the Company on the one hand or such
Indemnified person, as the case may be, on the other, the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and
any other equitable considerations appropriate in the
circumstances.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 6 were determined by pro
rata allocation (even if the participants were treated as one
entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person or Indemnifies Party as
a result of the losses, claims, damages, judgments, liabilities
and expenses referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred
by such Indemnified Person or Indemnified Party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, in no event
shall an Investor be required to contribute any amount in excess
of the amount by which proceeds received by such Investor from
sales of Registrable Securities, as the case may be, exceeds the
amount of any damages that such Investor has otherwise been
required to pay or has paid by reason or such untrue or alleged
untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
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, for as
long as there shall be any Registrable Securities held by an
Investor, 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
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 a 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, (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 is defined in Rule 501 of
Regulation D promulgated under the 1933 Act and shall have made
appropriate representations to that effect to the Company.
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, the Investors (to the
extent such Investors still own Registrable Securities) and
Investors who hold a two-thirds 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.
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:
The Panda Project, Inc.
901 Yamato Road
Boca Raton, FL 33431
Attn: Chief Executive Officer
Phone: (561) 994-2300
Fax: (561) 994-2436
With a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 48th Floor
New York, NY 10166-0193
Attn: Steven R. Shoemate, Esq.
Phone: (212) 351-3879
Fax: (212) 351-4035
If to the Investors: To the address set forth immediately
below such Investor's name on the signature pages hereto.
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 New York applicable
to agreements made and to be performed entirely within such
State. 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
exclusive jurisdiction of the United States Federal Courts
located in New York with respect to any dispute arising under
this Agreement or the transactions contemplated hereby.
e. This Agreement, the Securities Purchase
Agreement (including all schedules and exhibits thereto), and the
Warrants constitute the entire agreement among the parties hereto
with 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, the Securities Purchase Agreement and the Warrants
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
two-thirds majority of the Registrable Securities, determined as
if all the Warrants then outstanding have been exercised 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.
IN WITNESS WHEREOF, the Company and the undersigned
Investors have caused this Agreement to be duly executed as of
the date first above written.
THE PANDA PROJECT, INC.
By:_____________________________
Name:
Title
[signatures continued onto next page]
EXHIBIT 4.1
EXHIBIT A TO
SECURITIES
PURCHASE
AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: [ISSUANCE DATE] __, 1998
to Purchase [NO.] Shares of Common Stock of
THE PANDA PROJECT, INC.
THE PANDA PROJECT, INC., a Florida corporation (the
"Company"), hereby certifies that [NAME OF HOLDER], its
permissible transferees, designees, successors and assigns
(collectively, the "Holder"), for value received, is entitled to
purchase from the Company at any time commencing on [ISSUANCE
DATE] 1998 ("Issuance Date") and terminating on the fifth
anniversary of the Issuance Date up to [NO.] (#) shares (each a
"Share" and collectively the "Shares") of the Company's common
stock (the "Common Stock"), at an exercise price of $[125%
CLOSING PRICE] per Share (the "Exercise Price"). The number of
Shares purchasable hereunder and the Exercise Price are subject
to adjustment as provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common
Stock Purchase Warrant Certificate ("Warrant Certificate" or
"Certificate"), or Lost Certificate Affidavit (as defined below),
accompanied by a completed Election to Purchase in the form
attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 901 Yamato
Road, Boca Raton, Florida 33431, Attn: Kevin Calhoun, together
with a check payable to the Company in the amount of the Exercise
Price multiplied by the number of Shares being purchased, the
Company or the Company's Transfer Agent as the case may be,
shall, within two (2) trading days of receipt of the foregoing,
deliver to the Holder hereof, certificates of fully paid and non-
assessable Common Stock which in the aggregate represent the
number of Shares being purchased; provided, however, that the
Holder may elect to utilize the cashless exercise provisions set
forth below in lieu of tendering the Exercise Price in cash. The
certificates so delivered shall be in such denominations as may
be reasonably requested by the Holder and shall be registered in
the name of the Holder or such other name as shall be designated
by the Holder. All or less than all of the Warrants represented
by this Certificate may be exercised and, in case of the exercise
of less than all, the Company, upon surrender hereof, will at the
Company's expense deliver to the Holder a new Warrant Certificate
or Certificates (in such denominations as may be requested by the
Holder) of like tenor and dated the date hereof entitling said
holder to purchase the number of Shares represented by this
Certificate which have not been exercised and to receive
Registration Rights with respect to such Shares, and all other
rights with respect to the shares which the Holder has on the
date hereof.
(b) Cashless Exercise. Notwithstanding the
foregoing provision regarding payment of the Exercise Price in
cash, the Holder may elect to receive a reduced number of Shares
in lieu of tendering the Exercise Price in cash ("Cashless
Exercise"). In such case, the number of Shares to be issued to
the Holder shall be computed using the following formula:
X = Y(A-B)
------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this
Warrant Certificate;
A = the Market Value (defined below) of one share of
Common Stock; and
B = the Exercise Price.
As used herein, "Market Value" refers to the closing bid price of
the Common Stock (as reported by Bloomberg, L.P.) on the day
before the Election to Purchase and this Warrant Certificate are
duly surrendered to the Company for a full or partial exercise
hereof. Notwithstanding the foregoing definition, if the Common
Stock is not listed on a national securities exchange or quoted
in the Nasdaq System at the time said Election to Purchase is
submitted to the Company in the foregoing manner, the Market
Value of the Common Stock shall be (a) determined in good faith
by the Board of Directors of the Company and certified in a board
resolution, based on the most recently completed arm's-length
transaction between the Company and a Person other than an
affiliate of the Company or between any two such Persons and the
closing of which occurs on such date or shall have occurred
within the six-month period preceding such date, or (b) if no
such transaction shall have occurred within the six-month period,
the value of the security as determined by an independent
financial expert, unless the Company shall become subject to a
merger, acquisition, or other consolidation pursuant to which the
Company is not the surviving entity, in which case the Market
Value of the Common Stock shall be deemed to be the value
received per share by the Company's common stockholders pursuant
to such merger, acquisition or other consolidation.
2. Exchange. Transfer and Replacement.
(a) At any time prior to the exercise hereof, this
Warrant Certificate may be exchanged upon presentation and
surrender to the Company, alone or with other Warrant
Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed
Assignment in substantially the form and substance of the Form of
Assignment which accompanies this Warrant Certificate. The
Warrant Certificate or Certificates shall be exchanged for
another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such
Assignment, exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered, provided that the
Company shall not be obligated to issue exchange or transfer
Certificates for an exchange or transfer of less than 10,000
shares. The Company shall issue any Warrant Certificates
reflecting such transfer or assignment (including such portion of
this Warrant Certificate, if any, as shall not have been
transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly
completed Assignment.
(b) Replacement of Warrant Certificate. Upon
receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant
Certificate and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company (collectively, a
"Lost Certificate Affidavit"), or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant
Certificate, the Company, at its expense, will execute and
deliver in lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the
surrender of this Warrant Certificate in connection with any
transfer, exchange or replacement as provided in this Section 2,
this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal
expenses, if any, incurred by the Holder or transferees) and
charges payable in connection with the preparation, execution and
delivery of Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain,
at its principal executive offices (or at the offices of the
transfer agent for the Warrant Certificate or such other office
or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant Certificate (the
"Warrant Register"), in which the Company shall record the name
and address of the person in whose name this Warrant Certificate
has been issued, as well as the name and address of each
permitted transferee and each prior owner of this Warrant
Certificate.
3. Rights and Obligations of Holders of this
Certificate. The Holder of this Certificate shall not, by virtue
hereof, be entitled to any rights of a stockholder in the
Company, either at law or in equity; provided, however, that in
the event any certificate representing shares of Common Stock or
other securities is issued to the holder hereof upon exercise of
some or all of the Warrants, such holder shall, for all purposes,
be deemed to have become the holder of record of such Common
Stock on the date on which this Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications,
Recapitalizations, Etc. In the event the Company: (i) pays a
dividend in Common Stock or makes a distribution in Common Stock,
(ii) subdivides its outstanding Common Stock into a greater
number of shares, (iii) combines its outstanding Common Stock
into a smaller number of shares or (iv) increases or decreases
the number of shares of Common Stock outstanding by
reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in
which the Company is the continuing corporation), then (1) the
Exercise Price on the record date of such division or
distribution or the effective date of such action shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately after such event, and (2) the number of shares of
Common Stock for which this Warrant Certificate may be exercised
immediately before such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the Exercise
Price immediately before such event and the denominator of which
is the Exercise Price immediately after such event.
(b) Combination: Liquidation. (i) Except as
provided in Section 4(b)(ii) below, in the event of a Combination
(as defined below), each Holder shall have the right to receive
upon exercise of the Warrant Certificates the kind and amount of
shares of capital stock or other securities or property which
such Holder would have been entitled to receive upon or as a
result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further
adjustment in accordance with the terms hereof). Unless
paragraph (ii) is applicable to a Combination, the Company shall
provide that the surviving or acquiring Person (the "Successor
Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to
deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may
be entitled to acquire. The provisions of this Section 4(b)(i)
shall similarly apply to successive Combinations involving any
Successor Company. "Combination" means an event in which the
Company consolidates with, merges with or into, or sells all or
substantially all of its assets to another Person, where "Person"
means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where
consideration to the holders of Common Stock in exchange for
their shares is payable solely in cash or (y) the dissolution,
liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant
Certificates, distributions on an equal basis with the holders of
Common Stock or other securities issuable upon exercise of the
Warrant Certificates, as if the Warrant Certificates had been
exercised immediately prior to such event, less the Exercise
Price. In case of any Combination described in this Section
4(b)(ii), the surviving or acquiring Person and, in the event of
any dissolution, liquidation or winding-up of the Company, the
Company, shall deposit promptly following the consummation of
such combination or at the time of such dissolution, liquidation
or winding-up with an agent or trustee for the benefit of the
Holders of the funds, if any, necessary to pay to the Holders the
amounts to which they are entitled as described above. After
such funds and the surrendered Warrant Certificates are received,
the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash,
such other consideration as is appropriate) to such Person or
Persons as it may be directed in writing by the Holders
surrendering such Warrant Certificates.
(c) Notice of Adjustment. Whenever the Exercise
Price or the number of shares of Common Stock and other property,
if any, issuable upon exercise of the Warrant Certificates is
adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10
a certificate of the Company's Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including
a description of the basis on which (i) the Board of Directors
determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription
or purchase rights and (ii) the Current Market Value of the
Common Stock was determined, if either of such determinations
were required), and specifying the Exercise Price and number of
shares of Common Stock issuable upon exercise of Warrant
Certificates after giving effect to such adjustment.
(d) Notice of Certain Transactions. In the event
that the Company shall propose (a) to pay any dividend payable in
securities of any class to the holders of its Common Stock or to
make any other non-cash dividend or distribution to the holders
of its Common Stock, (b) to offer the holders of its Common Stock
rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or
any other securities, rights or options, (c) to effect any
capital reorganization, reclassification, consolidation or merger
affecting the class of Common Stock, as a whole, or (d) to effect
the voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company shall, within the time limits
specified below, send to each Holder a notice of such proposed
action or offer. Such notice shall be mailed to the Holders at
their addresses as they appear in the Warrant Register (as
defined in Section 2(d)), which shall specify the record date for
the purposes of such dividend, distribution or rights, or the
date such issuance or event is to take place and the date of
participation therein by the holders of Common Stock, if any such
date is to be fixed, and shall briefly indicate the effect of
such action on the number of shares of Common Stock and on the
number and kind of any other shares of stock and on other
property, if any, and the number of shares of Common Stock and
other property, if any, issuable upon exercise of each Warrant
Certificate and the Exercise Price after giving effect to any
adjustment pursuant to Section 4 which will be required as a
result of such action. Such notice shall be given as promptly as
possible and (x) in the case of any action covered by clause (a)
or (b) above, at least 10 days prior to the record date for
determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20
days prior to the date of the taking of such proposed action or
the date of participation therein by the holders of Common Stock,
whichever shall be the earlier.
(e) Current Market Value. "Current Market Value"
per share of Common Stock or any other security at any date means
(i) if the security is not registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (a) the
value of the security, determined in good faith by the Board of
Directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction
between the Company and a Person other than an affiliate of the
Company or between any two such Persons and the closing of which
occurs on such date or shall have occurred within the six-month
period preceding such date, or (b) if no such transaction shall
have occurred within the six-month period, the value of the
security as determined by an independent financial expert or (ii)
if the security is registered under the Exchange Act, the average
of the daily closing bid prices (or the equivalent in an over-
the-counter market) for each day on which the Common Stock is
traded for any period on the principal securities exchange or
other securities market on which the common Stock is being traded
(each, a "Trading Day") during the period commencing ten (10)
Trading Days before such date and ending on the date one day
prior to such date, or if the security has been registered under
the Exchange Act for less than ten (10) consecutive Trading Days
before such date, the average of the daily closing bid prices (or
such equivalent) for all of the Trading Days before such date for
which daily closing bid prices are available; provided, however,
that if the closing bid price is not determinable for at least
five (5) Trading Days in such period, the "Current Market Value"
of the security shall be determined as if the security were not
registered under the Exchange Act.
(f) Other Adjustments. In the event of any other
transaction of the type contemplated by this Section 4, but not
expressly provided for by the provisions hereof, the Board of
Directors of the Company will make appropriate adjustment in the
Exercise Price so as to equitably protect the rights of the
Holder.
(g) No Impairment of Holder's Rights. The Company
will not, by amendment of its articles of organization or bylaws
or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, except as contemplated hereby, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant Certificate, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all
action as may be necessary or appropriate in order to protect the
rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all
shares of Common Stock issuable upon exercise of this Warrant
Certificate will, upon delivery, be duly and validly authorized
and issued, fully-paid and non-assessable and free from all
taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will
at all times reserve and keep available an authorized number of
shares of its Common Stock and other applicable securities
sufficient to permit the exercise in full of all outstanding
options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing
of the Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are
then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to
time issuable upon the exercise of this Warrant Certificate; and
the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant
Certificate if and so long as any shares of the same class shall
be listed on such national securities exchange or automated
quotation system.
(d) The Company has taken all necessary action and
proceedings as required and permitted by applicable law, rule and
regulation, including, without limitation, the notification of
the principal market on which the Common Stock is traded, for the
legal and valid issuance of this Warrant Certificate to the
Holder under this Warrant Certificate.
(e) With a view to making available to Holder the
benefits of Rule 144 promulgated under the Act and any other rule
or regulation of the Securities and Exchange Commission ("SEC")
that may at any time permit Holder to sell securities of the
Company to the public without registration, the Company agrees to
use its reasonable best efforts to:
(i) make and keep public information
available, as those terms are understood and defined in Rule 144,
at all times;
(ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the Act
and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and
(iii) furnish to any Holder forthwith upon
request a written statement by the Company that it has complied
with the reporting requirements of Rule 144 and of the Act and
the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested to permit any
such Holder to take advantage of any rule or regulation of the
SEC permitting the selling of any such securities without
registration.
6. Registration Rights. The initial Holder is entitled
to the benefit of such registration rights in respect of the
Shares as are set forth in the Registration Rights Agreement
dated as of August 14 by and between the Company, the Holder and
the other investors parties thereto ("Registration Rights
Agreement"), including the right to assign such rights to certain
assignees as set forth therein.
7. Issuance of Certificates. Within three (3) trading
days of receipt of a duly completed Election to Purchase form,
together with this Certificate and payment of the Exercise Price,
the Company, at its expense, will cause to be issued in the name
of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable
shares of Common Stock to which that holder shall be entitled on
such exercise. In the event the shares of Common Stock are not
timely delivered to the Holder, the Company agrees to (a)
indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees,
and (b) beginning on the fifth (5th) day following the Company's
receipt of a duly completed Election to Purchase form, pay a
default premium of 2% per day of the value of underlying shares
(based on the highest closing price during the two (2) day period
preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise
hereunder, the Company will pay the cash value of that fractional
share, calculated on the basis of the Exercise Price. Prior to
registration of the resale of the shares of Common Stock
underlying this Warrant Certificate, and delivery of an Election
to Purchase to the Company, all such certificates shall bear a
restrictive legend to the effect that the Shares represented by
such certificate have not been registered under the 1933 Act, and
that the Shares may not be sold or transferred in the absence of
such registration or an exemption therefrom, such legend to be
substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of
this Warrant Certificate, each transferee hereof and any holder
and transferee of any Shares, by his or its acceptance thereof,
agrees that no public distribution of Warrants or Shares will be
made in violation of the provisions of the 1933 Act.
Furthermore, it shall be a condition to the transfer of the
Warrants that any transferee thereof deliver to the Company his
or its written agreement to accept and be bound by all of the
relevant terms and conditions contained in this Warrant
Certificate.
9. Notices. Except as otherwise specified herein to the
contrary, all notices, requests, demands and other communications
required or desired to be given hereunder shall only be effective
if given in writing by certified or registered U.S. mail with
return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile
transmission (if no original documents or instruments must
accompany the notice); or by personal delivery. Any such notice
shall be deemed to have been given (a) on the business day
immediately following the mailing thereof, if mailed by certified
or registered U.S. mail as specified above; (b) on the business
day immediately following deposit with a private overnight
delivery service if sent by said service; (c) upon receipt of
confirmation of transmission if sent by facsimile transmission;
or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other
address or addresses as a party may have advised the other in the
manner provided in this Section 9):
If to the Company:
The Panda Project, Inc.
901 Yamato Road
Boca Raton, Florida 33431
Attn: Chief Executive Officer
Phone: (561) 994-2300
Fax: (561) 994-2436
With a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue, 48th Floor
New York, New York 10166
Attn: Steven R. Shoemate, Esq.
Phone: (212) 351-3879
Fax: (212) 351-4035
If to [INVESTOR NAME]:
[INVESTOR NAME]
[ADDRESS]
Phone: [TEL NO]
Fax: [FAX NO]
and with a copy to:
[INVESTOR COUNSEL]
[COUNSEL ADDRESS]
Phone: [TEL NO]
Fax: [FAX NO]
Notwithstanding the time of effectiveness of notices set forth in
this Section, an Election to Purchase shall not be deemed
effectively given until it has been duly completed and submitted
to the Company together with the original Warrant Certificate to
be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate
to the contrary, in no event shall the holder of this Warrant
Certificate be entitled to exercise with respect to a number of
shares of Common Stock to the extent that following such exercise
the sum of (i) 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 unexercised Warrant Certificates and unconverted
shares of Preferred Stock (as defined in the Securities Purchase
Agreement) or other securities containing restrictions on
conversion or exercise analogous to the provisions in this
paragraph, and (ii) the number of shares of Common Stock issuable
upon exercise of the Warrant Certificates (or portions thereof)
with respect to which the determination described herein is being
made, would result in beneficial ownership by the holder and its
affiliates of more than 4.99% of the outstanding shares of Common
Stock; provided that this limitation is for Buyer's benefit and
may unilaterally be waived by Buyer (except that a Buyer that is
a BHC- Holder, may not waive this provision except to the extent
permitted under the BHCA and the regulations thereunder) without
the Company's consent . In calculating the beneficial ownership
pursuant to the preceding sentence of any holder (a "BHC-
Holder") that is subject to the Bank Holding Company Act of 1956,
as amended (the "BCHA") there shall be included Warrants and
shares of Common Stock transferred by such BCH Holder to the
extent required by the BCHA. For purposes of the immediately
preceding sentence, (x) beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Rules 13(d)-(g) thereunder, except as
otherwise provided in clause (i) hereof, and (y) a holder (other
than a "BCH Holder") may waive the limitations set forth herein
upon not less than sixty-one (61) days prior written notice to
the Company (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period).
11. Governing Law. This Warrant Certificate and all
rights and obligations hereunder shall be deemed to be made under
and governed by the laws of the State of New York without giving
effect to the conflicts of laws provisions. The Holder hereby
irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of
New York.
12. Successors and Assigns. This Warrant Certificate
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
13. Headings. The headings of various sections of this
Warrant Certificate have been inserted for reference only and
shall not affect the meaning or construction of any of the
provisions hereof.
14. Severability. If any provision of this Warrant
Certificate is held to be unenforceable under applicable law,
such provision shall be excluded from this Warrant Certificate,
and the balance hereof shall be interpreted as if such provision
were so excluded.
15. Modification and Waiver. This Warrant Certificate
and any provision hereof may be amended, waived, discharged or
terminated only by an instrument in writing signed by the Company
and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder
acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Warrant Certificate were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Warrant Certificate and
to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may
be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one
of its officers thereunto duly authorized.
THE PANDA PROJECT, INC.
Date: _______________ By: _______________
Name:
Title:
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise _____ of
the Warrants represented by the attached Common Stock Purchase
Warrant Certificate, and to purchase the shares of Common Stock
issuable upon the exercise of such Warrants, and requests that
certificates for securities be issued in the name of:
- - -----------------------------------------------------------------
(Please type or print name and address)
- - -----------------------------------------------------------------
(Social Security or Tax Identification Number)
and delivered to:
------------------------------------------------
- - -----------------------------------------------------------------
- - ----------------------------------------------------------------
Please type or print name and address if different from above.
If such number of Warrants being exercised hereby shall not be
all the Warrants evidenced by the attached Common Stock Purchase
Warrant Certificate, a new Common Stock Purchase Warrant
Certificate for the balance of such Warrants shall be registered
in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to
the Warrants exercised and transfer taxes, if any, the
undersigned hereby tenders payment of $_____ by check, money
order or wire transfer payable in United States currency to the
order of The Panda Project, Inc.] or [The undersigned elects
cashless exercise in accordance with Section 1(b) of the Common
Stock Purchase Warrant Certificate.]
<PAGE>
Holder hereby represents and covenants that it has
complied with, or will comply with, any and all prospectus
delivery requirements with respect to its sale of the Common
Stock of the Company being purchased herewith.
HOLDER:
-------
Date: __________________ By: ___________________
Name:
Title:
Address:_______________
_______________________
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ____ the right represented by the within Warrant
to purchase _____ shares of Common Stock of The Panda Project,
Inc., a Florida corporation, to which the within Warrant relates,
and appoints ________ Attorney to transfer such right on the
books of The Panda Project, Inc., a Florida corporation, with
full power of substitution of premises.
Date: ____________________ By: _________________
Name:
Title:
(signature must conform to
name of holder as specified
on the facts of the Warrant)
Address: ________________
__________________________
Signed in the presence of:
__________________________
EXHIBIT 3.5
SEVENTH ARTICLES OF AMENDMENT OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF THE PANDA PROJECT, INC.
Pursuant to the provisions of Section 607.1006 of the
Florida Business Corporation Act, The Panda Project, Inc. (the
"Company"), adopts the following Articles of Amendment to its
Amended and Restated Articles of Incorporation.
FIRST: The name of the Company is The Panda Project, Inc.
SECOND: Article III of the Amended and Restated Articles
of Incorporation of the Company is hereby amended by
redesignating Section B.3 thereof as Section B.6 and by inserting
the following as new Section B.3, which reads as follows:
3. SERIES A CONVERTIBLE PREFERRED STOCK
One Thousand (1,000) shares of Preferred Stock of the Company are
hereby designated as "Series 3 Convertible Preferred Stock" (the
"Series A Preferred Shares"), par value $.01 per share, which
shall have the following preferences, limitations and relative
rights:
1. DIVIDENDS. (a) The holders of the Series A
Preferred Shares (each a "Holder" and, collectively, the
"Holders"), in preference to the holders of Junior Shares, shall
be entitled to receive cash dividends on each Series A Preferred
Share at the rate of 5% per annum of the Purchase Price (as
defined in the Subscription Agreement hereafter referred to), due
and payable quarterly in arrears on the last day of March, June,
September and December of each year (each a "Dividend Payment
Date"), with the first such payment due on March 31, 1998.
Accrual of dividends shall commence on the first business day to
occur after February 11, 1998 and shall continue until all of the
Series A Preferred Shares have been converted in full. The
dividends so payable will be paid to the person in whose name the
Series A Preferred Shares (or one of more predecessor Series A
Preferred Shares) are registered on the records of the Company
regarding registration and transfers of the Series A Preferred
Shares (the "Series A Preferred Shares Register"); PROVIDED,
HOWEVER, that the Company's obligation to a transferee of the
Series A Preferred Shares shall arise only if such transfer, sale
or other disposition is made in accordance with the terms and
conditions of the Subscription Agreement dated as of February 11,
1998 between the Company and the Subscribers thereto (the
"Subscription Agreement"). The dividends are payable in such
coin or currency of the United States of America, to each Holder,
at the address last appearing on the Series A Preferred Shares
Register as designated in writing by such Holder of Series A
Preferred Shares from time to time; PROVIDED, HOWEVER, that in
lieu of paying such dividends in coin or currency, the Company
may, at its option, pay dividends on the Series A Preferred
Shares for any Dividend Payment Date by adding the amount of such
dividend to the Purchase Price ("PIK Dividend") pursuant to a
statement in the form of Exhibit 2 hereto ("PIK Statement")
delivered by the Company to each of the Holders on or prior to
the applicable Dividend Payment Date. If neither the cash
dividend due hereunder is paid, nor the PIK Statement is
delivered, to the Holders within 10 calendar days of the
applicable Dividend Payment Date, the Company shall no longer
have the right to choose the PIK Dividend option with respect to
the dividend payable on such Dividend Payment Date and each
Holder may elect either the cash dividend or the PIK Dividend
hereunder at its option with respect to the dividend payable on
such Dividend Payment Date. Any PIK Dividend when so added to
the Purchase Price shall, for all purposes of this Certificate of
Designations, be deemed to be part of the Purchase Price for
purposes of determining dividends thereafter payable hereunder
and amounts thereafter convertible into Common Stock hereunder.
The Company will pay all accrued and unpaid dividends due to the
person that is the holder of the Series A Preferred Shares on the
records of the Company as of the tenth (10th) day prior to the
applicable payment date and addressed to such Holder at the last
address appearing on the Series A Preferred Shares Register.
Except as otherwise provided herein, dividends due hereunder
shall bear interest, from and after the occurrence and during the
continuance of a failure to declare or pay a dividend hereunder,
at the rate equal to the lower of twenty percent (20%) per annum
and the highest rate permitted by law.
(b) If the stated dividends on the Series A
Preferred Shares are not paid in full, Series A Preferred Shares
and all Pari Passu Shares, if any, shall share ratably in the
payment of dividends on such shares in accordance with the sums
which would be payable on such shares if all dividends were paid
in full. So long as any Series A Preferred Share is outstanding,
no dividends whatever shall be paid or declared, nor shall any
distribution be made, on any Junior Shares, unless all cash
dividends or PIK Dividends on Series A Preferred Shares for all
past quarterly dividend periods shall have been paid or declared
and a sum of cash or amount of Series A Preferred Shares
sufficient for the payment thereof set apart.
2. TRANSFERS. The Series A Preferred Shares have been
issued subject to investment representations of the original
purchaser thereof and may be transferred or exchanged in the
United States only in compliance with the registration
requirements of the Securities Act of 1933, as amended (the
"Act"), and applicable state securities laws as an exemption
therefrom. Prior to due presentment for transfer of the Series A
Preferred Shares, the Company may treat the person in whose name
the Series A Preferred Shares are duly registered on the Series A
Preferred Shares Register as the owner thereof for the purpose of
receiving payment as herein provided and all other purposes, and
the Company shall not be affected by notice to the contrary.
3. DEFINITIONS. For purposes hereof the following
definitions shall apply:
"CERTIFICATE OF DESIGNATIONS" shall mean Section
B.3 of Article III of the Company's Amended and Restated Articles
of Incorporation as set forth in these Seventh Articles of
Amendment of Amended and Restated Articles of Incorporation of
the Company.
"COMMON STOCK" shall mean the Common Stock, par
value $0.01 per share, of the Company.
"CONVERSION DATE MARKET PRICE" shall mean, as of
any Holder Conversion Date or other date of designation, an
amount that is equal to the lesser of, subject to adjustment as
provided herein, (a) the Fixed Conversion Price and (b) that
percentage of the average Market Price for Shares of Common Stock
during the five (5) trading days immediately preceding the Holder
Conversion Date equal to (i) 92% if converted during the period
beginning 120 days from the applicable Issuance Date and ending
180 days from the applicable Issuance Date, or (ii) 90% if
converted at any time after 180 days from the applicable Issuance
Date.
"CONVERSION NOTICE" shall have the meaning set
forth in Paragraph 6(c).
"CONVERSION RATE" shall have the meaning set forth
in Paragraph 6(b).
"FIXED CONVERSION PRICE" shall mean $3.50 per
share; PROVIDED, that in the event of any stock split,
subdivision, combination, reorganization, exchange, substitution
or reclassification, the Fixed Conversion Price shall be
equitably and appropriately adjusted to reflect such change.
"HOLDER CONVERSION DATE" shall have the meaning
set forth in Paragraph 6(c).
"INITIAL SHARES" shall mean the Old Series A
Shares and the New Series A Shares issued in exchange therefor
pursuant to Paragraph 32.
"ISSUANCE DATE" shall mean, with respect to the
Initial Shares, February 11, 1998, and with respect to other
Preferred Shares, the date of issuance of the applicable
Preferred Share pursuant to the Subscription Agreement.
"JUNIOR SHARES" shall have the meaning set forth
in Paragraph 13.
"LIQUIDATION VALUE" shall have the meaning set
forth in Paragraph 13.
"MANDATORY CONVERSION DATE" shall have the meaning
set forth in Paragraph 7(a).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall
mean the price of one share of Common Stock determined as
follows:
(i) If the Common Stock is listed on NASDAQ,
the closing bid price as reported by the Bloomberg Service on the
date of valuation;
(ii) If the Common Stock is listed on a
national securities exchange, the lowest reported bid price on
such exchange on the date of valuation;
(iii) If neither clause (i) nor (ii) above
applies but the Common Stock is quoted in the over-the-counter
market on the pink sheets or bulletin board, the lesser of (A)
the lowest sales price or (B) the lowest reported "bid" price
thereof on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii)
above applies, the market value as determined by a nationally
recognized investment banking firm or other nationally recognized
financial advisor retained by the Company for such purpose,
taking into consideration, among other factors, the earnings
history, book value and prospects for the Company, and the prices
at which shares of Common Stock recently have been traded. Such
determination shall be conclusive and binding on all persons.
"NEW SERIES A SHARES" shall mean the 515 Series A
Preferred Shares to be issued in exchange for the Old Series A
Shares upon the filing hereof.
"OLD SERIES A SHARES" shall mean the 515 shares of
Series A-2 Convertible Preferred Stock originally issued on July
2, 1998 and outstanding as of the date hereof.
"PARAGRAPH 4 TRANSACTION" shall mean a merger,
consolidation or other transaction referred to in Paragraph 4.
"PARI PASSU SHARES" shall have the meaning set
forth in Paragraph 13.
"PREFERRED FUNDS" shall have the meaning set forth
in Paragraph 13.
"REGISTRATION RIGHTS AGREEMENT" shall have the
meaning set forth in the Subscription Agreement.
"SUBSCRIPTION AGREEMENT" shall have the meaning
set forth on page 1 of this Certificate of Designations.
"UNDERLYING SHARES" shall mean the Common Stock
issuable upon conversion of the Series A Preferred Shares.
4. PARAGRAPH 4 TRANSACTIONS. Without the prior written
approval of the holders of 66 2/3% of the then outstanding Series
A Preferred Shares, the Company shall not (a) consolidate or
merge with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation)
or complete any other corporate reorganization or transaction or
series of related transactions, as a result of which the
shareholders of the Company pursuant to such merger,
consolidation, reorganization or other transaction own in the
aggregate less than 50% of the voting power or common equity of
the ultimate parent corporation or other entity surviving or
resulting from such merger, consolidation, reorganization or
other transaction, (ii) transfer all or substantially all of the
Company's assets to another corporation or other entity or person
or (iii) fix a record date for the declaration of a distribution
or dividend, whether payable in cash, securities or assets (other
than shares of Common Stock) (a "Paragraph 4 Transaction").
5. CONVERSION AT THE OPTION OF THE COMPANY. (a) If, at
any time after the Issuance Date, the closing bid price of the
Common Stock is equal to or greater than $12.00 per share for the
twenty (20) consecutive trading days immediately preceding the
date of the Company's notice of conversion delivered pursuant to
Paragraph 5(b) hereof, the Company may require the Holders to
convert the Series A Preferred Shares, in whole but not in part,
provided that: the notice provisions set forth in Paragraph 5(b)
hereof have been complied with; the Registration Statement for
the Common Stock issuable upon conversion of the Series A
Preferred Shares is effective on each day during the period
beginning 20 days prior to the date of the Company's notice of
conversion and ending on and including the date of conversion;
the Common Stock is designated for quotation on the Nasdaq
National Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. and is not suspended from trading
thereon; during the period beginning on the Issuance Date and
ending on and including the date of conversion, the Company shall
have delivered shares of Common Stock upon conversion of the
Series A Preferred Shares on a timely basis as set forth in
Paragraph 6(c) of this Certificate of Designations; and the
Company otherwise has satisfied its obligations and is not in
default under this Certificate of Designations, the Subscription
Agreement or the Registration Rights Agreement.
(b) Notice of the Company's intention to require
conversion shall be given to each Holder of Series A Preferred
Shares subsequent to the twenty (20) consecutive trading day
period referred to in Paragraph 5(a) and not less than sixty (60)
days prior to the date of conversion of the Series A Preferred
Shares, by first class mail, postage prepaid, to such Holder of
Series A Preferred Shares at the address of such Holder;
PROVIDED, that such 60-day period shall be extended by the number
of days in such period, if any, during which trading of Common
Stock is suspended or otherwise restricted. Each such notice
shall state: (i) a conversion date, which shall be not less than
60 days following the date of mailing of the notice, (ii) each
Holder's pro rata share of outstanding Series A Preferred Shares
and (iii) the number of the Series A Preferred Shares to be
converted.
(c) Notice having been mailed as aforesaid, the
Holder shall convert, on the date specified in the Company's
notice, the maximum of (i) the number of Series A Preferred
Shares specified in the Company's notice and (ii) the number of
outstanding Series A Preferred Shares on such date, in each case
at the Conversion Rate determined in accordance with Paragraph
6(b).
6. CONVERSION AT THE OPTION OF THE HOLDER. A Holder of
Series A Preferred Shares shall have the following conversion
rights:
(a) HOLDER'S RIGHTS TO CONVERT. Such Holder's
Series A Preferred Shares shall be convertible at any time after
the applicable Issuance Date, in whole or in part, at the option
of such Holder, into fully paid, validly issued and nonassessable
shares of Common Stock. If the Series A Preferred Shares are
converted in part, the remaining portion of the Series A
Preferred Shares not so converted shall remain entitled to the
conversion rights provided herein. Prior to 120 days subsequent
to the applicable Issuance Date, the Holder may so convert only
at the Fixed Conversion Price.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES.
Series A Preferred Shares shall be convertible into the number of
shares of Common Stock which results from application of the
following formula:
(P*N) + D
--------------------
Conversion Date Market Price
P = Purchase Price
N = Number of Series A Preferred Shares submitted for
conversion
D = accrued but unpaid dividends (not previously
added to the Purchase Price on a PIK
Statement) on P as of the Holder Conversion Date
The number of shares of Common Stock into which each
$1,000 aggregate Liquidation Value (as hereinafter defined) of
the Series A Preferred Shares hereto may be converted pursuant to
this Paragraph 6(b) is hereafter referred to as the "Conversion
Rate."
(c) MECHANICS OF CONVERSION. In order to convert
Series A Preferred Shares (in whole or in part) into full shares
of Common Stock, the Holder thereof shall surrender the
certificates representing the Series A Preferred Shares (the
"Preferred Share Certificates"), duly endorsed, by either
overnight courier or 2-day courier, to the office of the transfer
agent for the Series A Preferred Shares (or to the principal
office of the Company if the Company serves as its own transfer
agent), and shall give written notice in the form of EXHIBIT 1
hereto (the "Conversion Notice") by facsimile (with the original
of such Notice forwarded with the foregoing courier) to the
office of the designated transfer agent or the principal office
of the Company, as the case may be, that the Holder elects to
convert a number of Series A Preferred Shares (plus accrued but
unpaid dividends) specified therein, which Conversion Notice
shall be irrevocable by the Holder; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless
either the Preferred Share Certificates are delivered to the
Company or its designated transfer agent as provided above, or
the Holder notifies the Company or its designated transfer agent
that such Series A Preferred Shares have been lost, stolen or
destroyed and promptly executes an agreement reasonably
satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection with such Series A Preferred
Shares.
The Company shall use its best efforts to issue and
deliver, by either overnight courier or two-day courier, within
three business days after delivery to the Company of such
Preferred Share Certificate, or after receipt of such agreement
and indemnification, to such Holder of Series A Preferred Shares
at the address of the Holder, or to its designee (and registered
in the name of the Holder or its designee), a certificate or
certificates for the number of shares of Common Stock to which
the Holder shall be entitled as aforesaid, together with a
calculation of the Conversion Rate and the number of Series A
Preferred Shares of such Holder not submitted for conversion.
The effective date of conversion (the "Holder Conversion Date")
shall be deemed to be the date on which the Company receives by
facsimile the Conversion Notice, and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date. If the
number of Series A Preferred Shares represented by the Preferred
Share Certificate(s) submitted for conversion is greater than the
number of Series A Preferred Shares being converted, then the
Company shall, as soon as practicable and in no event later than
three business days after receipt of the Preferred Share
Certificate(s) and at its own expense, issue and deliver to the
Holder a new Preferred Share Certificate representing the number
of Series A Preferred Shares not converted.
7. MANDATORY CONVERSION DATE. (a) On the date which is
the fifth anniversary of the applicable Issuance Date (the
"Mandatory Conversion Date"), the Company may, at its option, (i)
require the Holders to convert the Series A Preferred Shares
which remain outstanding on such date, in whole but not in part,
at the Conversion Rate determined in accordance with Paragraph
6(b) or (ii) redeem such shares of Preferred Stock at a price in
cash equal to the aggregate Liquidation Value thereof. Notice of
the Company's election under this Paragraph 7(a) shall be given
not less than 30 days prior to the Mandatory Conversion Date and,
in the case of a redemption pursuant to clause (ii), shall
include a representation by the Company that the Company
possesses, and will possess, legally available funds sufficient
to consummate such redemption.
(b) If the Company elects to require conversion of the
Series A Preferred Shares on the Mandatory Conversion Date
pursuant to Paragraph 7(a)(i), the Series A Preferred Shares
outstanding at such time shall be automatically and without
notice converted into Common Stock on the Mandatory Conversion
Date in accordance with the terms of this Certificate of
Designations. The Company shall use its best efforts to issue
and deliver to a Holder within three business days after delivery
to the Company by such Holder of such Holder's Preferred Share
Certificates, or after receipt of the agreement and
indemnification described in Paragraph 6(c) above, at the address
of such Holder, or to its designee (and registered in the name of
such Holder or its designee), a certificate or certificates for
the number of shares of Common Stock which such Holder shall be
entitled to receive hereunder, together with a calculation of the
Conversion Rate. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on the Mandatory Conversion Date. The
Mandatory Conversion Date shall be a "Holder Conversion Date" for
purposes of this Certificate of Designations.
8. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS;
REORGANIZATIONS.
(a) STOCK SPLITS AND COMBINATIONS. The Company
shall not effect any stock split, subdivision or combination with
an effective date within five (5) trading days of the Mandatory
Conversion Date.
(b) ADJUSTMENT OF FIXED CONVERSION PRICE UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time subdivides (by way of stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company
at any time combines (by way of combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination
will be proportionately increased.
(c) CERTAIN DIVIDENDS AND DISTRIBUTIONS. The
Company shall not make, or fix a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of
Common Stock, with an effective date within five (5) trading days
of the Mandatory Conversion Date.
(d) ADJUSTMENT FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. In the event the Company at any time or from time
to time after the Issuance Date makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive,
a dividend or other distribution payable in securities of the
Company other than shares of Common Stock, then and in each such
event provision shall be made so that the Holders of Series A
Preferred Shares shall receive upon conversion thereof pursuant
to Paragraph 6 hereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of such other
securities of the Company to which a Holder on the relevant
record or payment date, as applicable, of the number of shares of
Common Stock so receivable upon conversion would have been
entitled, plus any dividends or other distributions which would
have been received with respect to such securities had such
Holder thereafter, during the period from the date of such event
to and including the Holder Conversion Date, retained such
securities, subject to all other adjustments called for during
such period under this Paragraph 8 with respect to the rights of
the Holders of the Series A Preferred Shares. For purposes of
this Paragraph 8(d), the number of shares of Common Stock so
receivable upon conversion by the Holder shall be deemed to be
that number which the Holder would have received upon conversion
of all Series A Preferred Shares held by such Holder if the
Holder Conversion Date had been the day preceding the date upon
which the Company announced the making of such dividend or other
distribution.
(e) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. In the event that at any time or from time to time
after the Issuance Date, the Common Stock issuable upon the
conversion of the Series A Preferred Shares is changed into the
same or a different number of shares of any class or classes of
stock or other securities or property, whether by
recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or
reorganization provided for elsewhere in this Paragraph 8 or a
merger or consolidation provided for in Paragraph 4), then and in
each such event each Holder of Series A Preferred Shares shall
have the right thereafter to convert such Series A Preferred
Shares into the kind and amount of shares of stock or other
securities or property receivable upon such recapitalization,
reclassification or other change by holders of shares of Common
Stock, all subject to further adjustment as provided herein. In
such event, the formulae set forth herein for conversion and
redemption shall be equitably adjusted to reflect such change in
number of shares or, if shares of a new class of stock are
issued, to reflect the market price of the class or classes of
stock (applying the same factors used in determining the Market
Price for shares of Common Stock) issued in connection with the
above described transaction.
(f) REORGANIZATIONS. If at any time or from time
to time after the applicable Issuance Date there is a capital
reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Paragraph 8)
then, as a part of such reorganization, effective provision shall
be made so that the Holders of the Series A Preferred Shares
shall thereafter be entitled to receive upon conversion of the
Series A Preferred Shares the number of shares of stock or other
securities or property to which a holder of the number of shares
of Common Stock deliverable upon such conversion would have been
entitled with respect to such capital reorganization. In any
such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 8 with respect to
the rights of the Holders of the Series A Preferred Shares after
the reorganization to the end that the provisions of this
Paragraph 8 shall be applicable after that event and be as nearly
equivalent as may be practicable, including, by way of
illustration and not limitation, by equitable adjustment of the
formulae set forth herein for conversion and redemption to
reflect the market price of the securities or property (applying
the same factors used in determining the Market Price for Shares
of Common Stock) issued in connection with the above described
transaction.
(g) DISPUTE RESOLUTION. In the event of a
dispute between a Holder of Series A Preferred Shares and the
Company with respect to any of the adjustments required pursuant
to the provisions of this Paragraph 8, then the Series A
Preferred Shares shall be converted in a manner consistent with
the Schedule of Computations delivered as set forth in paragraph
(h) below, and the Company shall immediately deliver to the
Holder that number of Series A Preferred Shares consistent with
such Schedule of Computations. Such Holder of Series A Preferred
Shares shall then be entitled, within 60 days of receipt of the
Schedule of Computations, to submit such dispute to the American
Arbitration Association for resolution according to then
applicable rules thereof, which determination shall be final and
binding. If it shall be determined that a Holder of Series A
Preferred Shares should have received additional shares of Common
Stock upon such conversion (the "Undelivered Shares") then,
within three trading days of receipt of written notice of such
determination, the Company shall issue to such Holder that number
of additional shares of Common Stock as shall have a value, based
upon the then Market Price for Shares of Common Stock, as shall
equal the Undelivered Shares times the Market Price for Shares of
Common Stock on the date of conversion. The cost of such
proceeding shall be shared 50% by the Holder or Holders of Series
A Preferred Shares involved in such dispute and 50% by the
Company, except that the prevailing party, as determined by the
arbitrator presiding over the arbitration, shall be entitled to
recover reasonable attorney's fees, in addition to other costs
and expenses and any other available remedy.
(h) SCHEDULE OF COMPUTATIONS. All adjustments
pursuant to this Paragraph 8 shall be notified in writing to the
Holders of Series A Preferred Shares within three (3) trading
days of the occurrence thereof and such notice shall be
accompanied by a schedule of computations setting forth in detail
the calculations used to determine such adjustments ("Schedule of
Computations"). If so requested by a Holder of Series A
Preferred Shares, the Company shall provide to such Holder within
ten (10) trading days of its request therefor a certification of
concurrence to the Schedule of Computations by the independent
public accountants of the Company.
9. FRACTIONAL SHARES. No fractional shares of Common
Stock or scrip representing fractional shares of Common Stock
shall be issuable hereunder. The number of shares of Common
Stock that are issuable upon any conversion shall be rounded up
or down to the nearest whole share.
10. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company will use its best efforts to reserve and keep available
at all times out of its authorized and unissued Common Stock,
free of preemptive rights, such number of shares of Common Stock
as shall be sufficient to enable the Company to satisfy any
obligation to issue shares of Common Stock upon conversion of all
of the Series A Preferred Shares pursuant hereto.
11. TAXES. The Company shall pay any and all taxes
which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon conversion of the Series A
Preferred Shares.
12. VOTING RIGHTS. Holders of Series A Preferred Shares
shall have no voting rights, except as required by law, including
but not limited to the General Corporation Act of the State of
Florida, and as expressly provided in this Certificate of
Designations.
13. LIQUIDATION, DISSOLUTION, WINDING-UP. In the event
of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series A Preferred
Shares shall be entitled to receive in cash out of the assets of
the Company, whether from capital or from earnings available for
distribution to its shareholders (the "Preferred Funds"), before
any amount shall be paid to the holders of any of the capital
stock of the Company of any class junior in rank to the Series A
Preferred Shares (the "Junior Shares") in respect of the
preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Company, an amount
per Series A Preferred Share equal to the sum of (i) the Purchase
Price and (ii) any accrued but unpaid dividends (such sum being
referred to as the "Liquidation Value"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to
the holders of Series A Preferred Shares and holders of shares of
other classes or series of preferred stock of the Company that
are of equal rank with the Series A Preferred Shares as to
payments of Preferred Funds (the "Pari Passu Shares"), then each
holder of Series A Preferred Shares and Pari Passu Shares shall
receive a percentage of the Preferred Funds equal to the full
amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full
amount of Preferred Funds payable to all holders of Series A
Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company of stock of any class, in any manner
permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company.
Neither the consolidation or merger of the Company with or into
any other person, nor the sale or transfer by the Company of
substantially all or less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company. No holder of Series A
Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up
of the Company other than the amounts provided for herein.
14. PREFERRED RANK. All shares of Common Stock shall be
of junior rank to all Series A Preferred Shares in respect to the
preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Series A Preferred Shares.
Without the prior express written consent of the Holders of not
less than two-thirds (2/3) of the then outstanding Series A
Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior rank to
the Series A Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and
winding up of the Company. Without the prior express written
consent of the Holders of not less than two-thirds (2/3) of the
then outstanding Series A Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's
Articles of Incorporation or by-laws, or file any resolution of
the board of directors of the Company with the Secretary of State
of the State of Florida, containing any provisions which would
adversely affect or otherwise impair the rights or relative
priority of the holders of the Series A Preferred Shares relative
to the holders of the Common Stock or the holders of any other
class of capital stock. Unless the Company shall comply with
Paragraph 4 above, in the event of the merger or consolidation of
the Company with or into another corporation, the Series A
Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein.
15. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH
RESPECT TO OTHER CAPITAL STOCK. Until all of the Series A
Preferred Shares have been converted or redeemed as provided
herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, its Common
Stock without the prior express written consent of the Holders of
not less than two-thirds (2/3) of the then outstanding Series A
Preferred Shares.
16. LIMITATION ON NUMBER OF CONVERSION SHARES. The
Company shall not be obligated to issue upon conversion of the
Series A Preferred Shares, in the aggregate, more than a number
of shares of Common Stock which, when added to the number of
shares issuable upon exercise of the warrants to purchase up to
250,000 shares of Common Stock issued in connection with the
Series A Preferred Shares, shall equal 19.99% (such percentage to
be appropriately adjusted in the event of any change in the
regulations of the Nasdaq National Market or other principal
securities exchange or market upon which the Common Stock is or
becomes traded) of the number of shares of Common Stock
outstanding on the Issuance Date (such amount to be
proportionately and equitably adjusted from time to time in the
event of stock splits, stock dividends, combinations, reverse
stock splits, reclassifications, capital reorganizations and
similar events relating to the Common Stock) (the "Exchange
Cap"), if issuance of a greater number of shares of Common Stock
would constitute a breach of the Company's obligations under the
rules or regulations of The Nasdaq Stock Market, Inc. or any
other principal securities exchange or market upon which the
Common Stock is or becomes traded. The Exchange Cap shall be
allocated among the Series A Preferred Shares pro rata based on
the total number of authorized Series A Preferred Shares.
17. VOTE TO CHANGE THE TERMS OF OR ISSUE SERIES A
PREFERRED SHARES. The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting, of the
Holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares, shall be required for the following
actions to be taken by the Company: (1) any change to this
Certificate of Designations or the Company's Articles of
Incorporation which would amend, alter, change or repeal any of
the powers, designations, preferences and rights of the Series A
Preferred Shares or otherwise impair the rights or relative
priority of the Holders of the Series A Preferred Shares relative
to the holders of the Common Stock or the holders of any class of
capital stock, or (2) any issuance of Series A Preferred Shares
other than pursuant to the Subscription Agreement.
18. NO REISSUANCE OF SERIES A PREFERRED SHARES. No
Series A Preferred Shares acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be reissued,
and all such Series A Preferred Shares shall be retired. No
additional shares of Series A Convertible Preferred Stock shall
be authorized or issued in addition to the Preferred Shares
without the consent of at least 66 2/3% in interest of the
Holders of Series A Preferred Shares outstanding immediately
prior thereto.
19. NO IMPAIRMENT. The Company shall not intentionally
take any action which would impair the rights and privileges of
the Series A Preferred Shares set forth herein or the Holders
thereof.
20. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
Notwithstanding anything to the contrary contained herein, each
Conversion Notice shall contain a representation that, after
giving effect to the issuance of the shares of Common Stock
pursuant to such conversion notice, the total number of shares of
Common Stock deemed beneficially owned by the Holder (excluding
shares that might otherwise be deemed beneficially owned by
reason of the conversion right in the Series A Preferred Shares
owned by the Holder), together with all shares of the Common
Stock deemed beneficially owned by the Holder's "affiliates" as
defined in Rule 144 of the Act, will not exceed 4.9% of the total
issued and outstanding shares of Common Stock.
21. REGISTRATION SUSPENSION. In the event that at any
time or from time to time the effectiveness of any registration
statement with respect to the Common Stock issuable upon
conversion of the Series A Preferred Shares is suspended or
trading in the Common stock on the New York Stock Exchange or the
NASDAQ National Market System is suspended for a period of time
("Blackout Period"), the Mandatory Conversion Date hereunder
shall be extended for a period equal to 1.5 times the number of
days in such Blackout Period. Furthermore, additional provisions
pertaining to the suspension of effectiveness of such
registration statement set forth in Section 6 of the Registration
Rights Agreement shall be applicable in the event of a Blackout
Period and are specifically incorporated by reference herein.
22. WAIVERS OF DEMAND, ETC. The Company hereby
expressly waives demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit
and diligence in taking any action to collect amounts called for
hereunder and will be directly and primarily liable for the
payment of all sums owing and to be owing hereunder, regardless
of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
23. REPLACEMENT SERIES A PREFERRED SHARES. In the event
that any Holder notifies the Company that its Series A Preferred
Shares have been lost, stolen or destroyed, a replacement
certificate identical in all respects to the original certificate
(except for registration number and Purchase Price, if different
than that shown on the original certificate) shall be promptly
issued by the Company to such Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection with such Series A Preferred
Shares.
24. PAYMENT OF EXPENSES. The Company agrees to pay all
reasonable debts and expenses, including reasonable attorneys'
fees, which may be incurred by the Holder in enforcing the
provisions of this Certificate of Designations, the Subscription
Agreement, the Warrants (as defined in the Subscription
Agreement) or the Registration Rights Agreement.
25. ADDITIONAL RIGHTS.
(a) TRIGGERING EVENT. A "Triggering Event" shall
be deemed to have occurred at such time as any of the following
events:
(i) while a Registration Statement is required to
be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of such Registration
Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is unavailable to the Holder of
the Series A Preferred Shares for sale of the Registrable
Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of thirty
consecutive trading days (a "Registration Statement Lapse");
(ii) the failure of the Common Stock to be listed
or the suspension of trading of the Common Stock on the Nasdaq
National Market, The Nasdaq SmallCap Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period
of five consecutive days (a "Listing Failure");
(iii) the Company's notice to any Holder of
Series A Preferred Shares, including by way of public
announcement, at any time, of its intention not to comply with
proper requests for conversion of any Series A Preferred Shares
into shares of Common Stock, or its failure to effect any such
conversion due to any of the reasons set forth in Paragraph 26(a)
below (a "Conversion Announcement").
(b) RIGHTS OF HOLDERS. In addition to all other
rights of the Holders of Series A Preferred Shares contained
herein, after a Triggering Event (as defined above), the Company
shall pay the Holders $100,000 on the first day of each month
until (i) in the case of a Registration Statement Lapse, the
applicable Registration Statement again becomes effective or is
otherwise made available to the Holders, (ii) in the case of a
Listing Failure, the Common Stock is listed or trading with
respect to the Common Stock is resumed on the Nasdaq National
Market, The Nasdaq SmallCap Market, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc., or (iii) in the case
of a Conversion Announcement, the Company announces that it will
comply with proper requests for conversions of Series A Preferred
Shares into Common Stock. Such $100,000 payment shall be pro
rated for partial months and shall be paid to the Holders pro
rata in accordance with their respective holdings of Series A
Preferred Shares.
26. INABILITY TO FULLY CONVERT.
(a) If, upon the Company's receipt of a Conversion Notice,
the Company does not issue shares of Common Stock registered for
resale under the Registration Statement for any reason,
including, without limitation, because the Company (x) does not
have a sufficient number of shares of Common Stock authorized and
available, (y) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Company or its securities, including
without limitation the Exchange Cap, (as herein defined), from
issuing all of the Common Stock which is to be issued to a Holder
of Series A Preferred Shares pursuant to a Conversion Notice or
(z) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the
Company shall issue as many shares of Common Stock as it is able
to issue in accordance with such Holder's Conversion Notice and,
if such condition remains unremedied for a period of thirty days
after the Company's receipt of a Conversion Notice with respect
to the unconverted Series A Preferred Shares, the rate of
dividend on all of the Series A Preferred Shares (including
Series A Preferred Shares for which a Conversion Notice has not
yet been sent), shall, to the maximum extent permitted by law, be
permanently increased by two percent (2%) (i.e., from 5% to 7%)
commencing on the first day of the thirty (30) day period (or
part thereof) following the receipt of a Conversion Notice; an
additional two percent (2%) commencing on the first day of each
of the second and third such thirty (30) day periods (or part
thereof); and an additional one percent (1%) on the first day of
each consecutive thirty (30) day period (or part thereof)
thereafter until such securities have been duly converted or
redeemed as herein provided; PROVIDED that in no event shall the
rate of dividend exceed the lower of 20% and the highest rate
permitted by applicable law. Any such dividend which is not paid
when due shall, to the maximum extent permitted by law, accrue
dividends until paid at the rate from time to time currently
equal to the dividend rate on the Series A Preferred Shares. The
Company agrees to use its best efforts to obtain shareholder
approval prior to October 31, 1998 of issuance of shares of
Common Stock in excess of the Exchange Cap to permit the Company
to issue all of the Common Stock which is to be issued to a
Holder of Series A Preferred Shares pursuant to a Conversion
Notice.
(b) In the event the Company receives a Conversion
Notice from more than one Holder of Series A Preferred Shares on
the same day and the Company can convert some, but not all, of
the Series A Preferred Shares pursuant to this Paragraph 26, the
Company shall convert from each Holder of Series A Preferred
Shares electing to have Series A Preferred Shares converted at
such time an amount equal to such Holder's pro-rata amount (based
on the number of Series A Preferred Shares held by such Holder
relative to the number of Series A Preferred Shares outstanding)
of all Series A Preferred Shares being converted at such time.
27. SAVINGS CLAUSE. In case any provision of this
Certificate of Designations is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum
extent possible, and the validity and enforceability of the
remaining provisions of this Certificate of Designations will not
in any way be affected or impaired thereby.
28. ENTIRE AGREEMENT. This Certificate of Designations,
the Subscription Agreement, the Warrant, the Registration Rights
Agreement and the agreements referred to in this Certificate of
Designations constitute the full and entire understanding and
agreement between the Company and the Holder with respect to the
subject hereof. Neither this Certificate of Designations nor any
term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the
Holder.
29. ASSIGNMENT, ETC. The Holder may, subject to
compliance with the Subscription Agreement and to applicable
Federal and state securities laws, transfer or assign the Series
A Preferred Shares or any interest therein and may mortgage,
encumber or transfer any of its rights or interest in and to the
Series A Preferred Shares or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may
include any affiliate of the Holder) shall have the right to
transfer or assign its interest. Each such assignment shall be of
a minimum of ten (10) Series A Preferred Shares, or shall be all
of the Holder's Series A Preferred Shares. Each such assignee,
transferee and mortgagee shall have all of the rights of the
Holder under this Certificate of Designations. The Company
agrees that, subject to compliance with the Subscription
Agreement, after receipt by the Company of written notice of
assignment from the Holder or from the Holder's assignee, all
amounts which then and thereafter become due under this
Certificate of Designations shall be paid to such assignee at the
place of payment designed in such notice. This Certificate of
Designations shall be binding upon the Company and its successors
and shall inure to the benefit of the Holder and its successors
and assigns.
30. NO WAIVER. No failure on the part of the Holder to
exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise by the Holder of any right, remedy or power
hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy or power
hereby granted to the Holder or allowed it by law or other
agreement shall be cumulative and not exclusive of any other, and
may be exercised by the Holder from time to time.
31. MISCELLANEOUS. Unless otherwise provided herein,
any notice or other communication to a party hereunder shall be
sufficiently given if in writing and personally delivered or
mailed to said party by certified mail, return receipt requested,
at its address set forth herein or such other address as either
may designate for itself in such notice to the other and
communications shall be deemed to have been received when
delivered personally or, if sent by mail or facsimile, then when
actually received by the party to whom it is addressed.
Immediately upon filing of these Seventh Articles of Amendment,
the New Series A Shares shall be deemed to have been issued in
exchange for the Old Series A Shares and references herein to
Series A Preferred Shares shall be deemed to be references to New
Series A Shares and any additional Series A Preferred Shares
issued on or after the date hereof. Each holder of a certificate
representing Old Series A Shares shall be entitled to exchange
such certificate for a new certificate representing New Series A
Shares, but the failure to effect such an exchange of
certificates shall not impair such holder's rights as a holder of
New Series A Shares. Whenever the sense of these Seventh
Articles of Amendment requires, words in the singular shall be
deemed to include the plural and words in the plural shall be
deemed to include the singular. If more than one Company is
named herein, the liability of each shall be joint and several.
Paragraph headings are for convenience only and shall not affect
the meaning of this document.
THIRD: The amendment was duly adopted by the directors
of the Company on August 12, 1998, without shareholder action,
which was not required for effectiveness pursuant to Section
607.0602 of the Florida Business Corporation Act.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer thereunto duly authorized.
Dated: August 12, 1998
THE PANDA PROJECT, INC.
By: _____________________________
Print Name: _____________________
Print Title: ____________________
Print Address: __________________
ATTEST
______________________
<PAGE>
EXHIBIT 1
(To be Executed by Registered Holder
in order to Convert Series A Preferred Shares)
CONVERSION NOTICE
-----------------
FOR
---
SERIES A CONVERTIBLE PREFERRED STOCK
------------------------------------
The undersigned, as Holder of __ shares of Series A Convertible
Preferred Stock of The Panda Project, Inc. (the "Company"), Nos.
_________ (the "Series A Preferred Shares"), hereby irrevocably
elects to convert the Series A Preferred Shares into shares of
Common Stock, par value $.01 per share (the "Common Stock"), of
the Company according to the conditions of the Certificate of
Designations, Preferences and Rights of the Series A Preferred
Shares, as of the date written below. The undersigned hereby
requests that share certificates for the Common Stock to be
issued to the undersigned pursuant to this Conversion Notice be
issued in the name of, and delivered to, the undersigned or its
designee as indicated below. If shares 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. No fee will
be charged to the Holder for any conversion, except for transfer
taxes, if any.
The undersigned represents that, after giving effect to the
shares of the Common Stock to be issued pursuant to such
conversion notice, the total number of shares of Common Stock
deemed beneficially owned by the undersigned, together with all
shares of Common Stock deemed beneficially owned by the
undersigned's "affiliates" as defined in Rule 144 of the Act,
will not exceed 4.9% of the total issued and outstanding shares
of Common Stock.
Conversion Information: NAME OF HOLDER:
By: __________________________
Print Name:
Print Title:
Print Address of Holder:
_____________________________
______________________________
Issue Common Stock to: ___________
at: ______________________________
______________________________
Date of Conversion _______________
Applicable Conversion Rate
EXHIBIT 2
---------
PIK STATEMENT
-------------
Date: ___________
To: [Name of Holder of Series A Preferred Shares] ("Holder")
Re: .......Series A Convertible Preferred Stock ("Series A
Preferred Shares") of The Panda Project, Inc. (the "Company")
Nos. ________.
In lieu of paying dividends on the above-referenced Series A
Preferred Shares in coin or currency, the Company hereby elects
to pay dividends on the Series A Preferred Shares, for the
Dividend Payment Date indicated below, by having the amount of
such dividends added to the Purchase Price of the Series A
Preferred Shares. The Company hereby certifies to the Holder,
its successors and assigns, that the Purchase Price of the Series
A Preferred Shares after delivery of this PIK Statement equals
the amount indicated below. Capitalized terms used in this PIK
Statement and not otherwise defined shall have the meaning
ascribed thereto in the Certificate of Designations for the
Series A Preferred Shares.
Dividend Payment Date: _______________
Purchase Price prior to issuance
of this PIK Statement: US$____________
PIK Dividend: US$____________
Purchase Price After
issuance of this PIK Statement: US$____________
IN WITNESS WHEREOF, this PIK Statement has been
duly executed and delivered on the date first written above.
THE PANDA PROJECT, INC.
By: __________________________
Print Name:
Print Title:
EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT
Dated: August 7, 1998
to Purchase 2,000,000 Shares of Common Stock of
THE PANDA PROJECT, INC.
THE PANDA PROJECT, INC., a Florida corporation (the
"Company"), hereby certifies that Helix (PEI), Inc., its
permissible transferees, designees, successors and assigns
(collectively, the "Holder"), for value received, is entitled to
purchase from the Company at any time commencing on August 7,
1998 ("Issuance Date") and terminating on the second anniversary
of the Issuance Date up to Two Million (2,000,000) shares (each a
"Share" and collectively the "Shares") of the Company's common
stock (the "Common Stock"), at an exercise price of $2.125 per
Share (the "Exercise Price"). The number of Shares purchasable
hereunder and the Exercise Price are subject to adjustment as
provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock
Purchase Warrant Certificate ("Warrant Certificate" or
"Certificate"), or Lost Certificate Affidavit (as defined below),
accompanied by a completed Election to Purchase in the form
attached hereto as Exhibit A (the "Election to Purchase") duly
executed, at the principal office of the Company at 901 Yamato
Road, Boca Raton, Florida 33431, Attn: Chief Financial Officer,
together with a check payable to the Company in the amount of the
Exercise Price multiplied by the number of Shares being
purchased, the Company or the Company's Transfer Agent as the
case may be, shall, within two (2) trading days of receipt of the
foregoing, deliver to the Holder hereof, certificates of fully
paid and non-assessable Common Stock which in the aggregate
represent the number of Shares being purchased; provided,
however, that the Holder may elect to utilize the cashless
exercise provisions set forth below in lieu of tendering the
Exercise Price in cash. The certificates so delivered shall be
in such denominations as may be reasonably requested by the
Holder and shall be registered in the name of the Holder or such
other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be
exercised and, in case of the exercise of less than all, the
Company, upon surrender hereof, will at the Company's expense
deliver to the Holder a new Warrant Certificate or Certificates
(in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase
the number of Shares represented by this Certificate which have
not been exercised and to receive Registration Rights with
respect to such Shares, and all other rights with respect to the
shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing
provision regarding payment of the Exercise Price in cash, the
Holder may elect to receive a reduced number of Shares in lieu of
tendering the Exercise Price in cash ("Cashless Exercise"). In
such case, the number of Shares to be issued to the Holder shall
be computed using the following formula:
X = Y(A-B)
---------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this
Warrant Certificate;
A = the Market Value (defined below) of one share of
Common Stock; and
B = the Exercise Price.
As used herein, "Market Value" refers to the closing bid price of
the Common Stock (as reported by Bloomberg, L.P.) on the day
before the Election to Purchase and this Warrant Certificate are
duly surrendered to the Company for a full or partial exercise
hereof. Notwithstanding the foregoing definition, if the Common
Stock is not listed on a national securities exchange or quoted
in the Nasdaq System at the time said Election to Purchase is
submitted to the Company in the foregoing manner, the Market
Value of the Common Stock shall be (a) determined in good faith
by the Board of Directors of the Company and certified in a board
resolution, based on the most recently completed arm's-length
transaction between the Company and a Person other than an
affiliate of the Company or between any two such Persons and the
closing of which occurs on such date or shall have occurred
within the six-month period preceding such date, or (b) if no
such transaction shall have occurred within the six-month period,
the value of the security as determined by an independent
financial expert, unless the Company shall become subject to a
merger, acquisition, or other consolidation pursuant to which the
Company is not the surviving entity, in which case the Market
Value of the Common Stock shall be deemed to be the value
received per share by the Company's common stockholders pursuant
to such merger, acquisition or other consolidation.
2. Exchange. Transfer and Replacement.
(a) At any time prior to the exercise hereof, this
Warrant Certificate may be exchanged upon presentation and
surrender to the Company, alone or with other Warrant
Certificates of like tenor of different denominations registered
in the name of the same Holder, together with a duly executed
Assignment in substantially the form and substance of the Form of
Assignment which accompanies this Warrant Certificate. The
Warrant Certificate or Certificates shall be exchanged for
another Warrant Certificate or Certificates of like tenor in the
name of such Holder and/or the transferees named in such
Assignment, exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered, provided that the
Company shall not be obligated to issue exchange or transfer
Certificates for an exchange or transfer of less than 10,000
shares. The Company shall issue any Warrant Certificates
reflecting such transfer or assignment (including such portion of
this Warrant Certificate, if any, as shall not have been
transferred or assigned) within three (3) business days after
receipt of the requisite Warrant Certificate(s) and duly
completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of
evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant Certificate
and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company (collectively, a "Lost Certificate
Affidavit"), or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant Certificate, the
Company, at its expense, will execute and deliver in lieu
thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the
surrender of this Warrant Certificate in connection with any
transfer, exchange or replacement as provided in this Section 2,
this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal
expenses, if any, incurred by the Holder or transferees) and
charges payable in connection with the preparation, execution and
delivery of Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at
its principal executive offices (or at the offices of the
transfer agent for the Warrant Certificate or such other office
or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant Certificate (the
"Warrant Register"), in which the Company shall record the name
and address of the person in whose name this Warrant Certificate
has been issued, as well as the name and address of each
permitted transferee and each prior owner of this Warrant
Certificate.
3. Rights and Obligations of Holders of this Certificate.
The Holder of this Certificate shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at
law or in equity; provided, however, that in the event any
certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some
or all of the Warrants, such holder shall, for all purposes, be
deemed to have become the holder of record of such Common Stock
on the date on which this Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications,
Recapitalizations, Etc. In the event the Company: (i) pays a
dividend in Common Stock or makes a distribution in Common Stock,
(ii) subdivides its outstanding Common Stock into a greater
number of shares, (iii) combines its outstanding Common Stock
into a smaller number of shares or (iv) increases or decreases
the number of shares of Common Stock outstanding by
reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in
which the Company is the continuing corporation), then (1) the
Exercise Price on the record date of such division or
distribution or the effective date of such action shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately after such event, and (2) the number of shares of
Common Stock for which this Warrant Certificate may be exercised
immediately before such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the Exercise
Price immediately before such event and the denominator of which
is the Exercise Price immediately after such event.
(b) Combination: Liquidation. (i) Except as provided
in Section 4(b)(ii) below, in the event of a Combination (as
defined below), each Holder shall have the right to receive upon
exercise of the Warrant Certificates the kind and amount of
shares of capital stock or other securities or property which
such Holder would have been entitled to receive upon or as a
result of such Combination had such Warrant Certificate been
exercised immediately prior to such event (subject to further
adjustment in accordance with the terms hereof). Unless
paragraph (ii) is applicable to a Combination, the Company shall
provide that the surviving or acquiring Person (the "Successor
Company") in such Combination will assume by written instrument
the obligations under this Section 4 and the obligations to
deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may
be entitled to acquire. The provisions of this Section 4(b)(i)
shall similarly apply to successive Combinations involving any
Successor Company. "Combination" means an event in which the
Company consolidates with, merges with or into, or sells all or
substantially all of its assets to another Person, where "Person"
means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where
consideration to the holders of Common Stock in exchange for
their shares is payable solely in cash or (y) the dissolution,
liquidation or winding-up of the Company, the Holders shall be
entitled to receive, upon surrender of their Warrant
Certificates, distributions on an equal basis with the holders of
Common Stock or other securities issuable upon exercise of the
Warrant Certificates, as if the Warrant Certificates had been
exercised immediately prior to such event, less the Exercise
Price. In case of any Combination described in this Section
4(b)(ii), the surviving or acquiring Person and, in the event of
any dissolution, liquidation or winding-up of the Company, the
Company, shall deposit promptly following the consummation of
such combination or at the time of such dissolution, liquidation
or winding-up with an agent or trustee for the benefit of the
Holders of the funds, if any, necessary to pay to the Holders the
amounts to which they are entitled as described above. After
such funds and the surrendered Warrant Certificates are received,
the Company is required to deliver a check in such amount as is
appropriate (or, in the case of consideration other than cash,
such other consideration as is appropriate) to such Person or
Persons as it may be directed in writing by the Holders
surrendering such Warrant Certificates.
(c) Notice of Adjustment. Whenever the Exercise Price
or the number of shares of Common Stock and other property, if
any, issuable upon exercise of the Warrant Certificates is
adjusted, as herein provided, the Company shall deliver to the
holders of the Warrant Certificates in accordance with Section 10
a certificate of the Company's Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including
a description of the basis on which (i) the Board of Directors
determined the fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription
or purchase rights and (ii) the Current Market Value of the
Common Stock was determined, if either of such determinations
were required), and specifying the Exercise Price and number of
shares of Common Stock issuable upon exercise of Warrant
Certificates after giving effect to such adjustment.
(d) Notice of Certain Transactions. In the event that
the Company shall propose (a) to pay any dividend payable in
securities of any class to the holders of its Common Stock or to
make any other non-cash dividend or distribution to the holders
of its Common Stock, (b) to offer the holders of its Common Stock
rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or
any other securities, rights or options, (c) to effect any
capital reorganization, reclassification, consolidation or merger
affecting the class of Common Stock, as a whole, or (d) to effect
the voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company shall, within the time limits
specified below, send to each Holder a notice of such proposed
action or offer. Such notice shall be mailed to the Holders at
their addresses as they appear in the Warrant Register (as
defined in Section 2(d)), which shall specify the record date for
the purposes of such dividend, distribution or rights, or the
date such issuance or event is to take place and the date of
participation therein by the holders of Common Stock, if any such
date is to be fixed, and shall briefly indicate the effect of
such action on the number of shares of Common Stock and on the
number and kind of any other shares of stock and on other
property, if any, and the number of shares of Common Stock and
other property, if any, issuable upon exercise of each Warrant
Certificate and the Exercise Price after giving effect to any
adjustment pursuant to Section 4 which will be required as a
result of such action. Such notice shall be given as promptly as
possible and (x) in the case of any action covered by clause (a)
or (b) above, at least 10 days prior to the record date for
determining holders of the Common Stock for purposes of such
action or (y) in the case of any other such action, at least 20
days prior to the date of the taking of such proposed action or
the date of participation therein by the holders of Common Stock,
whichever shall be the earlier.
(e) Current Market Value. "Current Market Value" per
share of Common Stock or any other security at any date means (i)
if the security is not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (a) the value of
the security, determined in good faith by the Board of Directors
of the Company and certified in a board resolution, based on the
most recently completed arm's-length transaction between the
Company and a Person other than an affiliate of the Company or
between any two such Persons and the closing of which occurs on
such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have
occurred within the six-month period, the value of the security
as determined by an independent financial expert or (ii) if the
security is registered under the Exchange Act, the average of the
daily closing bid prices (or the equivalent in an over-the-
counter market) for each day on which the Common Stock is traded
for any period on the principal securities exchange or other
securities market on which the common Stock is being traded
(each, a "Trading Day") during the period commencing ten (10)
Trading Days before such date and ending on the date one day
prior to such date, or if the security has been registered under
the Exchange Act for less than ten (10) consecutive Trading Days
before such date, the average of the daily closing bid prices (or
such equivalent) for all of the Trading Days before such date for
which daily closing bid prices are available; provided, however,
that if the closing bid price is not determinable for at least
five (5) Trading Days in such period, the "Current Market Value"
of the security shall be determined as if the security were not
registered under the Exchange Act.
(f) Other Adjustments. In the event of any other
transaction of the type contemplated by this Section 4, but not
expressly provided for by the provisions hereof, the Board of
Directors of the Company will make appropriate adjustment in the
Exercise Price so as to equitably protect the rights of the
Holder.
(g) No Impairment of Holder's Rights. The Company will
not, by amendment of its articles of organization or bylaws or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, except as contemplated hereby, avoid or seek to
avoid the observance or performance of any of the terms of this
Warrant Certificate, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all
action as may be necessary or appropriate in order to protect the
rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of
Common Stock issuable upon exercise of this Warrant Certificate
will, upon delivery, be duly and validly authorized and issued,
fully-paid and non-assessable and free from all taxes, liens,
claims and encumbrances.
(b) The Company covenants and agrees that it will at all
times reserve and keep available an authorized number of shares
of its Common Stock and other applicable securities sufficient to
permit the exercise in full of all outstanding options, warrants
and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the
Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are
then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to
time issuable upon the exercise of this Warrant Certificate; and
the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant
Certificate if and so long as any shares of the same class shall
be listed on such national securities exchange or automated
quotation system.
(d) The Company has taken all necessary action and
proceedings as required and permitted by applicable law, rule and
regulation, including, without limitation, the notification of
the principal market on which the Common Stock is traded, for the
legal and valid issuance of this Warrant Certificate to the
Holder under this Warrant Certificate.
(e) With a view to making available to Holder the
benefits of Rule 144 promulgated under the Act and any other rule
or regulation of the Securities and Exchange Commission ("SEC")
that may at any time permit Holder to sell securities of the
Company to the public without registration, the Company agrees to
use its reasonable best efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the Act
and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and
(iii) furnish to any Holder forthwith upon request
a written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the
Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested to permit any
such Holder to take advantage of any rule or regulation of the
SEC permitting the selling of any such securities without
registration.
6. Registration Rights. The initial Holder is entitled to
the benefit of such registration rights in respect of the Shares
as are set forth in the Registration Rights Agreement by and
between the Company and the Holder ("Registration Rights
Agreement"), including the right to assign such rights to certain
assignees as set forth therein.
7. Issuance of Certificates. Within three (3) trading days
of receipt of a duly completed Election to Purchase form,
together with this Certificate and payment of the Exercise Price,
the Company, at its expense, will cause to be issued in the name
of and delivered to the Holder of this Warrant, a certificate or
certificates for the number of fully paid and non-assessable
shares of Common Stock to which that holder shall be entitled on
such exercise. In the event the shares of Common Stock are not
timely delivered to the Holder, the Company agrees to (a)
indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees,
and (b) beginning on the fifth (5th) day following the Company's
receipt of a duly completed Election to Purchase form, pay a
default premium of 2% per day of the value of underlying shares
(based on the highest closing price during the two (2) day period
preceding the date of surrender of the Warrant Certificate). In
lieu of issuance of a fractional share upon any exercise
hereunder, the Company will pay the cash value of that fractional
share, calculated on the basis of the Exercise Price. Prior to
registration of the resale of the shares of Common Stock
underlying this Warrant Certificate, and delivery of an Election
to Purchase to the Company, all such certificates shall bear a
restrictive legend to the effect that the Shares represented by
such certificate have not been registered under the 1933 Act, and
that the Shares may not be sold or transferred in the absence of
such registration or an exemption therefrom, such legend to be
substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant Certificate.
8. Disposition of Warrants or Shares. The Holder of this
Warrant Certificate, each transferee hereof and any holder and
transferee of any Shares, by his or its acceptance thereof,
agrees that no public distribution of Warrants or Shares will be
made in violation of the provisions of the 1933 Act.
Furthermore, it shall be a condition to the transfer of the
Warrants that any transferee thereof deliver to the Company his
or its written agreement to accept and be bound by all of the
relevant terms and conditions contained in this Warrant
Certificate.
9. Notices. Except as otherwise specified herein to the
contrary, all notices, requests, demands and other communications
required or desired to be given hereunder shall only be effective
if given in writing by certified or registered U.S. mail with
return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile
transmission (if no original documents or instruments must
accompany the notice); or by personal delivery. Any such notice
shall be deemed to have been given (a) on the business day
immediately following the mailing thereof, if mailed by certified
or registered U.S. mail as specified above; (b) on the business
day immediately following deposit with a private overnight
delivery service if sent by said service; (c) upon receipt of
confirmation of transmission if sent by facsimile transmission;
or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other
address or addresses as a party may have advised the other in the
manner provided in this Section 10):
If to the Company:
The Panda Project, Inc.
901 Yamato Road
Boca Raton, Florida 33431
Attn: Chief Executive Officer
Phone: (561) 994-2300
Fax: (561) 994-2436
If to the Holder:
Helix (PEI), Inc.
_______________________
Notwithstanding the time of effectiveness of notices set forth in
this Section, an Election to Purchase shall not be deemed
effectively given until it has been duly completed and submitted
to the Company together with the original Warrant Certificate to
be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to
the contrary, in no event shall the holder of this Warrant
Certificate be entitled to exercise with respect to a number of
shares of Common Stock to the extent that following such exercise
the sum of (i) 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 unexercised Warrant Certificates and unconverted
shares of Preferred Stock (as defined in the Securities Purchase
Agreement)) or other securities containing restrictions on
conversion or exercise analogous to the provisions in this
paragraph, and (ii) the number of shares of Common Stock issuable
upon exercise of the Warrant Certificates (or portions thereof)
with respect to which the determination described herein is being
made, would result in beneficial ownership by the holder and its
affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, (x)
beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended,
and Rules 13(d)-(g) thereunder, except as otherwise provided in
clause (i) hereof, and (y) a holder may waive the limitations set
forth herein upon not less than sixty-one (61) days prior written
notice to the Company (with such waiver taking effect only upon
the expiration of such sixty-one (61) day notice period).
11. Governing Law. This Warrant Certificate and all rights
and obligations hereunder shall be deemed to be made under and
governed by the laws of the State of New York without giving
effect to the conflicts of laws provisions. The Holder hereby
irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of
New York.
12. Successors and Assigns. This Warrant Certificate shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
13. Headings. The headings of various sections of this
Warrant Certificate have been inserted for reference only and
shall not affect the meaning or construction of any of the
provisions hereof.
14. Severability. If any provision of this Warrant
Certificate is held to be unenforceable under applicable law,
such provision shall be excluded from this Warrant Certificate,
and the balance hereof shall be interpreted as if such provision
were so excluded.
15. Modification and Waiver. This Warrant Certificate and
any provision hereof may be amended, waived, discharged or
terminated only by an instrument in writing signed by the Company
and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
16. Specific Enforcement. The Company and the Holder
acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Warrant Certificate were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Warrant Certificate and
to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may
be entitled by law or equity.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one
of its officers thereunto duly authorized.
THE PANDA PROJECT, INC.
By:____________________________
Name:
Title:
<PAGE>
ELECTION TO PURCHASE
- - --------------------
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise _____ of
the Warrants represented by the attached Common Stock Purchase
Warrant Certificate, and to purchase the shares of Common Stock
issuable upon the exercise of such Warrants, and requests that
certificates for securities be issued in the name of:
______________________________________________________________
(Please type or print name and address)
______________________________________________________________
(Social Security or Tax Identification Number)
and delivered to:_____________________________________________
______________________________________________________________
Please type or print name and address if different from above.
If such number of Warrants being exercised hereby shall
not be all the Warrants evidenced by the attached Common Stock
Purchase Warrant Certificate, a new Common Stock Purchase Warrant
Certificate for the balance of such Warrants shall be registered
in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to
the Warrants exercised and transfer taxes, if any, the
undersigned hereby tenders payment of $_____ by check, money
order or wire transfer payable in United States currency to the
order of The Panda Project, Inc.] or [The undersigned elects
cashless exercise in accordance with Section 1(b) of the Common
Stock Purchase Warrant Certificate.]
<PAGE>
Holder hereby represents and convenants that it has complied
with, or will comply with, any and all prospectus delivery
requirements with respect to its sale of the Common Stock of the
Company being purchased herewith.
HOLDER:
By:_____________________
Name:
Title:
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ____ the right represented by the within Warrant
to purchase _____ shares of Common Stock of The Panda Project,
Inc., a Florida corporation, to which the within Warrant relates,
and appoints ________ Attorney to transfer such right on the
books of The Panda Project, Inc., a Florida corporation, with
full power of substitution of premises.
___________________________________
By:________________________________
(signature must conform to name of
holder as specified on the facts of the
Warrant)
Address:
Signed in the presence of:
_________________________
