SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 8, 1998
VISUAL DATA CORPORATION
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(Exact name of registrant as specified in its charter)
Florida 0-22849 65 - 0420146
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(State or other jurisdiction (Commission File (IRS Employer
or incorporation) Number) Identification No.)
1291 SW 29th Avenue, Pompano Beach, Florida 33069
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (954) 917-6655
N/A
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(Former name or former address, if changed since last report)
Item 5. Other Events.
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On May 8, 1998, Visual Data Corporation (the "Company") completed the
sale of 150 shares of the Company's Series A Convertible Preferred Stock (the
"Preferred Stock"). The Buyers have agreed to purchase an additional 150 shares
of Preferred Stock subject to certain conditions contained in the Securities
Purchase Agreement between the Company and such Buyers. The initial purchase
resulted in gross proceeds to the Company of $750,000. The placement was between
the Company and two (2) institutional investors. The Preferred Stock bears
interest at five percent (5%) per annum, payable upon conversion of the
preferred shares and is payable in kind at the Company's option. The Preferred
Stock is convertible into the Company's Common Stock at a price equal to the
lesser of (i) $4.40, subject to adjustment, provided, however, that in the event
that the Company elects to file a registration statement on Form S-3, such
amount shall be the lesser of $4.40 or one hundred ten percent (110%) of the
closing bid price of the Company's Common Stock on August 1, 1998 or (ii) a
floating conversion price determined by multiplying a Conversion Percentage in
effect as of such date by the market price for the Company's Common Stock. The
Conversion Percentage shall be ninety percent (90%) for the first one hundred
eighty (180) days from the closing and eighty five percent (85%) for any day
thereafter. The market price for the Company's Common Stock shall be the average
of the three lowest closing bid prices for such Common Stock during the twenty
(20) consecutive trading days immediately preceding such date.
Following the initial closing date, the Buyers shall be obligated to purchase
and the Company will be obligated to sell an additional 150 shares of Preferred
Stock under the same terms and conditions as the initial shares so issued,
provided a series of conditions have been met including, but not limited to, (i)
the Company shall have attained shareholder approval permitting issuance of the
shares of Common Stock underlying the Preferred Stock in accordance with
applicable law, (ii) the Company's registration statement relating to the Common
Stock issuable upon conversion of the Preferred Stock has been effected, (iii)
there has been no change in the listing or threat thereof of the Company's
Common Stock, (iv) the closing bid price of the Company's Common Stock is
greater that $2.50 per share on the day immediately preceding the notification
of such closing, and (v) there has not been a materially adverse change in the
business or financial condition or results of operations of the Company.
Under the terms of the Securities Purchase Agreement, the Company is obligated
to prepare and file a registration statement providing for the resale of the
shares of Common Stock issuable upon conversion of the Preferred Stock within
sixty (60) days after the initial closing date if the Company intends to file
the registration statement Form SB-2 or August 15, 1998 if the Company intends
to file the registration Form S-3. The Company shall use its best efforts to
have such registration declared effective within one hundred and twenty (120)
days after the initial closing date if the Company elects to file the
registration statement on Form SB-2 or by September 30, 1998 if the Company
elects to file the registration statement on Form S-3 (provided that if the SEC
reviews the registration statement on Form S-3 and in connection with such
review requests the audited financial statements of the Company's year ending
September 30, 1998, in order to declare such registration effective, the
deadline shall be extended to October 30, 1998) In the event such registration
is not declared effective by such date, both the fixed conversion price and the
variable conversion price would be reduced by two (2) percent and would be
further reduced by an additional .06 percent for each calendar day
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thereafter until such registration statement has been declared effective.
The above discussion is qualified in its entirety by reference to the
agreements, which are filed with this report on Form 8-K.
Item 7.FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
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(c) Exhibits
(1) Securities Purchase Agreement
(2) Articles of Amendment to the Articles of Incorporation of
Visual Data Corporation
(3) Registration Rights Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Visual Data Corporation
(Registrant)
Date: May 18, 1998 By: /s/ Randy S. Selman
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Randy S. Selman
President, Chief Executive Officer and
Acting Chief Financial Officer
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 1,
1998, by and among Visual Data Corporation, a Florida corporation, with
headquarters located at 1291 SW 29 Avenue, Pompano Beach, Florida 33069 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized the following new series of its Preferred
Stock, no par value per share (the "Preferred Stock"): the Company's Series A
Convertible Preferred Stock (the "Preferred Shares"), which shall be convertible
into shares of the Company's Common Stock, par value $0.0001 per share (the
"Common Stock") (as converted, the "Conversion Shares"), in accordance with the
terms of the Company's Articles of Amendment to the Articles of Incorporation,
substantially in the form attached hereto as Exhibit A (the "Articles of
Amendment");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of 150 of the Preferred Shares (the
"Initial Preferred Shares") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers on the Initial Closing Date (as defined
below);
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers wish to purchase an aggregate of an additional 150 of the Preferred
Shares (the "Additional Preferred Shares") in the respective amounts set forth
opposite each Buyer's name in the Schedule of Buyers on the Additional Closing
Date (as defined below) (the Initial Preferred Shares and the Additional
Preferred Shares collectively are referred to in this Agreement as the
"Preferred Shares"); and
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially 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 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
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NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the respective number of Initial Preferred Shares set forth
opposite such Buyer's name on the Schedule of Buyers, (as defined below) (the
"Initial Closing"). Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 1(c), 6(b) and 7(b) below, the Company shall issue and
sell to each Buyer and each Buyer severally agrees to purchase from the Company
the respective number of Additional Preferred Shares set forth opposite such
Buyer's name on the Schedule of Buyers (the "Additional Closing"). The Initial
Closing and the Additional Closing collectively are referred to in this
Agreement as the "Closings." The purchase price (the "Purchase Price") of each
Preferred Share at each of the Closings shall be $5,000.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, within
three (3) business days following the date hereof, subject to notification of
satisfaction (or waiver) of the conditions to the Initial Closing set forth in
Sections 6(a) and 7(a) below (or such later date as is mutually agreed to by the
Company and the Buyers). The Initial Closing shall occur on the Initial Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693 or such other place as the parties shall
agree.
c. The Additional Closing Date. The date and time of the
Additional Closing (the "Additional Closing Date") shall be 10:00 a.m. Central
Time, on the fifth business day following the date of the receipt by each Buyer
of the Additional Share Notice (as defined below) following the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the SEC subject to satisfaction (or waiver) of the
conditions to the Additional Closing set forth in Sections 6(b) and 7(b) and the
conditions set forth in this paragraph (or such later date as is mutually agreed
to by the Company and the Buyers). The Company shall deliver written notice (the
"Additional Share Notice") to each Buyer of the event described in the preceding
sentence on the first business day (the "Additional Share Notice Date")
following the occurrence of such event. Notwithstanding the foregoing, no Buyer
shall be required to purchase the Additional Preferred Shares unless each of the
following conditions is satisfied: (i) such Buyer shall have received the
Additional Share Notice on or before the first business day after the
Effectiveness Deadline (as defined in the Registration Rights Agreement; (ii)
the Registration Statement shall have been declared effective and shall remain
effective at all times during the period beginning on the Additional Share
Notice Date and ending on and including the Additional Share Closing Date; (iii)
the provisions of Section 4(j) of this Agreement Shall have been satisfied; (iv)
the Closing Bid Price (as defined in the Articles of Amendment) of the Common
Stock is greater than $2.50 on the day immediately preceding the Additional
Share Notice Date; (v) during the period beginning on the date of this Agreement
and ending on and including the Additional Closing Date, there shall not have
occurred (A) a public announcement of a Major Corporate Event (as defined in
Section 2(f) of the Articles of Amendment) which has not been abandoned or
terminated, (B) a Triggering Event (as defined in Section 3(d) of the Articles
of Amendment) or (C) a Material Adverse
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Change (as defined below); (vi) at all times during the period beginning on the
date of this Agreement and ending on and including the Additional Closing Date,
the Common Stock shall have been designated on the Nasdaq SmallCap Market and
shall not have been suspended from trading and the Company shall not have been
notified of any pending or threatened proceeding or other action to delist or
suspend the Common Stock; and (vii) and the Company shall not have previously
delivered an Additional Share Notice. The Additional Closing shall occur on the
Additional Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe
Street, Suite 1600, Chicago, Illinois 60661-3693 or such other place as the
parties shall agree. The Initial Closing Date and the Additional Closing Date
collectively are referred to in this Agreement as the "Closing Dates." "Material
Adverse Change" means any change, event, result or happening involving, directly
or indirectly, the Company or any of its Subsidiaries (as defined below)
resulting in a material adverse effect on the business, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole.
d. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares to be
issued and sold to such Buyer at the respective Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "Stock
Certificates") representing such number of the Preferred Shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers). Such Stock Certificates shall bear the restrictive legends required
pursuant to Section 2(g).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire
the Conversion Shares then issuable (the Preferred Shares and the Conversion
Shares collectively are referred to herein as the "Securities"), for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
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d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form to the Company, to
the effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with assurance reasonably acceptable to the
Company that such Securities can be sold, assigned or transferred pursuant to
Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and, until such time as the
sale of the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
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ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
h. Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country specified on the
Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or the Articles
of Amendment.
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b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents and the Articles of Amendment by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Preferred Shares and
the reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to each of the Closing Dates, the Articles of Amendment has been filed
with the Secretary of State of the State of Florida and will be in full force
and effect, enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 20,000,000 shares of Common Stock,
of which as of the date hereof, 3,105,435 shares were issued and outstanding,
200,000 shares are issuable and reserved for issuance pursuant to the Company's
stock option plan and 5,040,966 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred stock, which as of the date hereof, no shares were issued
and outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (ii) there are no outstanding debt
securities, (iii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement,
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and (vii) the Company does not have any stock appreciation rights or "phantom
stock" plans or agreements or any similar plan or agreement. The Company has
furnished to the Buyers true and correct copies of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the "Articles of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Articles of Amendment. A number of shares of
Common Stock equal to 200% of the number of Conversion Shares issuable upon
conversion of the Preferred Shares and outstanding on the applicable Closing
Date (after giving effect to the Preferred Shares issued on such Closing Date
and assuming all such outstanding Preferred Shares were fully convertible on
such date regardless of any limitation on the timing or amount of such
conversions) initially have been duly authorized and reserved for issuance
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(f) below) upon conversion of the Preferred Shares. Upon conversion in
accordance with the Articles of Amendment, the Conversion Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Based in part upon the representations of
the Buyers set forth in Section 2, the issuance by the Company of the Securities
is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Articles of
Amendment and the consummation by the Company of the transactions contemplated
hereby and thereby will not (i) result in a violation of the Articles of
Incorporation, any Articles of Amendment, Preferences and Rights of any
outstanding series of Preferred Stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or material instrument to which the Company or any of its Subsidiaries
is a party, or result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the principal market or exchange on which the
Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e), neither
the Company nor its Subsidiaries is in violation of any term of or in default
under the Articles of Incorporation, any Articles of Amendment, Preferences and
Rights of any outstanding series of Preferred Stock or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted in violation of any law, ordinance,
regulation of any governmental entity having authority or jurisdiction over the
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Company, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents or to perform its obligations under the Articles of
Amendment, in each case in accordance with the terms hereof or thereof. Except
as disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Nasdaq SmallCap
Market as in effect on the date hereof and on each of the Closing Dates and is
not aware of any facts which would reasonably lead to delisting of the Common
Stock by the Nasdaq SmallCap Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since July 30, 1997,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 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
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Buyers or their respective
representatives true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or in the SEC Documents filed at least five (5) days prior to the date
hereof and available on EDGAR, since July 30, 1997, there has been no material
adverse change and no material adverse development in the business, properties,
operations, financial condition or results of operations of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
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the Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as set forth in Schedule 3(h).
i. Acknowledgment Regarding Buyers' Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
of the Buyers or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries
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is a party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that relations with their employees are good. No executive
officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
p. Title. 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 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or any of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
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q. Insurance. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and 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 materially and adversely affect
the condition, financial or otherwise, or the earnings, business or operations
of the Company and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such items would not
have, individually or in the aggregate, a Material Adverse Effect and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.
s. 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
judgment of the Company's officers has 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.
t. Tax Status. Except as set forth on Schedule 3(u), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
u. Certain Transactions. Except as set forth on Schedule 3(v)
and in the SEC Documents filed at least ten days prior to the date hereof and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers or directors 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 or
director or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.
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v. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that, subject to such limitations as are expressly set forth in the Transaction
Documents, its obligation to issue Conversion Shares upon conversion of the
Preferred Shares in accordance with this Agreement and the Articles of Amendment
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.
w. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Form D. 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 each of
the Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating the
offer and sale of the Securities required under the applicable securities or
"Blue Sky" laws of the states of the United States following each of the Closing
Dates.
c. Reporting Status. Until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold all the
Conversion Shares and (B) none of the Preferred Shares is outstanding (the
"Registration Period"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Registration Period: (i) within five (5) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements or amendments (other than on Form S-8) filed pursuant to
the
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1933 Act; (ii) on the same day as the release thereof, facsimile copies of all
press releases issued by the Company or any of its Subsidiaries and (iii) copies
of any notices and other information made available or given to the stockholders
of the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares.
g. Right of First Refusal. Subject to the exceptions described
below, the Company and its Subsidiaries shall not contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities, other than pursuant to existing agreements set
forth on Schedule 4(g), of the Company or any Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("Future Offerings") during the period beginning on the Closing Date and ending
on and including the date which is the later of 365 days after the Initial
Closing Date and 180 days after the Additional Closing Date, unless it shall
have first delivered to each Buyer or a designee appointed by such Buyer written
notice (the "Future Offering Notice") describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Buyer an option
to purchase up to its Aggregate Percentage (as defined below), as of the date of
delivery of the Future Offering Notice, in the Future Offering (the limitations
referred to in this sentence are collectively referred to as the "Capital
Raising Limitation"). For purposes of this Section 4(g), "Aggregate Percentage"
at any time with respect to any Buyer shall mean the percentage obtained by
dividing (i) the aggregate number of Preferred Shares purchased by such Buyer at
the Closings by (ii) the aggregate number of Preferred Shares purchased by all
Buyers at the Closings. A Buyer can exercise its option to participate in a
Future Offering by delivering written notice thereof to participate to the
Company within ten (10) business days of receipt of a Future Offering Notice,
which notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase, up to its Aggregate Percentage, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage. In the event that one or more Buyers fail to elect to purchase up to
each such Buyer's Aggregate Percentage then each Buyer which has indicated that
it is willing to purchase a number of securities in excess of its Aggregate
Percentage shall be entitled to purchase its pro rata portion (determined in the
same manner as described in the preceding sentence) of the securities in the
Future Offering which one or more Buyers have not elected to purchase. In the
event the Buyers fail to elect to fully participate in the Future Offering
within the periods described in this Section 4(g), the Company shall not be
obligated to sell any of the securities of the Future Offering to any of the
Buyers and the Company shall have 45 days thereafter to sell the securities of
the Future Offering upon terms and conditions (including the amount thereof), no
more favorable to the purchasers thereof than specified in the Future Offering
Notice. In the event the Company has not sold such securities of the Future
Offering within such 45 day period, the Company shall not thereafter issue or
sell such securities without first offering such securities to the Buyers in the
manner provided in this Section 4(g). The Capital Raising Limitation shall not
apply to (i) a loan from a commercial bank which does not have any equity
feature, (ii) any transaction involving the Company's issuances of securities
(A) as consideration in a merger or
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consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product or license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation system
(including the Nasdaq SmallCap Market and the Nasdaq National Market), if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents and the Articles of
Amendment. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq SmallCap Market, the Nasdaq National Market, The New
York Stock Exchange, Inc. ("NYSE") or The American Stock Exchange, Inc.
("AMEX"). Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Nasdaq National Market, NYSE or AMEX. The Company shall
promptly provide to each Buyer copies of any notices it receives from the Nasdaq
SmallCap Market, the Nasdaq National Market, NYSE or AMEX regarding the
continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, following the
Initial Closing, the Company shall reimburse the Buyers for the Buyers'
reasonable expenses (including attorneys fees and expenses) in connection with
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby up to an aggregate of $20,000 upon
presentation of documentation, if requested by the Company.
j. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
be not later than 120 days after the Initial Closing Date (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such stockholder meeting for approval of the Company's
issuance of all of the Securities as described in this Agreement, and the
Company shall use its best efforts to solicit its stockholders' approval of such
issuance of the Securities and cause the Board of Directors of the Company to
recommend to the stockholders that they approve such proposal. If the Company
fails to hold a meeting of its stockholders by the Stockholder Meeting Deadline
(unless such failure is the result solely of the actions of the Buyers), then,
as partial relief (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Preferred Shares an amount in cash per Preferred Share
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equal to the product of (i) $5,000 multiplied by (ii) .025 multiplied by (iii)
the quotient of (x) the number of days after the Stockholder Meeting Deadline
that a meeting of the Company's stockholders is not held, divided by (y) 30. The
Company shall make the payments referred to in the immediately preceding
sentence within five days of the earlier of (I) the holding of the meeting of
the Company's stockholders, the failure of which resulted in the requirement to
make such payments and (II) the last day of each 30-day period beginning on the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.0% per month (pro rated for partial months) until paid in full.
k. No Violation of Law. The Company and its Subsidiaries shall
conduct their business in accordance with all laws, ordinances, regulations of
any governmental entity having authority or jurisdiction over the Company,
except for possible violations the sanctions for which either individually or in
the aggregate would not have a Material Adverse Effect.
l. Transactions With Affiliates. So long as any Preferred
Shares are outstanding the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
m. Filing of Form 8-K. On or before the fifth (5th) business
day following each of the Closing Dates, the Company shall file a Form 8-K with
the SEC describing the terms of the transaction contemplated by the Transaction
Documents and consummated at such Closing, in each case in the form required by
the 1934 Act.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its
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respective nominee(s), for the Conversion Shares in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Preferred
Shares (the "Irrevocable Transfer Agent Instructions"). Prior to registration of
the Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior
to registration of the Conversion 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 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) 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 generally acceptable form, that
registration of a resale by such Buyer of any of such Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares to each Buyer at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents and delivered the same to the Company.
(ii) The Articles of Amendment shall have been filed with the
Secretary of State of the State of Florida.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Initial Preferred Shares being purchased by such
Buyer at the Initial Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Initial Closing
Date as though made at that time
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(except for representations and warranties that speak as of a specific
date), and such Buyer shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Initial Closing Date.
b. Additional Closing Date. The obligation of the Company
hereunder to issue and sell the Additional Preferred Shares to each Buyer at the
Additional Closing is subject to the satisfaction, at or before the Additional
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Additional Preferred Shares being purchased by
such Buyer at the Additional Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Additional
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Additional
Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Articles of Amendment shall have been filed with the
Secretary of State of the State of Florida, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq SmallCap Market, trading in the Common Stock shall not have
been suspended by the SEC, The Nasdaq Stock Market, Inc., at any time
beginning on the date hereof and through and including the Initial
Closing Date.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants,
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agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the
Initial Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer including, without
limitation, an update as of the Initial Closing Date regarding the
representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of the
Company's counsel dated as of the Initial Closing Date, in form, scope
and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Preferred Shares being purchased by such Buyer at the
Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Initial Closing Date (after giving effect to the
Preferred Shares to be issued on the Initial Closing Date and assuming
all such Preferred Shares were fully convertible or exercisable on such
date regardless of any limitation on the timing or amount of such
conversions or exercises).
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Initial Closing.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of Florida within ten days of the
Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate, dated as the Initial Closing Date, as to (i)
the resolutions described in Section 7(a)(vii), (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Initial
Closing.
-18-
<PAGE>
(xiii) The Company shall have delivered to such Buyer copies
of proxy agreements, in a form reasonably acceptable to such Buyer,
executed by each executive officer and director of the Company pursuant
to which such persons agree to vote in favor of the matters described
in Section 4(j).
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
b. Additional Closing Date. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares at the Additional Closing
is subject to the satisfaction, at or before the Additional Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
(i) The Articles of Amendment shall be in full force and
effect and shall not have been amended since the Initial Closing Date,
and a copy thereof certified by the Secretary of State of the State of
Florida shall have been delivered to such Buyer.
(ii) The Common Stock shall be authorized for quotation on the
Nasdaq SmallCap Market, the Nasdaq National Market, NYSE or AMEX,
trading in the Common Stock shall not have been suspended by the SEC,
The Nasdaq Stock Market, Inc., NYSE or AMEX on the Additional Closing
Date.
(iii) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Additional
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Additional
Closing Date. Such Buyer shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Additional
Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer including, without
limitation, an update as of the Additional Closing Date regarding the
representation contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of the
Company's counsel dated as of the Additional Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit C attached hereto.
(v) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Preferred Shares being purchased by such Buyer at the
Additional Closing.
(vi) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
-19-
<PAGE>
(vii) As of the Additional Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Additional Closing Date (after giving effect to the
Preferred Shares to be issued on such Additional Closing Date and
assuming all such outstanding Preferred Shares were fully convertible
or exercisable on such date regardless on any limitation on the timing
or amount of such conversions or exercises).
(viii) The Irrevocable Transfer Agent Instructions, in the
form of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Additional Closing.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within 10 days of the Additional Closing.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of Florida within ten days of the
Additional Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate, dated as the Initial Closing Date, as to (i)
the resolutions described in Section 7(a)(vii), (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Additional
Closing.
(xiii) The Company shall have delivered to such Buyer copies
of proxy agreements, in a form reasonably acceptable to such Buyer,
executed by each executive officer and director of the Company pursuant
to which such persons agree to vote in favor of the matters described
in Section 4(j).
(xiv) The conditions to the Additional Closing set forth in
Section 1(c) shall have been satisfied on or before the Additional
Closing Date.
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Articles of
-20-
<PAGE>
Amendment, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
the Articles of Amendment or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or the Articles
of Amendment or any other certificate, instrument or document contemplated
hereby or thereby, or (c) any cause of action, suit or claim brought or made
against such Indemnitee and arising out of or resulting from the execution,
delivery, performance or enforcement of the Transaction Documents or the
Articles of Amendment or any other certificate, instrument or document
contemplated hereby or thereby, (d) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities or (e) the status of such Buyer or holder of the Securities as
an investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of Florida
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York without regard to the principles of
conflict of laws. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
-21-
<PAGE>
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Preferred Shares then outstanding. No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents or the Articles of
Amendment unless the same consideration also is offered to all of the parties to
the Transaction Documents or holders of Preferred Shares, as the case may be.
f. Notices. Any notices consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically generated and kept on
file by the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same.
The addresses and facsimile numbers for such communications shall be:
-22-
<PAGE>
If to the Company:
Visual Data Corporation
1291 SW 29 Avenue
Pompano Beach, Florida 33069
Telephone: (954) 917-6655
Facsimile: (954) 917-6660
Attention: Randy S. Selman
With a copy to:
Atlas Pearlman Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Telephone: (954) 763-1200
Facsimile: (954) 766-7800
Attention: Joel D. Mayersohn, Esq.
If to the Transfer Agent:
Interwest Tranfer Company, Inc.
1981 East Murray Holladay Road
Suite 100
Salt Lake City, Utah 84117
Telephone: (801) 272-9294
Facsimile: (801) 277-3147
Attention: Melinda Orth
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. Except for a merger,
consolidation or other business combination in compliance with Sections 2(g) and
3 of the Articles of Amendment, the Company shall not assign this Agreement or
any rights or obligations hereunder [without the prior written consent of the
holders of two thirds (2/3) of the Preferred Shares then outstanding]. A Buyer
may assign some or all of its rights hereunder to affiliates or associates of
such Buyer, without the consent of the Company, and to others, with the consent
of the Company, which consent shall not be unreasonably withheld; provided,
however, that any such assignment shall not release such Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption. Notwithstanding
anything to
-23-
<PAGE>
the contrary contained in the Transaction Documents, Buyer shall be entitled to
pledge the Securities in connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive each
of the Closings. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall
not have occurred with respect to a Buyer on or before three (3) business days
from the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse the
non-breaching Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. Each of the Company and the Buyers, on
their own behalf, acknowledges that it has not engaged a placement agent in
connection with the sale of the Preferred Shares. The Company shall be
responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the purchase of the Securities by the
Buyers. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
-24-
<PAGE>
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of Preferred Shares,
Conversion Shares shall have all rights and remedies set forth in this
Agreement, the Articles of Incorporation and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Articles of
Amendment or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
q. Number of Conversion Shares. Notwithstanding any other
provision herein or in the Articles of Amendment, the Company shall not be
obligated to issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon Conversion of the
Preferred Shares (the "Exchange Cap") without breaching the Company's
obligations under the rules or regulations of the Nasdaq Stock Market, Inc.,
except that such limitation shall not apply in the event that the Company (a)
obtains the approval of its stockholders as required by applicable rules and
regulations of The Nasdaq Stock Market for issuances of Common Stock in excess
of such amount or (b) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding. Until such approval or written opinion is obtained, no Buyer
pursuant to this Agreement or the Articles of Amendment shall be issued, upon
conversion of the Preferred Shares, shares of Common Stock in an amount greater
than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction,
the numerator of which is the number of Preferred Shares issued to such Buyer
pursuant to this Agreement and the denominator of which is the aggregate amount
of all the Preferred Shares issued to the Buyers pursuant to this Agreement (the
"Cap Allocation Amount"). In the event that any Buyer shall sell or otherwise
transfer any of such Buyer's Preferred Shares, the transferee shall be allocated
a pro rata portion of such Buyer's Cap Allocation Amount. In the event that any
holder of Preferred Shares shall convert all of such holder's Preferred Shares
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap
-25-
<PAGE>
Allocation Amount and the number of shares of Common Stock actually issued to
such holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Preferred Shares on a pro rata basis in proportion to the
number of Preferred Shares then held by each such holder.
* * * * * *
-26-
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
VISUAL DATA CORPORATION THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/ Randy S. Selman By: /s/ James F. O'Brien, Jr.
----------------------- -------------------------------
Name: Randy S. Selman Name: James F. O'Brien, Jr.
Its: President Its: President
5-1-98
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
-------------------------------
Name: James F. O'Brien, Jr.
Its: President
-27-
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of
Investor Address Preferred Shares Investor's Representatives' Address
Investor Name and Facsimile Number Initial/Additional and Facsimile Number
------------- -------------------- ------------------ ------------------------------------
<S> <C>
Themis Partners L.P. c/o Promethean Investment Group, L.L.C. 50/50 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Steve Weiner
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited 100/100 Promethean Investment Group, L.L.C.
P.O. Box 513 40 West 57th Street, Suite 1520
3rd Floor British American Center New York, New York 10019
Dr. Roy's Drive Attn: James F. O'Brien, Jr.
Georgetown, Grand Cayman Steve Weiner
Cayman Island, BWI Facsimile: 212-698-0505
Attn: Allen J. Bernardo
Facsimile: 809-949-7802 Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
</TABLE>
<PAGE>
SCHEDULE 3(a)
Subsidiaries
------------
The following companies are wholly owned subsidiaries of the Company:
HotelView Corporation
CareView Corporation
ResortView Corporation
Video New Wire Corporation
AttractionView Corporation (in process)
<PAGE>
SCHEDULE 3(c)
Capitalization
--------------
Vested Unvested Total
------ -------- -----
Common Stock:
Issued and outstanding 3,105,435 3,105,435
Reserved for issuance:
* DCT Acquisition 105,000
* Other agreements 55,000 160,000
Warrants:
Publically traded 1,150,000 1,150,000
*Underwriter/investment banker 255,000 75,000 330,000
Others 208,246 208,246
*Reserved for issuance 100,000 100,000
Options:
*Employee Stock Option Plan 200,000 200,000
Directors 250,000 250,000
Management 874,460 2,020,000 2,894,460
Others 8,260 8,260
--------- --------- ---------
3,265,435 2,495,966 2,645,000 8,406,401
========= ========= ========= =========
*Registration rights
<PAGE>
SCHEDULE 3(e)
Conflicts
---------
Filing with Nasdaq to list the Conversion Shares.
<PAGE>
SCHEDULE 3(g)
Material Changes
----------------
None.
<PAGE>
SCHEDULE 3(h)
Litigation
----------
None.
<PAGE>
SCHEDULE 3(n)
Intellectual Property
---------------------
None.
<PAGE>
SCHEDULE 3(p)
Liens
-----
18 month first mortgage in the principal amount of $1,000,000, bearing interest
at the rate of 8.75% per annum, with 15 year amortization. At maturity, on March
31, 1999, the amount due under the mortgage, which is held by an unaffiliated
financial institution, will be approximately $963,000.
<PAGE>
SCHEDULE 3(t)
Tax Status
----------
The Company?s consolidated Forms 1120 and F-1120 for the year ended September
30, 1997 are on extension until June 15, 1998 and June 30, 1998, respectively.
<PAGE>
SCHEDULE 3(u)
Certain Transactions
--------------------
None.
<PAGE>
SCHEDULE 4(d)
Use of Proceeds
---------------
The Company intends to use the proceeds of this offering for the purchase of
equipment and general working capital.
<PAGE>
SCHEDULE 4(g)
Agreements Regarding Issuance of Securities
-------------------------------------------
Investment Banking Agreement with BlueStone Capital Partners.
<PAGE>
EXHIBIT A
Form of Articles of Amendment
Attached hereto.
<PAGE>
EXHIBIT B
Form of Registration Rights Agreement
Attached hereto.
<PAGE>
EXHIBIT C
Form of Company Counsel Opinion
May 8, 1998
Themis Partners, L.P. Heracles Fund
c/o Promethean Investment Group, L.L.C. Bank of Bermuda (Cayman) Limited
40 West 57th Street Post Office Box 513
Suite 1520 Georgetown Grand Cayman
New York, New York 10019 Cayman Island, BWI
Re: Visual Data Corporation
Ladies and Gentlemen:
We have acted as counsel to Visual Data Corporation, a Florida
corporation (the "Company") in connection with the Securities Purchase
Agreement, dated as of May 1, 1998 (the "Agreement"), between the parties listed
on the Schedule of Buyers to the Agreement and the Company and the transactions
contemplated therein. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned to such terms in the
Agreement.
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions dated April 8, 1991, issued by
the Business Law Section of the Florida Bar (the "Report"). The Report is
incorporated by reference into this Opinion.
As counsel in the capacity indicated above, we have examined:
a. The Agreement and the Transaction Documents (as defined);
b. The original or certified, conformed or photostatic copies of
the Certificate of Incorporation and Bylaws of the Company and
its subsidiaries;
<PAGE>
Themis Partners, L.P.
Heracles Fund
May 8, 1998
Page 2
c. The original or certified, conformed or photostatic copies of
minutes of the Company;
d. The records of proceedings and actions of the Company and its
members in the form certified to us by officers of the Company as being
true, correct and complete copies of the foregoing; and
e. Certificates of public officials and such other documents, records
and legal matters as we have deemed necessary or relevant for the
purposes of the opinion hereinafter expressed.
In addition, we have assumed, with your approval but without
investigation, that the Agreement and Transaction Documents are valid and
binding on, and enforceable against all parties thereto other than the Company.
Insofar as this opinion relates to factual matters, we have relied upon
(a) the representations and warranties set forth in the Agreement, (b)
representations of officers of the Company, and (c) certificates of public
officials; however, we have not made any independent review or investigation of
the information contained in such material.
Based upon our examination of the foregoing, and in reliance thereon
and subject to the assumptions, qualifications, exceptions and limitations set
forth herein, we are of the opinion that:
1. The Company and each of its subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has the requisite corporate power and
authority to conduct its business, and to own, lease and operate its properties,
as described in the Company's Annual Report on Form 10-K for the year ended
September 30, 1997. The Company and each of its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary and in which the failure to
be so qualified or be in good standing
<PAGE>
Themis Partners, L.P.
Heracles Fund
May 8, 1998
Page 3
would have a material adverse effect on the business, operations, financial
conditions or results of operations of the Company and its subsidiaries taken as
a whole (a "Material Adverse Effect").
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Agreement, the Articles
of Amendment, the Registration Rights Agreement and the Irrevocable Transfer
Agent Instructions (collectively, the "Transactions Documents"), including
issuance of the Preferred Shares and the Conversion Shares in accordance with
the terms thereof. The filing of the Articles of Amendment and the execution and
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated therein 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 therefor (except
to the extent that shareholder approval may be required pursuant to the rules of
the Nasdaq SmallCap Market for the issuance of a number of Conversion Shares
greater than 19.99% of the number of shares of Common Stock outstanding
immediately prior to the Initial Closing Date). The Transaction Documents have
been duly executed and delivered by the Company and the Articles of Amendment
have been duly executed and filed by the Company with the Secretary of State of
the State of Florida in accordance with the Florida Business Corporation Act
(the "Florida Corporate Law") and has been accepted for filing with the
Secretary of State. The Transaction Documents constitute the valid and binding
agreements of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
3. The issuance and sale of the Preferred Shares has been duly
authorized, and assuming the Company's receipt of payment of the purchase price
therefor in accordance with the terms of the Agreement, the Preferred Shares are
validly issued, fully paid and non-assessable and free of all taxes, liens,
charges and preemptive rights with respect to the issue thereof. The Conversion
Shares are duly authorized and reserved for issuance
<PAGE>
Themis Partners, L.P.
Heracles Fund
May 8, 1998
Page 4
upon conversion of the Preferred Shares in accordance with the Agreement and the
Articles of Amendment, and when issued in accordance with the Agreement and the
Articles of Amendment, the Conversion Shares will be validly issued, fully paid
and non-assessable and free of all taxes, liens, charges and preemptive rights
with respect to the issue thereof.
4. As of the date hereof, the authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, par value $.0001 per share
and (ii) 5,000,000 shares of Preferred Stock and no designations are
outstanding. None of such Common Stock or such Preferred Stock is subject to
preemptive rights.
5. Subject to the accuracy of the Buyers' and Company's representations
(as to factual matters) in the Agreement, the Preferred Shares and the
Conversion Shares may be issued to you pursuant to the Transaction Documents
without registration under the 1933 Act or the securities laws of any state,
assuming the Buyers are only located in the State of New York.
6. No authorization, approval, consent, filing or other order of any
Federal or state governmental body, regulatory agency, self-regulatory
organization or stock exchange or market, or the shareholders of the Company
(except (i) to the extent that shareholder approval may be required pursuant to
the rules of the Nasdaq SmallCap Market for the issuance of a number of
Conversion Shares greater than 19.99% of the number of shares of Common Stock
outstanding immediately prior to the Initial Closing Date, (ii) the filing of a
notice of sale of securities on Form D pursuant to Regulation D under the 1933
Act, (iii) filings under "blue sky" state securities laws which may be required
in accordance with applicable laws and (iv) the listing application with the
NASDAQ Stock Market for the Conversion Shares), or any court, or, to our
Knowledge, any third party, is required to be obtained by the Company to enter
into and perform its obligations under the Transaction Documents or for the
issuance and sale of the Preferred Shares and the Conversion Shares as
contemplated by the Transaction Documents.
<PAGE>
Themis Partners, L.P.
Heracles Fund
May 8, 1998
Page 5
7. The execution, delivery and performance by the Company of the
Transaction Documents, the consummation by the Company of the transactions
contemplated thereby and the compliance by the Company with the terms thereof
does not (a) violate, conflict with or constitute a default (or an event which,
with the giving of notice or lapse of time or both, constitutes or would
constitute a default) under (i) the Articles of Incorporation or the By-laws, or
(ii) any agreement, note, lease, mortgage, deed or other instrument to which the
Company is a party or by which the Company is bound and which the Company has
filed as an exhibit to its reports filed with the SEC under the 1934 Act or
which, to our Knowledge, the Company otherwise is required or will be required
to file as an exhibit to its reports under the 1934 Act; or (b) result in any
violation of any statute, law, rule or regulation known to us to be applicable
to the Company or, to the best of our Knowledge, any order, writ, injunction or
decree, if such violation would have a Material Adverse Effect.
8. The Company is not an "investment company" or any entity controlled
by an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended.
These opinions are limited to the matters expressly stated herein and
are rendered solely for your benefit and may not be quoted or relied upon for
any other purpose or by any other person.
The opinions expressed herein are subject to the following assumptions,
limitations, qualifications and exceptions:
(a) We have relied upon the factual representations of the
Company in the Agreement and Transaction Agreements with regard to those matters
of fact expressly represented in the Agreement and Transaction Agreements and we
have not undertaken any independent investigation to determine the existence or
absence of those facts, and no inference as to our Knowledge of the existence or
absence of those facts should be drawn from our representation of the Company.
<PAGE>
Themis Partners, L.P.
Heracles Fund
May 8, 1998
Page 6
(b) We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity with
originals of all documents submitted to us as copies, the authenticity of
certificates of public officials and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement and Transaction Agreements).
(c) Whenever a statement herein is qualified by the phrases
"to our Knowledge" or similar phrases, it is intended to indicate that during
the course of our representation of the Company in the transactions contemplated
by the Agreement and Transaction Agreements, and having made inquiry of certain
officers of the Company as to such matters, no information that would give us
current actual knowledge of the inaccuracy of such statement has come to the
attention of those attorneys presently in this firm who have rendered legal
services in connection with the representation described in the introductory
paragraph of this opinion letter. However, we have not undertaken any
independent investigation or review to determine the accuracy of any such
statements and any limited inquiry undertaken by us during the preparation of
this opinion letter should not be regarded as such an investigation or review.
No inference as to our Knowledge of any matters bearing on the accuracy of any
such statement should be drawn from the fact of our representation of the
Company.
(d) Our examination of law relevant to the matters covered by
this opinion is limited to the laws of Florida and the Federal laws of the
United States, and we express no opinion as to the affect on the matters covered
by this opinion of the laws of any other jurisdiction. We have made no inquiry
into the laws and regulations of any other jurisdiction or jurisdictions or as
to laws relating to choice of law or conflicts of law principles.
(e) Our opinions are as of the date hereof and the opinions
set forth herein speak only to the events which occur pursuant to the precise
terms of the Agreement and Transaction Agreements. We assume no obligation to
advise you of changes which thereafter may be brought to our attention. Our
opinions are based on statutory and judicial decisions in effect at the date
hereof, and we do not opine with
<PAGE>
Themis Partners, L.P.
Heracles Fund
May 8, 1998
Page 7
respect to any law, regulation, rule or governmental policy which may be enacted
or adopted after the date hereof, nor assume any responsibility to advise you of
future changes in our opinion.
(f) Our opinion concerning the enforceability of the Agreement
and the Transaction Agreements means that, subject to the last sentence of item
two, some remedy is available if the Company is in material default thereunder.
This opinion does not mean that any particular remedy is available upon a
material default, or every provision of the Agreement and the Transaction
Agreements will be upheld or enforced in any or each circumstance by a court of
competent jurisdiction.
(j) We express no opinion as to the choice of law provisions
in the Agreement and the Transaction Agreements.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
JDM/dcb
<PAGE>
EXHIBIT D
Form of Irrevocable Transfer Agent Instructions
Interwest Transfer Company, Inc.
Suite 100
1981 East Murray Holladay Road
Salt Lake City, UT 84117
Attention: Ms. Melinda Orth
Ladies & Gentlemen:
Reference is made to that certain Securities Purchase Agreement to be entered
into by and among Visual Data Corporation, a Florida corporation (the
"Company"), and the buyers named therein (collectively, the "Holders") pursuant
to which the Company is issuing to the Holders shares of its Series A
Convertible Preferred Stock, par value $0.0001 per share (the "Preferred
Shares"), which shall be convertible into shares of the Company's Common Stock,
par value $0.0001 per share (the "Common Stock"). This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Preferred Shares (the "Conversion Shares") to or upon the
order of a Holder from time to time upon (i) surrender to you of a properly
completed and duly executed Conversion Notice, in the form attached hereto as
Exhibit 1, which has been acknowledged by the Company as indicated by the
signatures of a duly authorized officer of the Company thereon, and (ii)
certificate representing Preferred Shares being converted (or an indemnification
undertaking with respect to such share certificates in the case of their loss,
theft or destruction). As long as you have previously received (x) written
confirmation from counsel to the Company that a registration statement covering
resales of the Conversion Shares has been declared effective by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), and (y) a copy of such registration statement, and (z) a
letter confirming sale and prospectus delivery, then the certificates
representing the Conversion Shares shall not bear any legend restricting
transfer of the Conversion Shares thereby and should not be subject to any
stop-transfer restriction. Provided, however, that if you have not previously
received (i) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares has been
declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED TO SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT."
<PAGE>
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
in the event a registration statement covering the Conversion Shares is subject
to amendment for events then current.
A form of written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares has been declared effective
by the SEC under the 1933 Act is attached hereto as Exhibit II.
Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Securities Purchase Agreement and, accordingly, each Holder is
a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at 954-917-6655.
Sincerely,
Alan Saperstein
Executive Vice President
ACKNOWLEDGED AND AGREED:
Interwest Transfer Company, Inc.
By: ____________________________
Name: ____________________________
Title: ____________________________
Date: ____________________________
[STATE OF FLORIDA LOGO]
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of
Amendment, filed on May 5, 1998, to Articles of Incorporation for VISUAL
DATA CORPORATION, a Florida corporation, as shown by the records of this
office.
I further certify the document was electronically received under FAX audit
number H98000008425. This certificate is issued in accordance with
section 15.16, Florida Statutes, and authenticated by the code noted below
The document number of this corporation is P93000035279.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capital, this the
Fifth day of May, 1998
Authentication Code: 69BA00024605-050598-P93000035279-1/1
GREAT SEAL OF THE STATE OF FLORIDA /S/ Sandra B. Mortham
-------------------------
Sandra B. Mortham
Secretary of State
<PAGE>
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
May 5, 1998
VISUAL DATA CORPORATION
1600 S. DIXIE HIGHWAY
#3A
BOCA RATON, FL 33432US
Re: Document Number P93000035279
The Articles of Amendment to the Articles of Incorporation for VISUAL DATA
CORPORATION, a Florida corporation, were filed on May 5, 1998.
The certification requested is enclosed. To be official, the certification for a
certified copy must be attached to the original document that was electronically
submitted and filed under FAX audit number H98000008425.
Should you have any question regarding this matter, please telephone (850)
487-6050, the Amendment Filing Section.
Darlene Connell
Corporate Specialist
Division of Corporations Letter Number: 698AO0024605
<PAGE>
ARTICLES OF AMENDMENT
to
ARTICLES OF INCORPORATION
of
VISUAL DATA CORPORATION
(Pursuant to Sections 607.1006 and 607.0602 of the
Florida Business Corporation Act)
Visual Data Corporation, a corporation organized and existing under the
Florida Business Corporation Act (the "Corporation") bearing Document Number
P93000035279, hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation on May 1, 1998 pursuant to the
authority of the Board of Directors:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Articles of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock (the "Preferred Stock"), and hereby amends Article IV of the
Articles of Incorporation to include the following which states the designation
and number of shares, and fixes the relative rights, preferences, privileges,
powers and restrictions thereof as follows:
The following shall be added to Article IV of the Corporation's
Articles of Incorporation, and shall be inserted at the end of such article:
ARTICLE IV
Series A Convertible Preferred Stock:
1. Designation, Amount and Dividends. The designation of this
series, which consists of 300 shares of Preferred Stock, is the Series
A Convertible Preferred Stock (the "Preferred Shares") and the stated
value shall be Five Thousand Dollars ($5,000.00) per share (the "Stated
Value"). The Preferred Shares shall not bear any dividends.
2. Holder's Conversion of Preferred Shares. A holder of
Preferred Shares shall have the right, at such holder's option, to
convert the Preferred Shares into shares
<PAGE>
of the Company's common stock, no par value per share (the "Common
Stock"), on the following terms and conditions:
a. Conversion Right. Subject to the provisions of
Sections 12 and 2(j) below, at any time or times, any holder of
Preferred Shares shall be entitled to convert any whole number of
Preferred Shares into fully paid and nonassessable shares (rounded to
the nearest whole share in accordance with Section 2(i) below) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event shall any holder be entitled to convert
Preferred Shares in excess of that number of Preferred Shares which,
upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common
Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates shall include the number of shares of
Common Stock issuable upon conversion of the Preferred Shares with
respect to which the determination of such proviso is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (i) conversion of the remaining, nonconverted Preferred
Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially
owned by the holder and its affiliates. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. Each holder may waive the
foregoing limitations with respect to its conversions by written notice
to the Company upon not less than 61 days prior notice (with such
waiver taking effect only upon the expiration of such 61 day notice
period).
b. Conversion Rate. The number of shares of Common
Stock issuable upon conversion of each of the Preferred Shares pursuant
to Sections (2)(a) and 2(h) shall be determined according to the
following formula (the "Conversion Rate"):
(.05)(N/365)(5,000) + 5,000
---------------------------
Conversion Price
For purposes of these Articles of Amendment, the following terms shall
have the following meanings:
(i) "Conversion Price" means, as of any
Conversion Date (as defined below) or other date of determination, the lower of
the Fixed Conversion Price and the Floating Conversion Price, each in effect as
of such date and subject to adjustment as provided herein;
(ii) "Fixed Conversion Price" means $4.40,
subject to adjustment as provided herein; provided, however, that in the event
the Company elects, pursuant to Section 2(h) of the Registration Rights
Agreement (as defined below), to file the Registration Statement (as defined
below) on Form S-3, then the Fixed Conversion Price shall be the lesser of $4.40
and 110% of the Closing Bid Price on August 1, 1998, subject to adjustment as
provided herein;
-2-
<PAGE>
(iii) "Floating Conversion Price" means, as
of any date of determination, the amount obtained by multiplying the Conversion
Percentage in effect as of such date by the Market Price for the Common Stock,
subject to adjustment as provided herein;
(iv) "Conversion Percentage" means (A)
during the period beginning on the Issuance Date of the relevant Preferred
Shares and ending on and including the date which is 180 days after such
Issuance Date, 90% and (B) on and after the date which is 181 days after the
Issuance Date of the relevant Preferred Shares, 85%; subject in each case to
adjustment as provided herein;
(v) "Market Price" means, with respect to
any security for any date, the average of the three lowest Closing Bid Prices
for such security during the twenty (20) consecutive trading days immediately
preceding such date;
(vi) "Closing Bid Price" means, for any
security as of any date, the last closing bid price for such security on the
Nasdaq SmallCap Market as reported by Bloomberg Financial Markets ("Bloomberg"),
or, if the Nasdaq SmallCap Market is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of a majority of the outstanding Preferred
Shares. If the Company and the holders of Preferred Shares are unable to agree
upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(g)(iii) below with the term "Closing Bid Price"
being substituted for the term "Market Price." (All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period).
(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including the Conversion Date for the
Preferred Shares for which conversion is being elected; and
(viii) "Issuance Date" means, with respect
to each Preferred Share, the date of issuance of the applicable Preferred Share.
c. Effect of Failure to Obtain and Maintain
Effectiveness of Registration Statement. If the registration statement (the
"Registration Statement") covering the resale of all of the shares of Common
Stock issuable upon conversion or exercise of the Preferred Shares (as defined
in the Securities Purchase Agreement), respectively, and required to be filed by
the Company pursuant to the Registration Rights Agreement between the Company
and the Buyers referred to therein (the "Registration Rights Agreement") is not
(i) filed by the Filing Deadline (as defined in the Registration Rights
Agreement) (the "Scheduled Filing Date"), (ii) declared effective by the SEC on
or before the Effectiveness Deadline (as defined
-3-
<PAGE>
in the Registration Agreement (the "Scheduled Effective Date"), except where the
failure to meet such deadline is the result solely of actions by the holders of
Registrable Securities (as defined in the Registration Rights Agreement) or
(iii) if after the Registration Statement has been declared effective by the
SEC, sales of all such shares of Common Stock cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient shares of
Common Stock or otherwise), then, as partial relief for the damages to any
holder by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Conversion Percentage and the
Fixed Conversion Price shall be adjusted as follows:
(I) Conversion Percentage. The Conversion
Percentage in effect at such time shall be reduced by a number of percentage
points equal to the sum of (x) 2 and (y) the product of (I) .06 and (II) the sum
of (i) the number of days after the Scheduled Filing Date that the relevant
Registration Statement is not filed with the SEC, (which number of days shall
not include days for which the sole reason that the relevant Registration
Statement was not filed was because of actions by holders of Registrable
Securities) (ii) the number of days after the Scheduled Effective Date that the
relevant Registration Statement is not declared effective by the SEC and (iii)
the number of days (excluding days during an Allowable Grace Period (as defined
in the Registration Rights Agreement)) that sales cannot be made pursuant to the
Registration Statement in accordance with the Registration Statement after the
Registration Statement has been declared effective (which number of days shall
not include days for which the sole reason that sales cannot be made is because
of actions by holders of Registrable Securities (such number of days being
collectively referred to as the "Registration Statement Default Days"); and
(II) Fixed Conversion Price. The Fixed
Conversion Price in effect at such time shall be reduced by an amount equal to
the sum of (x) the product of .02 and the Fixed Conversion Price in effect as of
the Issuance Date and (y) the product of (I) the Fixed Conversion Price in
effect as of the Issuance Date and (II) .0006 multiplied by the number of
Registration Statement Default Days.
Notwithstanding the foregoing, in no event shall the Conversion Percentage be
reduced pursuant to Section 2(c)(A) above by a number of percentage points which
in the aggregate exceeds 20 nor shall the Fixed Conversion Price be reduced
pursuant to Section 2(c)(B) above by an amount which in the aggregate exceeds
the product of .20 and the Fixed Conversion Price in effect as of the Issuance
Date.
d. Adjustment to Conversion Price -- Dilution and
Other Events. In order to prevent dilution of the rights granted under these
Articles of Amendment, the Conversion Price will be subject to adjustment from
time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of the Preferred Shares, the Company issues or sells, or is deemed to have
issued or sold, any shares of Common Stock (other than shares of Common Stock
deemed to have been issued by the Company in connection with Approved Issuances
(as defined below)) for a consideration per share less than the Market
-4-
<PAGE>
Price in effect immediately prior to such time (the "Applicable Price"), then
immediately after such issue or sale, the Fixed Conversion Price shall be
reduced to an amount equal to the product of (x) the Fixed Conversion Price in
effect immediately prior to such issue or sale and (y) the quotient determined
by dividing (1) the sum of (I) the product of the Applicable Price and the
number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the following
shall be applicable:
(A) Issuance of Options. If the
Company in any manner grants any rights or options to subscribe for or
to purchase Common Stock (other than in connection with an Approved
Issuance or upon conversion of the Preferred Shares) or any stock or
other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities is less than the Applicable
Price, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
purposes of this Section 2(d)(i)(A), the "price per share for which
Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined by
dividing (I) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon
the issuance or sale of such Convertible Securities and the conversion
or exchange thereof, by (II) the total maximum number of shares of
Common Stock issuable upon exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No adjustment of the Fixed Conversion
Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(B) Issuance of Convertible
Securities. If the Company in any manner issues or sells any
Convertible Securities (other than in connection with an Approved
Issuance or upon conversion of the Preferred Shares) and the price per
share for which Common Stock is issuable upon such conversion or
exchange is less than the Applicable Price, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For the
purposes of this Section 2(d)(i)(B), the "price per share for which
Common Stock is issuable upon such conversion or exchange" is
determined by dividing (I) the total amount received or receivable by
the Company as consideration for the issue or sale of
-5-
<PAGE>
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No adjustment of the Fixed Conversion
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Fixed Conversion Price had been
or are to be made pursuant to other provisions of this Section 2(d)(i),
no further adjustment of the Fixed Conversion Price shall be made by
reason of such issue or sale.
(C) Change in Option Price or Rate
of Conversion. If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, the Fixed Conversion Price in effect at the
time of such change shall be readjusted to the Fixed Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold;
provided that no adjustment shall be made if such adjustment would
result in an increase of the Fixed Conversion Price then in effect.
(D) Certain Definitions. For
purposes of determining the adjusted Fixed Conversion Price under this
Section 2(d)(i), the following terms have meanings set forth below:
(I) "Approved Issuances"
shall mean (i) a loan from a commercial bank (not having any equity
feature), (ii) any transaction involving the Company's issuances of
securities (A) as consideration in a merger or consolidation or (B) as
consideration for the acquisition of a business, product or license or
other assets by the Company, (iii) the issuance of Common Stock in a
firm commitment, underwritten public offering, (iv) the issuance of
securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date
hereof, (v) the issuance of securities under existing agreements of the
Company listed on Schedule 4(g) of the Securities Purchase Agreement
between the Company and the initial holders of the Preferred Shares
(the "Securities Purchase Agreement") or (vi) the grant of additional
options or warrants, or the issuance of additional securities, under
any Company stock option plan, restricted stock plan, stock purchase
plan or other plan or written compensation contract for the benefit of
the Company's employees or directors.
(II) "Common Stock Deemed
Outstanding" means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(d)(i)(A)
and 2(d)(i)(B) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon conversion of the Preferred
Shares.
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(E) Treatment of Expired Options and
Unexercised Convertible Securities. If, in any case, the total number
of shares of Common Stock issuable upon the exercise of any Option or
upon exercise, conversion or exchange of any Convertible Security is
not, in fact, issued and the rights to exercise such Option or to
exercise, convert or exchange such Convertible Securities shall have
expired or terminated, the Fixed Conversion Price then in effect will
be readjusted to the Fixed Conversion Price which would have been
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination (other than in respect of the actual
number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(F) Effect on Fixed Conversion Price
of Certain Events. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(d)(i), the following shall be
applicable:
(I) Calculation of
Consideration Received. If any Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor will be deemed to be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with such
issuance or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price of such
security on the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the
surviving entity the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly
by the Company and the holders of a majority of the Preferred Shares
then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be
determined within forty-eight (48) hours of the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser
selected by the Company. The determination of such appraiser shall be
deemed binding upon all parties absent manifest error.
(II) Integrated
Transactions. In case any Option is issued in connection with the issue
or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated
to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.
(III) Treasury Shares. The
number of shares of Common Stock outstanding at any given time does not
include shares owned or held by
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or for the account of the Company, and the disposition of any shares so
owned or held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the
Company takes a record of the holders of Common Stock for the purpose
of entitling them (1) to receive a dividend or other distribution
payable in Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Adjustment of Fixed Conversion Price
upon Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Fixed Conversion Price in
effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion
Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Adjustment of Floating Conversion
Price upon Issuance of Convertible Securities. If the Company in any
manner issues or sells Convertible Securities that are convertible into
Common Stock at a price which varies with the market price of the
Common Stock (the formulation for such variable price being herein
referred to as, the "Variable Price") and such Variable Price is not
calculated using the same formula used to calculate the Floating
Conversion Price in effect immediately prior to the time of such issue
or sale, the Company shall provide written notice thereof via facsimile
and overnight courier to each holder of the Preferred Shares ("Variable
Notice") on the date of issuance of such Convertible Securities. If the
holders of Preferred Shares representing at least two-thirds (2/3) of
the Preferred Shares then outstanding provide written notice via
facsimile and overnight courier (the "Variable Price Election Notice")
to the Company within five (5) business days of receiving a Variable
Notice that such holders desire to replace the Floating Conversion
Price then in effect with the Variable Price described in such Variable
Notice, the Company shall prepare and deliver to each holder of the
Preferred Shares via facsimile and overnight courier a copy of an
amendment to these Articles of Amendment (the "Variable Price
Amendment") that substitutes the Variable Price for the Floating
Conversion Price (together with such modifications to these Articles of
Amendment as may be required to give full effect to the substitution of
the Variable Price for the Floating Conversion Price) within five (5)
business days after receipt of the requisite number of Variable Price
Election Notices set forth above. The Company shall file such Variable
Price Amendment with the Secretary of State of the State of Florida
within five (5) business days after delivery of the Variable Price
Amendment to the holders of the Preferred Shares; provided that in the
event that the Company receives a notice prior to the filing of the
Variable Price Amendment from any holder who has delivered a Variable
Price Election Notice in connection with such Variable Price Amendment
that such holder objects to the form of the Variable Price Amendment,
the Company shall not file such
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Variable Price Amendment until such time as the Variable Price
Amendment has been revised to the reasonable satisfaction of such
holder and approved in writing by the holders of the Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares then
outstanding. Except as provided in the preceding proviso, a holder's
delivery of a Variable Price Election Notice shall serve as the consent
required to amend these Articles of Amendment pursuant to Section 13
below.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "Organic Change."
Prior to the consummation of any Organic Change, the Company will make
appropriate provision (in form and substance reasonably satisfactory to
the holders of a majority of the Preferred Shares then outstanding) to
insure that each of the holders of the Preferred Shares will thereafter
have the right to acquire and receive in lieu of or in addition to (as
the case may be) the shares of Common Stock otherwise acquirable and
receivable upon the conversion of such holder's Preferred Shares, such
shares of stock, securities or assets that would have been issued or
payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and
receivable upon the conversion of such holder's Preferred Shares had
such Organic Change not taken place (without taking into account any
limitations or restrictions on the timing or amount of conversions). In
any such case, the Company will make appropriate provision (in form and
substance reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding) with respect to such holders' rights
and interests to insure that the provisions of this Section 2(d) and
Section 2(e) below will thereafter be applicable to the Preferred
Shares (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the Fixed Conversion Price to
the value for the Common Stock reflected by the terms of such
consolidation, merger or sale, if the value so reflected is less than
the Fixed Conversion Price in effect immediately prior to such
consolidation, merger or sale and an immediate revision to the Floating
Conversion Price to reflect the price of the common stock of the
surviving entity and the market in which such common stock is traded).
The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if
other than the Company) resulting from consolidation or merger or the
entity purchasing such assets assumes, by written instrument (in form
and substance reasonably satisfactory to the holders of a majority of
the Preferred Shares then outstanding), the obligation to deliver to
each holder of Preferred Shares such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may
be entitled to acquire. "Person" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any
department or agency thereof.
(v) Certain Events. If any event occurs of
the type contemplated by the provisions of this Section 2(d) but not
expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights,
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phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the
Preferred Shares; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 2(d).
The good faith determination of the Board of Directors regarding the
appropriate adjustment pursuant to this Section 2(d)(v) shall be
binding on the holders of the Preferred Shares.
(vi) Notices.
(A) Immediately upon any adjustment
of the Conversion Price, the Company will give written notice thereof
to each holder of Preferred Shares, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(B) The Company will give written
notice to each holder of Preferred Shares at least fifteen (15) days
prior to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription offer to holders
of Common Stock or (III) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation and in no event shall
such notice be provided to such holder prior to such information being
made known to the public.
(C) The Company will also give
written notice to each holder of Preferred Shares at least fifteen (15)
days prior to the date on which any Organic Change, dissolution or
liquidation will take place and in no event shall such notice be
provided to such holder prior to such information being made known to
the public.
e. Purchase Rights. In addition to any adjustments of
the Conversion Price pursuant to Section 2(d) above, if at any time after the
Issuance Date the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "Purchase
Rights"), then the holders of Preferred Shares will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete conversion of the Preferred
Shares (without taking into account any limitations or restrictions on the
timing or amount of conversions) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
f. Fixing of Conversion Price - Major Corporate Event
Announcement. Notwithstanding anything contained in Section 2(b) above, in the
event (i) the Company makes a public announcement that it intends to consolidate
or merge with or into another Person or engage in a business combination
involving the issuance or exchange of 30% or more of the Company's outstanding
Common Stock, other than pursuant to an Exempt Major Transaction (as defined in
Section 3(c)(i) below) (ii) the Company makes a public announcement that it
intends to sell or transfer substantially all of the Company's assets, or (iii)
any person, group or entity (including the Company) publicly announces a
purchase, tender or exchange offer for 50% or more of the Company's outstanding
Common Stock (the transactions described
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in clauses (i), (ii) and (iii) above are hereinafter referred to as "Major
Corporate Events" and the date of the announcement referred to in clause (i),
(ii) or (iii) is hereinafter referred to as the "Announcement Date"), then the
Fixed Conversion Price shall, effective upon the Announcement Date and
continuing through the Adjusted Conversion Price Termination Date (as defined
below), be equal to the Conversion Price which would have been applicable for a
conversion by the holder pursuant to Section 2(a) occurring on the Announcement
Date. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in Section 2(a). For purposes
hereof, "Adjusted Conversion Price Termination Date" shall mean, with respect to
any proposed Major Corporate Event for which a public announcement as
contemplated by this Section 2(f) has been made, the date upon which the Company
or the person, group or entity (in the case of clause (iii) above) publicly
announces the consummation, termination or abandonment of the proposed Major
Corporate Event which was the subject of the previous public announcement.
g. Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 4 below:
(i) Holder's Delivery Requirements. To
convert Preferred Shares into full shares of Common Stock on any date
(the "Conversion Date"), the holder thereof shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., Eastern Time on such date, a copy of a fully executed notice of
conversion as described in Section 19 (the "Conversion Notice"), to the
Company, and (B) surrender to a common carrier for delivery to the
Company as soon as practicable following such date, the original
certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "Preferred Stock Certificates")
and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
promptly, but in no event later than the next business day, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Company of the Preferred Stock Certificates
to be converted pursuant to a Conversion Notice, together with the
originally executed Conversion Notice, the Company or its designated
transfer agent (the "Transfer Agent") (as applicable) shall, on the
next business day following the date of receipt of both (or the second
business day following the date of receipt of both if received after
11:00 a.m. local time of the Company), (I) issue and surrender to a
common carrier for overnight delivery to the address as specified in
the Conversion Notice, a certificate, registered in the name of the
holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (II) credit such aggregate
number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with The Depository
Trust Company. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion is greater than
the number of Preferred Shares being converted, then the Company shall,
as soon as practicable and in no event later than two business days
after receipt of the Preferred Stock Certificate(s) and at its own
expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
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(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall promptly issue to
the holder the number of shares of Common Stock that is not disputed
and shall submit the disputed determinations or arithmetic calculations
to the holder via facsimile as soon as possible, but in no event later
than two (2) business days after receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the holder,
then the Company shall within one (1) business day submit via facsimile
(A) the disputed determination of the Market Price to an independent,
reputable investment bank or (B) the disputed arithmetic calculation of
the Conversion Rate to its independent, outside accountant. The Company
shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company
and the holder of the results no later than forty-eight (48) hours from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the
case may be, shall be binding upon all parties absent manifest error.
The period of time in which the Company is required to effect
conversions or redemptions under these Articles of Amendment shall be
tolled with respect to the subject conversion or redemption pending
resolution of any dispute by the Company made in good faith and in
accordance with this Section 2(g)(iii).
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a
conversion of Preferred Shares shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the
Conversion Date.
(v) Company's Failure to Timely Convert. If
within five (5) business days of the Company's receipt of the Preferred
Stock Certificates to be converted and the Conversion Notice (the
"Share Delivery Period") the Company shall fail to issue a certificate
to a holder or credit the holder's balance account with The Depository
Trust Company for the number of shares of Common Stock to which such
holder is entitled upon such holder's conversion of Preferred Shares or
to issue a new Preferred Stock Certificate representing the number of
Preferred Shares to which such holder is entitled pursuant to Section
2(g)(ii) (a "Conversion Failure"), in addition to all other available
remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to
Section 8 thereof), the Company shall pay additional damages to such
holder on each date after such fifth (5th) business day that such
conversion is not timely effected in an amount equal 0.5% of the
product of (A) the sum of the number of shares of Common Stock not
issued to the holder on a timely basis pursuant to Section 2(g)(ii) and
to which such holder is entitled and, in the event the Company has
failed to deliver a Preferred Stock Certificate to the holder on a
timely basis pursuant to Section 2(g)(ii), the number of shares of
Common Stock issuable upon conversion of the Preferred Shares
represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 2(g) (ii) and (B)
the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock and such
Preferred Stock Certificate, as the case may be, to such holder without
violating Section 2(g)(ii). In addition to the
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foregoing, if for any reason a holder has not received all of the
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Share Delivery Period with respect to a conversion of
Preferred Shares, then the Fixed Conversion Price in respect of any
Preferred Shares held by such holder (including Preferred Shares
submitted for conversion, but for which shares of Common Stock have not
been issued to such holder) shall thereafter be the lesser of (i) the
Fixed Conversion Price on the Conversion Date specified in the
Conversion Notice which resulted in a Conversion Failure and (ii) the
lowest Conversion Price in effect during the period beginning on, and
including, such Conversion Date through and including the day such
shares of Common Stock are delivered to the holder. The Fixed
Conversion Price shall thereafter be subject to further adjustment for
any other events described in this Section 2. If the Company fails to
pay the additional damages set forth in this Section 2(g)(v) within
five business days of the date incurred, then the holder entitled to
such payments shall have the right at any time, so long as the Company
continues to fail to make such payments, to require the Company, upon
written notice, to immediately issue, in lieu of the cash additional
damages set forth in this Section 2(g)(v), the number of shares of
Common Stock equal to the quotient of (X) the aggregate amount of the
additional damages payments described above divided by (Y) the
Conversion Price in effect on such Conversion Date as is specified by
the holder in writing to the Company.
h. Mandatory Conversion. Subject to Section 12, if
any Preferred Shares remain outstanding on the Mandatory Conversion
Date (as defined below), then all such Preferred Shares shall be
converted as of such date in accordance with this Section 2 as if the
holders of such Preferred Shares had given the Conversion Notice on the
Mandatory Conversion Date; provided, however, that if a Triggering
Event has occurred and is continuing on the Mandatory Conversion Date,
then the Company shall, within five business days following the
Mandatory Conversion Date (unless otherwise notified in writing by the
holder of its request to have the Preferred Shares converted into
Common Stock), pay to each holder of Preferred Shares then outstanding,
in immediately available funds, an amount equal to the Triggering Event
Redemption Price as of the Mandatory Conversion Date. All holders of
Preferred Shares shall thereupon surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent, provided that the Company has complied with its
obligations under this Section 2(h). Notwithstanding the foregoing, if
the Common Stock is not designated for quotation on the Nasdaq SmallCap
Market, the Nasdaq National Market or listed on The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. but such events do
not constitute a Triggering Event, then the Mandatory Conversion Date
shall be extended until the Common Stock is so designated or listed.
"Mandatory Conversion Date" means the date which is five years after
the applicable Issuance Date, subject to extension (i) as described in
the immediately preceding sentence and (ii) pursuant to Section 3(u) of
the Registration Rights Agreement, which extension shall be equal to
one day for each day in any Allowable Grace Period (as defined in the
Registration Rights Agreement).
i. Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
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aforementioned aggregation, the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up or down to the nearest whole
share.
j. Conversion Restrictions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to this Section 2
shall be limited as set forth below. Without the prior consent of the
Company, a holder shall not be entitled to convert any Initial
Preferred Shares (as defined in the Securities Purchase Agreement) at a
conversion price less than the applicable Fixed Conversion Price during
the period beginning on the Initial Closing Date and ending on the
earlier of (i) the date the Registration Statement is declared
effective by the SEC and (ii) the Effectiveness Deadline.
Notwithstanding the foregoing, the conversion restrictions set forth in
this Section 2(j) shall not apply (y) if there shall have occurred a
Material Adverse Change (as defined below) or (z) the Company files a
registration statement covering the issuance or resale of any shares of
Common Stock other than the Registration Statement under the
Registration Rights Agreement. For purposes of this Section 2(j),
"Material Adverse Change" means any change, event, result or happening
involving the Company or any of its subsidiaries resulting in a
material adverse effect on the business, financial condition or results
or operations of the Company and its subsidiaries, taken as a whole,
including, without limitation, an event constituting a Major
Transaction (as defined in Section 3(c)) or a Triggering Event (as
defined in Section 3(d)) shall have occurred or the Company shall have
been notified by the exchange or automated quotation system on which
the Common Stock trades that it is beginning or has begun proceedings
or steps to delist or suspend the Common Stock from trading on such
market.
k. 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 the conversion of the Preferred Shares except for
taxes as a result of a transfer to a party other than an initial
holder.
3. Redemption at Option of Holders.
a. Redemption Option Upon Major Transaction. In
addition to all other rights of the holders of Preferred Shares
contained herein, simultaneous with the occurrence of a Major
Transaction (as defined below), each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to
redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to 125% of the Liquidation Preference (as
defined in Section 9 below) ("Major Transaction Redemption Price").
b. Redemption Option Upon Triggering Event. In
addition to all other rights of the holders of Preferred Shares
contained herein, after a Triggering Event (as defined below), each
holder of Preferred Shares shall have the right, at such holder's
option, to require the Company to redeem all or a portion of such
holder's Preferred Shares at a price per Preferred Share equal to the
greater of (i) 125% of the Liquidation Preference and (ii) the product
of (A) the Conversion Rate at such time and (B) the Closing Bid Price
calculated as of the date immediately preceding such Triggering Event
on which the exchange or market on which the Common Stock is traded is
open
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("Triggering Event Redemption Price" and, collectively with "Major
Transaction Redemption Price," the "Redemption Price").
c. "Major Transaction". A "Major Transaction" shall
be deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other
business combination of the Company with or into another Person (other
than (A) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company or (B) a
consolidation, merger or other business combination in which the
Company is the surviving entity and holders of the Company's voting
power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power necessary
to elect a majority of the members of the board of directors of the
Company);
(ii) the sale or transfer of all or
substantially all of the Company's assets; or
(iii) consummation of a purchase, tender or
exchange offer made to the holders of more than 30% of the outstanding
shares of Common Stock.
d. "Triggering Event". A "Triggering Event" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration
Statement to be declared effective by the SEC on or prior to the date
which is 45 days after the Effectiveness Deadline except where the
failure of the Registration Statement to be declared effective was the
result solely of actions by the holders of Registrable Securities;
(ii) while the Registration Statement is
required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the Registration
Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the
Preferred Shares for sale of the Registrable Securities (as defined in
the Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability
continues for a period of five consecutive trading days, provided that
the cause of such lapse or unavailability is not due to factors solely
within the control of such holder of Preferred Shares;
(iii) the suspension from listing or the
failure of the Common Stock to be listed on the Nasdaq SmallCap Market,
the Nasdaq National Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five consecutive days;
(iv) Company's notice to any holder of
Preferred Shares, including by way of public announcement, at any time,
of its intention not to comply with proper requests for conversion of
any Preferred Shares into shares of Common Stock, including any of the
reasons set forth in Section 4(a) below;
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(v) the Company's stockholders fail to
approve the proposal contemplated by Section 4(j) of the Securities
Purchase Agreement on or before the earlier of the first meeting of the
Company's stockholders after the initial Issuance Date and 150 days
after the initial Issuance Date;
(vi) the Company breaches any
representation, warranty, covenant or other term or condition of the
Securities Purchase Agreement, the Registration Rights Agreement, this
Article IV or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have
a Material Adverse Effect (as defined in Section 3(a) of the Securities
Purchase Agreement) and except, in the case of a breach of a covenant
which is curable, only if such breach continues for a period of at
least ten days; or
(vii) Randy S. Selman ceases to hold at
least one of the offices of Chief Executive Officer or President of the
Company prior to March 1, 2000 for any reason other than because of
death or disability.
e. Mechanics of Redemption at Option of Buyer Upon
Major Transaction. No sooner than 15 days nor later than 10 days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Major Transaction") to each holder of Preferred Shares. At any time
after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least 10 days prior to
a Major Transaction, at any time within 10 days prior to a Major
Transaction), any holder of Preferred Shares then outstanding may
require the Company to redeem, effective immediately prior to the
consummation of such Major Transaction, all of the holder's Preferred
Shares then outstanding by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Major Transaction") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate (i)
the number of Preferred Shares that such holder is electing to redeem
and (ii) the applicable Major Transaction Redemption Price, as
calculated pursuant to Section 3(a) above.
f. Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one (1) business day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Triggering Event") to each
holder of Preferred Shares. At any time after the earlier of a holder's
receipt of a Notice of Triggering Event and such holder becoming aware
of a Triggering Event, any holder of Preferred Shares then outstanding
may require the Company to redeem all of the Preferred Shares by
delivering written notice thereof via facsimile and overnight courier
("Notice of Redemption at Option of Buyer Upon Triggering Event") to
the Company, which Notice of Redemption at Option of Buyer Upon
Triggering Event shall indicate (i) the number of Preferred Shares that
such holder is electing to redeem and (ii) the applicable Triggering
Event Redemption Price, as calculated pursuant to Section 3(b) above.
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g. Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Triggering
Event or a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction from any holder of Preferred Shares, the Company shall
immediately notify each holder of Preferred Shares by facsimile of the
Company's receipt of such Notice(s) of Redemption at Option of Buyer
Upon Triggering Event or Notice(s) of Redemption at Option of Buyer
Upon Major Transaction and each holder which has sent such a notice
shall promptly submit to the Company or its Transfer Agent such
holder's Preferred Stock Certificates which such holder has elected to
have redeemed. The Company shall deliver the applicable Triggering
Event Redemption Price, in the case of a redemption pursuant to Section
3(f), to such holder within five (5) business days after the Company's
receipt of a Notice of Redemption at Option of Buyer Upon Triggering
Event and, in the case of a redemption pursuant to Section 3(e), the
Company shall deliver the applicable Major Transaction Redemption Price
immediately prior to the consummation of the Major Transaction;
provided that a holder's Preferred Stock Certificates shall have been
so delivered to the Company; provided further that if the Company is
unable to redeem all of the Preferred Shares to be redeemed, the
Company shall redeem an amount from each holder of Preferred Shares
being redeemed equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number
of Preferred Shares outstanding) of all Preferred Shares being
redeemed. If the Company shall fail to redeem all of the Preferred
Shares submitted for redemption (other than pursuant to a dispute as to
the arithmetic calculation of the Redemption Price), in addition to any
remedy such holder of Preferred Shares may have under these Articles of
Amendment and the Securities Purchase Agreement, the applicable
Redemption Price payable in respect of such unredeemed Preferred Shares
shall bear interest at the rate of 2.5% per month (prorated for partial
months) until paid in full. Until the Company pays such unpaid
applicable Redemption Price in full to a holder of Preferred Shares
submitted for redemption, such holder shall have the option (the "Void
Optional Redemption Option") to, in lieu of redemption, require the
Company to promptly return to such holder(s) all of the Preferred
Shares that were submitted for redemption by such holder(s) under this
Section 3 and for which the applicable Redemption Price has not been
paid, by sending written notice thereof to the Company via facsimile
(the "Void Optional Redemption Notice"). Upon the Company's receipt of
such Void Optional Redemption Notice(s) and prior to payment of the
full applicable Redemption Price to such holder, (i) the Notice(s) of
Redemption at Option of Buyer Upon Triggering Event or the Notice(s) of
Redemption at Option of Buyer Upon Major Transaction, as the case may
be, shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Redemption Price
has not been paid, (ii) the Company shall immediately return any
Preferred Shares submitted to the Company by each holder for redemption
under this Section 3(g) and for which the applicable Redemption Price
has not been paid, (iii) the Fixed Conversion Price of such returned
Preferred Shares shall be adjusted to the lesser of (A) the Fixed
Conversion Price as in effect on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company and (B) the lowest
Closing Bid Price during the period beginning on the date on which the
Notice(s) of Redemption of Option of Buyer Upon Major Transaction or
the Notice(s) of Redemption at Option of Buyer Upon Triggering event,
as the case may be, is delivered to the Company and ending on the date
on which the Void Optional Redemption Notice(s) is delivered to the
Company; provided that no adjustment shall be made if such adjustment
would result in an increase of the Fixed Conversion Price then
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in effect, and (iv) the Conversion Percentage in effect at such time
shall be reduced by a number of percentage points equal to the product
of (A) .50 and (B) the number of days in the period beginning on the
date which is the last date on which the Triggering Event Redemption
Price or Major Transaction Redemption Price, as the case may be, is
required to be delivered in accordance with the foregoing provisions of
this Section 3(g) and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company. Notwithstanding the
foregoing, in the event of a dispute as to the determination of the
Closing Bid Price or the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(g)(iii)
above with the term "Closing Bid Price" being substituted for the term
"Average Market Price" and the term "Redemption Price" being
substituted for the term "Conversion Rate". A holder's delivery of a
Void Optional Redemption Notice and exercise of its rights following
such notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice. Payments
provided for in this Section 3 shall have priority to payments to other
stockholders in connection with a Major Transaction.
4. Inability to Fully Convert.
a. Holder's Option if Company Cannot Fully Convert.
If, upon the Company's receipt of a Conversion Notice or on the
Mandatory Conversion Date, the Company can 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, from issuing all of the Common Stock which is to be issued to a
holder of 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 pursuant to Section 2(g) above
and, with respect to the unconverted Preferred Shares, the holder,
solely at such holder's option, can elect to:
(i) require the Company to redeem from such
holder those Preferred Shares for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice
("Mandatory Redemption") at a price per Preferred Share (the "Mandatory
Redemption Price") equal to the Triggering Event Redemption Price as of
such Conversion Date;
(ii) if the Company's inability to fully
convert Preferred Shares is pursuant to Section 4(a)(z) above, require
the Company to issue restricted shares of Common Stock in accordance
with such holder's Conversion Notice and pursuant to Section 2(g)
above;
(iii) void its Conversion Notice and retain
or have returned, as the case may be, the nonconverted Preferred Shares
that were to be converted pursuant to such holder's Conversion Notice
(provided that a holder's voiding its Conversion Notice
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shall not effect the Company's obligations to make any payments which
have accrued prior to the date of such notice); or
(iv) if the Company's inability to fully
convert Preferred Shares is pursuant to the Exchange Cap described in
Section 4(a)(y) above, and the issuance of additional Conversion Shares
at a Conversion Price equal to the Market Price would not violate the
rules or regulations of The Nasdaq Stock Market, Inc., then, subject to
Section 12, require the Company to issue shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to Section
2(g) above at a Conversion Price equal to the Market Price of the
Common Stock on the date of such holder's Notice in Response to
Inability to Convert (as defined below).
b. Mechanics of Fulfilling Holder's Election. The
Company shall immediately send via facsimile to a holder of Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
4(a) above, a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "Inability to Fully Convert Notice").
Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Preferred Shares which cannot be converted
and (iii) the applicable Mandatory Redemption Price. Such holder shall
notify the Company of its election pursuant to Section 4(a) above by
delivering written notice via facsimile to the Company ("Notice in
Response to Inability to Convert").
c. Payment of Redemption Price. If such holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i) above,
the Company shall pay the Mandatory Redemption Price in cash to such
holder within thirty (30) days of the Company's receipt of the holder's
Notice in Response to Inability to Convert, provided that prior to the
Company's receipt of the holder's Notice in Response to Inability to
Convert the Company has not delivered a notice to such holder stating,
to the satisfaction of the holder, that the event or condition
resulting in the Mandatory Redemption has been cured and all Conversion
Shares issuable to such holder can and will be delivered to the holder
in accordance with the terms of Section 2(g). If the Company shall fail
to pay the applicable Mandatory Redemption Price to such holder on a
timely basis as described in this Section 4(c) (other than pursuant to
a dispute as to the determination of the arithmetic calculation of the
Redemption Price), in addition to any remedy such holder of Preferred
Shares may have under these Articles of Amendment and the Securities
Purchase Agreement, such unpaid amount shall bear interest at the rate
of 2.5% per month (prorated for partial months) until paid in full.
Until the full Mandatory Redemption Price is paid in full to such
holder, such holder may void the Mandatory Redemption with respect to
those Preferred Shares for which the full Mandatory Redemption Price
has not been paid and (i) receive back such Preferred Shares and (ii)
the Fixed Conversion Price of such returned Preferred Shares shall be
adjusted to the lesser of (A) the Fixed Conversion Price as in effect
on the date on which the holder voided the Mandatory Redemption and (B)
the lowest Closing Bid Price during the period beginning on the
Conversion Date and ending on the date the holder voided the Mandatory
Redemption. Notwithstanding the foregoing, if the Company fails to pay
the applicable Mandatory Redemption Price within such thirty (30) days
time period due to a dispute as to the determination of the arithmetic
calculation of the Redemption Rate,
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such dispute shall be resolved pursuant to Section 2(g)(iii) above with
the term "Redemption Price" being substituted for the term "Conversion
Rate".
d. Pro-rata Conversion and Redemption. In the event
the Company receives a Conversion Notice from more than one holder of
Preferred Shares on the same day and the Company can convert and redeem
some, but not all, of the Preferred Shares pursuant to this Section 4,
the Company shall convert and redeem from each holder of Preferred
Shares electing to have Preferred Shares converted and redeemed at such
time an amount equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number
of Preferred Shares outstanding) of all Preferred Shares being
converted and redeemed at such time.
5. Company's Right to Redeem in Lieu of Conversion. (a)
Notwithstanding Section 2 or anything herein to the contrary, but
subject to Section 5(e), at any time after the initial Issuance Date,
the Company may elect to redeem Preferred Shares submitted for
conversion in lieu of converting such Preferred Shares, provided that
the Floating Conversion Price for such Preferred Shares on the
Conversion Date is less than $2.50 (appropriately adjusted for any
stock dividend, stock split or other similar transaction) (a "Company
Redemption in Lieu of Conversion"). If the Company elects to redeem
some, but not all, of the Preferred Shares submitted for conversion,
the Company shall redeem a number of Preferred Shares from each holder
of Preferred Shares submitted for conversion on the applicable date
equal to such holder's pro-rata amount (based on the number of
Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares submitted for
conversion which the Company elects to redeem.
(b) Redemption Price of Company Redemption in Lieu of
Conversion. The "Redemption Price of Company Redemption in Lieu of
Conversion" shall be an amount per Preferred Share equal to the product
of (i) the Conversion Rate of the Preferred Shares on the Conversion
Date and (ii) the last reported sale price of the Common Stock (as
reported by Bloomberg) on the Conversion Date.
(c) Mechanics of Company Redemption in Lieu of
Conversion. The Company shall exercise its right to redeem by
delivering written notice by facsimile and overnight courier ("Notice
of Company Redemption in Lieu of Conversion") to (i) each holder of the
Preferred Shares and (ii) the Transfer Agent. Such Notice of Company
Redemption in Lieu of Conversion shall indicate (A) the maximum, if
any, number of Preferred Shares which shall be subject to Company
Redemption in Lieu of Conversion which maximum number of Preferred
Shares, if less than all of the Preferred Shares outstanding, shall be
allocated pro rata among the holders of Preferred Shares (based on the
number of Preferred Shares held by each holder on the date of the
Company's delivery of Notice of Company Redemption in Lieu of
Conversion relative to the total number of Preferred Shares outstanding
on such date), (B) confirm the time period during which the Company may
effect Company Redemption in Lieu of conversion, which period shall
begin on and include the date which is five business days after the
date of receipt by all of the holders' of the Notice of Redemption in
Lieu of Conversion and shall end on and include the date which is 30
calendar days after the fifth business day following the date of
receipt by all of the holders of the Notice of Redemption in Lieu of
Conversion (the "Redemption in Lieu of Conversion Period").
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The Company may terminate a Redemption in Lieu of Conversion Period at
any time with respect to Preferred Shares which have not been submitted
for conversion by delivering written notice of such termination to each
holder of Preferred Shares by facsimile and overnight courier at least
five days business days prior to the date of such termination. Any
Preferred Shares submitted for conversion after the termination of the
Redemption in Lieu of Conversion Period or the number of which is in
excess of the maximum number of Preferred Shares designated in the
Notice of Company Redemption in Lieu of Conversion shall be converted
in accordance with Section 2.
(d) Payment of Redemption Price. The Company shall
pay the applicable Redemption Price of Company Redemption in Lieu of
Conversion to the holder of the Preferred Shares being redeemed in cash
within five business days after the Conversion Date, but not prior to
such holder's delivery to the Company of the Preferred Stock
Certificates representing the Preferred Shares being redeemed. If the
Company shall fail to pay the applicable Redemption Price of Company
Redemption in Lieu of Conversion to such holder on a timely basis as
described in this Section 5(d), in addition to any remedy such holder
of Preferred Shares may have under these Articles of Amendment, the
Securities Purchase Agreement and the Registration Rights Agreement,
such unpaid amount shall bear interest at the rate of 2.5% per month
(or the maximum rate permitted by law, whichever is lower), pro rated
for partial months, until paid in full. Until the Company pays such
unpaid applicable Redemption Price of Company Redemption in Lieu of
Conversion in full to each holder, each holder of Preferred Shares
submitted for redemption pursuant to this Section 5 and for which the
applicable Redemption Price of Company Redemption in Lieu of Conversion
has not been paid, shall have the option (the "Void Company Redemption
Option") to, in lieu of redemption, require the Company to promptly
return to each holder all of the Preferred Shares that were submitted
for redemption by such holder under this Section 5 and for which the
applicable Redemption Price of Company Redemption in Lieu of Conversion
has not been paid, by sending written notice thereof to the Company via
facsimile (the "Void Company Redemption Notice"). Upon the Company's
receipt of such Void Company Redemption Notice(s) prior to payment of
the full applicable redemption price to each holder, (i) the Company's
Redemption in Lieu of Conversion shall be null and void with respect to
those Preferred Shares submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Preferred Shares submitted to the Company by
each holder for redemption under this Section 5 and for which the
applicable Redemption Price of Company Redemption in Lieu of Conversion
has not been paid and (iii) the Fixed Conversion Price of such returned
Preferred Shares shall be adjusted to the lesser of (A) the Conversion
Price applicable to such conversion on the date on which such Preferred
Shares were originally presented for conversion and (B) the Conversion
Price which would have been effect if such Preferred Shares were
presented for conversion on the business day immediately following the
last day on which the Company could have effected a timely Company
Redemption in Lieu of Conversion. Notwithstanding the foregoing, if the
Company fails to pay the applicable Redemption Price of Company
Redemption in Lieu of Conversion to a holder within the time period
described in this Section 5(d) due to a dispute as to the arithmetic
calculation of the Redemption Price of Company Redemption in Lieu of
Conversion, such dispute shall be resolved pursuant to Section
2(f)(iii) above with the term "Redemption Price of Company Redemption
in Lieu of Conversion" being substituted for the term "Conversion
Rate." If the Company fails to timely effect a
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Company Redemption in Lieu of Conversion in accordance with this
Section 5, the Company shall not be allowed to submit another Notice of
Company Redemption in Lieu of Conversion without the prior written
consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding.
(e) Company Must Have Immediately Available Funds or
Credit Facilities. The Company shall not be entitled to send any Notice
of Company Redemption in Lieu of Conversion pursuant to Section 5(b)
above and begin the redemption procedure under this Section 5, unless
it has:
(1) the full amount of the Redemption Price
of Company Redemption in Lieu of Conversion in cash, available in a
demand or other immediately available account in a bank or similar
financial institution;
(2) credit facilities, with a bank or
similar financial institutions that are immediately available and
unrestricted for use in redeeming the Preferred Shares, in the full
amount of the Redemption Price of Company Redemption in Lieu of
Conversion;
(3) a written agreement with a standby
underwriter or qualified buyer ready, willing and able to purchase from
the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to a Company
Redemption in Lieu of Conversion; or
(4) a combination of the items set forth in
the preceding clauses (i), (ii) and (iii), aggregating the full amount
of the Redemption Price of Company Redemption in Lieu of Conversion.
6. Reissuance of Certificates. In the event of a conversion or
redemption pursuant to these Articles of Amendment of less than all of
the Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and
delivered to the holder of such Preferred Shares a preferred stock
certificate representing the remaining Preferred Shares which have not
been so converted or redeemed.
7. Reservation of Shares. The Company shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided
that the number of shares of Common Stock so reserved shall at no time
be less than 200% of the number of shares of Common Stock for which the
Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares
and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on
the number of Preferred Shares held by each holder at the time of
issuance of the Preferred Shares or increase in the number of reserved
shares, as the case may be. In the event a holder shall sell or
otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any
shares of Common Stock reserved and
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which remain allocated to any person or entity which does not hold any
Preferred Shares shall be allocated to the remaining holders of
Preferred Shares, pro rata based on the number of Preferred Shares then
held by such holder.
8. Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to
the Florida Business Corporation Act, and as expressly provided in
these Articles of Amendment.
9. Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital
or from earnings available for distribution to its stockholders (the
"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 Preferred 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 Preferred Share equal to the sum of
(i) $5,000 and (ii) an amount equal to the product of (.05) (N/365)
($5,000) (such sum being referred to as the "Liquidation Preference");
provided that, if the Preferred Funds are insufficient to pay the full
amount due to the holders of Preferred Shares and holders of shares of
other classes or series of preferred stock of the Company that are of
equal rank with the Preferred Shares as to payments of Preferred Funds
(the "Pari Passu Shares"), then each holder of 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 the Articles of
Incorporation of the Company then in effect, as a percentage of the
full amount of Preferred Funds payable to all holders of Preferred
Shares and Pari Passu Shares. The purchase or redemption by the Company
of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or
winding up of the Company. Neither the consolidation or merger of the
Company with or into any other Person, nor the sale or transfer by the
Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding
up of the Company. No holder of 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; provided that a holder of Preferred Shares shall
be entitled to all amounts previously accrued with respect to amounts
owed hereunder.
10. Preferred Rank; Participation. (i) All shares of Common
Stock shall be of junior rank to all 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 Preferred Shares. Without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue
additional or other capital stock that is of senior or equal rank to
the Preferred Shares in respect of the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the
Company. Without the prior express written consent of the holders of
not less than two-thirds (2/3) of the then outstanding Preferred
Shares, the Company shall not hereafter authorize or make any amendment
to the Company's Articles of Incorporation or bylaws, or file any
resolution
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of the board of directors of the Company with the Florida Secretary of
State containing any provisions, which would adversely affect or
otherwise impair the rights or relative priority of the holders of the
Preferred Shares relative to the holders of the Common Stock or the
holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(ii) Subject to the rights of the holders, if any, of the Pari
Passu Shares, the holders of the Preferred Shares shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if such
holders of Preferred Shares had converted the Preferred Shares into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date
for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution
to the holders of Common Stock.
11. Restriction on Redemption and Cash Dividends with respect
to Other Capital Stock. Until all of the 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
cash 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 Preferred Shares.
12. Limitation on Number of Conversion Shares. Notwithstanding
any other provision herein, the Company shall not be obligated to issue
any shares of Common Stock upon conversion of the Preferred Shares if
the issuance of such shares of Common Stock would exceed that number of
shares of Common Stock which the Company may issue upon Conversion of
the Preferred Shares (the "Exchange Cap") without breaching the
Company's obligations under the rules or regulations of The Nasdaq
Stock Market, Inc., except that such limitation shall not apply in the
event that the Company (a) obtains the approval of its stockholders as
required by applicable rules and regulations of The Nasdaq Stock Market
for issuances of Common Stock in excess of such amount or (b) obtains a
written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the
holders of a majority of the Preferred Shares then outstanding. Until
such approval or written opinion is obtained, no purchaser of Preferred
Shares pursuant to the Securities Purchase Agreement (the "Purchasers")
shall be issued, upon conversion of Preferred Shares, shares of Common
Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the
number of Preferred Shares issued to such Purchaser pursuant to the
Securities Purchase Agreement and the denominator of which is the
aggregate amount of all the Preferred Shares issued to the Purchasers
pursuant to the Securities Purchase Agreement (the "Cap Allocation
Amount"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's Preferred Shares, the transferee shall
be allocated a pro rata portion of such Purchaser's Cap Allocation
Amount. In the event that any holder of Preferred Shares shall convert
all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap
Allocation Amount and the number of shares
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of Common Stock actually issued to such holder shall be allocated to
the respective Cap Allocation Amounts of the remaining holders of
Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such holder.
13. Vote to Change the Terms of Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, shall be
required for (a) any change to these Articles of Amendment or the
Company's Certificate of Incorporation which would amend, alter, change
or repeal any of the powers, designations, preferences and rights of
the Preferred Shares or (b) the Company to issue any Preferred Shares
other than pursuant to the Security Purchase Agreement.
14. Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the holder to the Company and, in
the case of mutilation, upon surrender and cancellation of the
Preferred Stock Certificate(s), the Company shall execute and deliver
new preferred stock certificate(s) of like tenor and date; provided,
however, the Company shall not be obligated to re-issue preferred stock
certificates if the holder contemporaneously requests the Company to
convert such Preferred Shares into Common Stock.
15. Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in these Articles of
Amendment shall be cumulative and in addition to all other remedies
available under these Articles of Amendment, at law or in equity
(including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing
herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of these Articles of
Amendment. The Company covenants to each holder of Preferred Shares
that there shall be no characterization concerning this instrument
other than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the holder
thereof and shall not, except as expressly provided herein, be subject
to any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Preferred
Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the holders of the Preferred Shares shall
be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
16. Specific Shall Not Limit General; Construction. No
specific provision contained in these Articles of Amendment shall limit
or modify any more general provision contained herein. These Articles
of Amendment shall be deemed to be jointly drafted by the Company and
all Buyers and shall not be construed against any person as the drafter
hereof.
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<PAGE>
17. Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Preferred Shares in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other
right, power or privilege.
18. Restrictions on Transfers. Without the prior consent of
the Company, no holder of Preferred Shares shall be entitled to sell
any Preferred Shares to the extent that, immediately following such
sale, there would be more than two holders of Preferred Shares.
THIS PAGE INTENTIONALLY LEFT BLANK
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<PAGE>
19. Form of Conversion Notice. Each Conversion Notice required
to be delivered by a holder of Preferred Shares shall be in the
following form:
--------------------------------------
VISUAL DATA CORPORATION
CONVERSION NOTICE
Reference is made to the Articles of Amendment to the Articles of Incorporation
(the "Articles of Amendment"). In accordance with and pursuant to the Articles
of Amendment, the undersigned hereby elects to convert the number of shares of
Series A Convertible Preferred Stock, par value $0.0001 per share (the
"Preferred Shares"), of Visual Data Corporation, a Florida corporation (the
"Company"), indicated below into shares of Common Stock, no par value per share
(the "Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:____________________________________________________
Number of Preferred Shares to be converted:____________________________
Stock certificate no(s). of Preferred Shares to be converted:__________
Please confirm the following information:
Conversion Price:______________________________________________________
Number of shares of Common Stock to be issued:_________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ________________________________________________
________________________________________________
________________________________________________
Facsimile Number: ________________________________________________
Authorization: ________________________________________________
By:_____________________________________________
Title:__________________________________________
Dated: ________________________________________________
Account Number:
(if electronic book entry transfer):_________________________________
Transaction Code Number (if electronic book entry transfer):___________
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<PAGE>
20. Elimination of Shares. Pursuant to the authorization of the
Company's Board of Directors on March 21, 1995, the Company has designated the
terms and conditions of 650,000 shares of Series A Preferred Stock, $.0001 par
value per share, and pursuant to the authorization of the Company's Board of
Directors on October 31, 1995, the Company has designated the terms and
conditions of 1,000,000 shares of Series B Preferred Stock, $.0001 par value per
share. Inasmuch as no shares of either designation remain outstanding, the Board
of Directors has adopted resolutions setting forth the elimination of the
aforesaid shares of Preferred Stock, and in accordance with said resolutions,
the Company's Articles of Incorporation are hereby amended. The Company does
hereby eliminate the designations of the aforesaid shares of Preferred Stock
authorized pursuant to such designations.
IN WITNESS WHEREOF, the Company has caused these Articles of Amendment
to be signed on behalf of the Company, as of the 1st day of May, 1998.
VISUAL DATA CORPORATION
(a Florida corporation)
By: /s/ Randy S. Selman
--------------------
Name: Randy S. Selman
Its: President
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 1,
1998, by and among Visual Data Corporation, a Florida corporation, with
headquarters located at 1291 SW 29 Avenue, Pompano Beach, Florida 33069 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series A Convertible Preferred Stock (the "Preferred Shares"), which
will be convertible into shares of the Company's common stock, par value $0.0001
per share (the "Common Stock") (as converted, the "Conversion Shares"), in
accordance with the terms of the Company's Articles of Amendment to Articles of
Incorporation (the "Articles of Amendment"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
<PAGE>
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
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(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "Registrable Securities" means the Conversion Shares issued
or issuable upon conversion of the Preferred Shares, any shares of capital stock
issued or issuable with respect to the Conversion Shares or the Preferred Shares
as a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise, regardless of any limitation on conversions of
Preferred Shares.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act.
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, as
soon as practicable but in no event later than the Filing Deadline (as defined
below), file with the SEC a Registration Statement or Registration Statements
(as is necessary) either on Form SB-2 or S-3 (or, if either of such forms is
unavailable for such a registration, on such other form as is available for such
a registration, subject to the consent of the Investors holding a majority of
the Registrable Securities and the provisions of Section 2(c), which consent
will not be unreasonably withheld), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state that, in
accordance with Rule 416 promulgated under the 1933 Act, such Registration
Statement(s) also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon conversion of the Preferred Shares (i)
to prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) by reason of changes in the Conversion Price or Conversion
Rate of the Preferred Shares in accordance with the terms thereof. Such
Registration Statement shall initially register for resale 1,000,000 shares of
Common Stock, subject to adjustment as provided in Section 3(b). Such registered
shares of Common Stock shall be allocated among the Investors pro rata based on
the total number of Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the SEC. The Company shall use
its best efforts to have the Registration Statement(s) declared effective by the
SEC as soon as practicable, but in no event later than the Effectiveness
Deadline (as defined below).
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable
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<PAGE>
Securities included therein shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the then remaining
number of Registrable Securities included in such Registration Statement for
such transferor. Any shares of Common Stock included in a Registration Statement
and which remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining Investors, pro rata
based on the number of Registrable Securities then held by such Investors. For
the avoidance of doubt, the number of Registrable Securities held by any
Investor shall be determined as if all Preferred Shares then outstanding were
converted into or exercised for Registrable Securities.
c. Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Investors
shall have the right to select one legal counsel and, in the event that the
holders of Registrable Securities are exercising their rights pursuant to
Section 2(d), an investment banker or bankers and manager or managers to
administer their interest in the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The Company
shall reasonably cooperate with any such counsel and investment bankers.
d. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the number of
shares of Common Stock available for sale under the Registration Statement is
insufficient to cover all of the Registrable Securities (as defined in Section
3(b)) and the Company proposes to file with the SEC a Registration Statement
relating to an offering for its own account or the account of others under the
1933 Act of any of its securities (other than on Form S-4 or Form S-8 or their
then equivalents relating to securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
promptly send to each Investor who is entitled to registration rights under this
Section 2(d) written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(d) and, if within
twenty (20) days after receipt 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,
subject to the priorities set forth in Section 2(e) below. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a). The obligations
of the Company under this Section 2(d) may be waived by Investors holding a
majority of the Registrable Securities. 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.
-3-
<PAGE>
e. Priority in Piggy-Back Registration Rights in connection
with Registrations for Company Account. If the registration referred to in
Section 2(d) is to be an underwritten public offering and the managing
underwriter(s) advise the Company in writing, that in their reasonable good
faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, and (3) third,
the securities requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
f. Eligibility for Form SB-2 and Form S-3. The Company
represents, warrants and covenants that on and after the date hereof it meets
the requirements for the use of either Form SB-2 or Form S-3 for registration of
the sale by the Investors of the Registrable Securities and the Company has
filed and shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to obtain and maintain such eligibility for the use
of Form SB-2 or Form S-3. In the event that Form S-3 is not available for sale
by the Investors of the Registrable Securities, then the Company shall undertake
to register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
g. Rule 416. The Company and the Investors each acknowledge
that an indeterminate number of Registrable Securities shall be registered
pursuant to Rule 416 under the 1933 Act so as to include in such Registration
Statement any and all Registrable Securities which may become issuable (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) if permitted by law, by reason of reductions in the
Conversion Price (as defined in the Articles of Amendment) of the Preferred
Shares in accordance with the terms thereof, including, without limitation, the
terms which cause the Floating Conversion Price (as defined in the Articles of
Amendment) to decrease as the bid price of the Common Stock decreases
(collectively, the "Rule 416 Securities"). In this regard, the Company agrees to
use all reasonable efforts to ensure that the maximum number of Registrable
Securities which may be registered pursuant to Rule 416 under the 1933 Act are
covered by the Registration Statement and, absent guidance from the SEC or other
definitive authority to the contrary, the Company shall use all reasonable
efforts to affirmatively support and to not take any position adverse to the
position that the Registration Statement filed hereunder covers all of the Rule
416 Securities. If the Company determines that the Registration Statement filed
hereunder does not cover all of the Rule 416 Securities, the Company shall
immediately provide to each Investor written setting forth the basis for the
Company's position and the authority therefor.
-4-
<PAGE>
h. Registration Statement Election; Filing Deadline;
Effectiveness Deadline. Within twenty (20) days of the Initial Closing Date (as
defined in the Securities Purchase Agreement), the Company shall elect to file
the Registration Statement or Registration Statements required by Section 2(a)
on either (i) Form SB-2 or (ii) Form S-3 and shall notify the Investors of such
election by facsimile or overnight courier. For purposes of this Agreement, the
"Filing Deadline" shall mean either (i) sixty (60) days after the Initial
Closing Date if the Company elects to file the Registration Statement on Form
SB-2 or (ii) August 15, 1998 if the Company elects to file the Registration
Statement on Form S-3. For purposes of this Agreement "Effectiveness Deadline"
shall mean either (i) 120 days after the Initial Closing Date if the Company
elects to file the Registration Statement on Form SB-2 or (ii) September 30,
1998, if the Company elects to file the Registration Statement on Form S-3
(provided, that, if the SEC reviews the Registration Statement on Form S-3 and,
in connection with such review, requests the audited financial statements of the
Company for the year ended September 30, 1998 before it will declare such
Registration Statement effective, then the Effectiveness Deadline shall mean
October 30, 1998).
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(d) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the Filing Deadline for the registration of Registrable Securities pursuant
to Section 2(a)) and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as possible
after such filing (but in no event later than the Effectiveness Deadline for the
registration of Registrable Securities), and keep such Registration Statement
effective pursuant to Rule 415 at all times until the earlier of (i) the date as
of which the Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto) or (ii) the date on which (A) the Investors shall have sold all the
Registrable Securities and (B) none of the Preferred Shares is outstanding (the
"Registration Period"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such
-5-
<PAGE>
period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend such Registration Statement, or
file a new Registration Statement (on the short form available therefor, 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 fifteen (15) 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 it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Shares is greater
than the quotient determined by dividing (i) the number of shares of Common
Stock available for resale under such Registration Statement by (ii) 1.5. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Preferred Shares shall be disregarded
and such calculation shall assume that the Preferred Shares are then convertible
and exercisable, respectively, into shares of Common Stock at the then
prevailing Conversion Rate (as defined in the Company's Articles of Amendment).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement and its legal
counsel without charge (i) promptly after the same is prepared and filed with
the SEC at least one copy of such Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits, the prospectus included in
such Registration Statement (including each preliminary prospectus) and, with
regards to such Registration Statement(s), any correspondence by or on behalf of
the Company to the SEC or the staff of the SEC and any correspondence from the
SEC or the staff of the SEC to the Company or its representatives, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (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
-6-
<PAGE>
reasonably 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 (x) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
e. In the event that the holders of Registrable Securities are
exercising their rights pursuant to Section 2(d) and Investors who hold a
majority of the Registrable Securities being offered in the offering select
underwriters for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, 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 in writing of the happening of any
event as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
-7-
<PAGE>
h. The Company shall permit each Investor and a single firm of
counsel, initially Katten Muchin & Zavis or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a majority
of the Registrable Securities being sold, to review and comment upon a
Registration Statement and all amendments and supplements thereto at least four
(4) business days prior to their filing with the SEC, and not file any document
in a form to which such counsel reasonably objects. The Company shall not submit
a request for acceleration of the effectiveness of a Registration Statement or
any amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
i. At the request of any Investor, the Company shall use its
best efforts to furnish to such Investor, on the date of the effectiveness of
the Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) in the event that the holders of Registrable
Securities are exercising their rights pursuant to Section 2(d), if required by
an underwriter, 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 (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
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, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. 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.
-8-
<PAGE>
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement 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
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq SmallCap Market. The Company shall
pay all fees and expenses in connection with satisfying its obligation under
this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and registrar
for all such Registrable Securities not later than the effective date of such
Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in
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<PAGE>
such offering; (ii) make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) supplement
or make amendments to any Registration Statement if requested by a shareholder
or any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
r. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
s. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
t. Within two (2) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
u. Notwithstanding anything to the contrary in Section 3(f),
at any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "Grace Period"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of material, non-public
information giving rise to a Grace Period and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that during any consecutive 365 day
period, there shall be only one Grace Period, such Grace Period not to exceed 20
days (an "Allowable Grace Period"). For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
Investors receive the notice referred to in clause (i) above and shall end on
and include the date the Investors receive the notice referred to in clause (ii)
above. The provisions of Section 2(c) of the Articles of Amendment shall not be
applicable during the period of any Allowable Grace Period. Upon expiration of
the Allowable Grace Period, the Company shall again be bound by the first
sentence of Section 3(f) with respect to the information giving rise thereto. In
the event of any Grace Period, the
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<PAGE>
Maturity Date (as defined in the Articles of Amendment) shall be delayed one day
for each day in the Grace Period as provided in Section 2(h) of the Articles of
Amendment.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such 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 and, if requested by the
underwriters, customary lock-up arrangements (on terms no more restrictive than
the lock-up arrangements applicable to the management of the Company), 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 notifies the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such 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(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f).
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
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
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<PAGE>
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions and transfer taxes, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company and fees
and disbursements of one counsel for the Investors, which fees shall not exceed
$3,000, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents of, and each Person, if any, who controls, any Investor within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and any underwriter (as defined in the 1933 Act) for the Investors,
and the directors and officers of, and each Person, if any, who controls, any
such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "Claims") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("Blue Sky Filing"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which the statements therein were made, 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
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<PAGE>
were made, not misleading, or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(d) with respect to the number of legal counsel, the Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred, subject to documentation, if requested
by the Company, and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection 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); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(c), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it;
(iii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company; and (iv) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that
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<PAGE>
the indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses 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 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, if the Investors are
entitled to indemnification hereunder, or the Company, if the Company is
entitled to indemnification hereunder, as applicable. The Indemnified Party or
Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified
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<PAGE>
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
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
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<PAGE>
any time permit the Investors to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
a. for a period of two years from the last Closing Date 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 any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any person to amend or
consent to a waiver or
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<PAGE>
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
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 consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically generated and kept on file by the
sending party); (iii) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Visual Data Corporation
1291 SW 29 Avenue
Pompano Beach, Florida 33069
Telephone: (954) 917-6655
Facsimile: (954) 917-6660
Attention: Randy S. Selman
With a copy to:
Atlas Pearlman Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Telephone: (954) 763-1200
Facsimile: (954) 766-7800
Attention: Joel D. Mayersohn, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers attached hereto, with copies to such Buyer's counsel as set
forth on the Schedule of Buyers.
Each party shall provide five (5) days prior notice to the other party of any
change in address, phone number or facsimile number.
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<PAGE>
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. The corporate laws of the State of Florida shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions regarding the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York without regard to the principles of conflict of laws. Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the state
and federal courts sitting the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement and the Securities Purchase Agreement
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 and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
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i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares then outstanding have
been converted into Registrable Securities.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
VISUAL DATA CORPORATION THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/ Randy S. Selman By: /s/ James F. O'Brien, Jr.
------------------------- -------------------------------------
Name: Randy S. Selman Name: James F. O'Brien, Jr.
Its: President Its: President
5-1-98
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
-------------------------------------
Name: James F. O'Brien, Jr.
Its: President
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<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of
Investor Address Preferred Shares Investor's Representatives' Address
Investor Name and Facsimile Number Initial/Additional and Facsimile Number
------------- -------------------- ------------------ -----------------------------------
<S> <C> <C> <C>
Themis Partners L.P. c/o Promethean Investment Group, L.L.C. 50/50 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Steve Weiner
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited 100/100 Promethean Investment Group, L.L.C.
P.O. Box 513 40 West 57th Street, Suite 1520
3rd Floor British American Center New York, New York 10019
Dr. Roy's Drive Attn: James F. O'Brien, Jr.
Georgetown, Grand Cayman Steve Weiner
Cayman Island, BWI Facsimile: 212-698-0505
Attn: Allen J. Bernardo
Facsimile: 809-949-7802 Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
</TABLE>
<PAGE>
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:
Re: VISUAL DATA CORPORATION
-----------------------
Ladies and Gentlemen:
We are counsel to VISUAL DATA CORPORATION, a Florida corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the Buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Series A
Convertible Preferred Stock, par value $0.0001 per share, (the "Preferred
Shares"). Pursuant to the Purchase Agreement, the Company also has entered into
a Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of the Common Stock of the Company, par value
$0.0001 per share (the "Common Stock") issuable upon conversion of the Preferred
Shares, under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 1998, the Company filed a Registration Statement
on Form _____ (File No. 333- _____________) (the "Registration Statement") with
the Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[Company Counsel]
By:________________________
cc: [LIST NAMES OF HOLDERS]
