As filed with the Securities and Exchange Commission on
January 30, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
ACCENT COLOR SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------------
CONNECTICUT 06-1380314
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
800 Connecticut Boulevard
East Hartford, Connecticut, 06108
(860) 610-4000
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
---------------------------
Norman L. Milliard
President and Chief Executive Officer
Accent Color Sciences, Inc.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
(860) 610-4000
(Name, Address, including Zip Code, and Telephone Number, including Area C
ode, of Agent for Service)
---------------------------
Copy to:
Willard F. Pinney, Jr.
Murtha, Cullina, Richter and Pinney, LLP
Cityplace I
185 Asylum Street, 29th Floor
Hartford, Connecticut 06103-3469
(860) 240-6000
---------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the
following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of maximum maximum Amount
securities Amount offering aggregate of
to be to be price offering registration
registered registered per unit(1) price fee
Common Stock,
no par
value per share,
issuable upon
conversion of
Series B
Convertible
Preferred Stock 6,300,000 shares(2) $1.625 $10,237,500 $3,020.06
Common Stock,
no par
value per share,
issuable
upon exercise
of outstanding
warrants 415,385 shares $1.625 $675,000.63 $199.13
(1) Estimated solely for the purpose of computing the amount of
the registration fee pursuant to Rule 457(c) under the Securities
Act of 1933, on the basis of the average of the high and low sale
prices reported on the Nasdaq National Market Automated Quotation
System on January 27, 1998.
(2) For purposes of estimating the number of shares of the
Company's common stock, no par value per share ("Common Stock"), to
be included in this Registration Statement, the Company calculated
200% of the number of shares of Common Stock issuable upon
conversion of 4,500 shares of the Company's Series B Convertible
Preferred Stock, no par value per share (the "Series B Stock"), or
otherwise pursuant to the Certificate of Designations, Preferences
and Rights of the Series B Stock, based on a conversion price of
$1.875 per share in accordance with Rule 416 of the Securities Act
of 1933, as amended ("Rule 416"). Pursuant to Rule 416, the number
of shares of Common Stock to be registered hereunder also includes
an indeterminate number of shares which may become issuable upon
conversion of or otherwise with respect to the Series B Stock to
prevent dilution resulting from stock splits, stock dividends or
similar transactions or by reason of reductions in the conversion
price of the Series B Stock in accordance with the terms thereof.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
6,715,385 SHARES
ACCENT COLOR SCIENCES, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to
time of up to 6,715,385 shares (the "Shares") of common stock, no
par value per share ("Common Stock"), of Accent Color Sciences,
Inc., a Connecticut corporation (the "Company"), by the Selling
Stockholders named herein (the "Selling Stockholders"), or by
their respective pledgees, donees, transferees or other
successors in interest that receive such Shares as a gift,
partnership distribution or other non-sale related transfer. Of
the 6,715,385 Shares being offered hereby: (i) 6,300,000 Shares
are issuable upon conversion of or otherwise with respect to
4,500 shares of the Company's Series B Convertible Preferred
Stock, no par value per share ("Series B Stock"), held by the
Selling Stockholders; and (ii) 415,385 Shares are issuable upon
the exercise of certain warrants (the "Warrants") held by the
Selling Stockholders. The Series B Stock and the Warrants were
issued by the Company to the Selling Stockholders on January 9,
1998 in a private transaction ("the 1998 Private Placement").
The number of Shares indicated as being issuable upon
conversion of or otherwise with respect to the Series B Stock and
offered hereby represents an estimate of the number of shares of
Common Stock issuable upon conversion of or otherwise with
respect to the Series B Stock, based on 200% of the number of
shares of Common Stock issuable at a conversion price of $1.875
per share in accordance with Rule 416 ("Rule 416") of the
Securities Act of 1933, as amended (the "Securities Act") and in
certain other events described in the Certificate of
Designations, Preferences and Rights of the Series B Stock ("the
Certificate of Designation"). Pursuant to Rule 416, the number
of shares of Common Stock underlying the Series B Stock and
offered for sale hereby includes an indeterminate number of
shares as may be issued or issuable upon conversion of or
otherwise with respect to the Series B Stock by reason of the
floating rate conversion price mechanism and other adjustment
mechanisms described in the Certificate of Designation, or by
reason of any stock splits, stock dividends or similar
transactions involving the Common Stock, in order to prevent
dilution. Although the Company will receive the exercise price
of any Warrants which are exercised, the Company will not receive
any of the proceeds from the sale of the Shares by the Selling
Stockholders. The expenses of registration of the Shares which
may be offered hereby under the Securities Act will be paid by
the Company.
The Shares covered under the Registration Statement of which
this Prospectus is a part may be offered for sale from time to
time by or for the account of the Selling Stockholders, or their
pledgees, donees, transferees or other successors in interest, in
the open market, on the NASDAQ National Market or on one or more
exchanges on which the Shares are then listed, in privately
negotiated transactions, in an underwritten offering, in a
combination of such methods, or by any other legally available
means, at market prices prevailing at the time of such sale, at
prices related to such prevailing market prices, at negotiated
prices or at fixed prices. The Shares are intended to be sold
through one or more broker-dealers or directly to purchasers.
Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling
Stockholders, their successors in interest and/or the purchasers
of the Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both (which compensation as
to a particular broker-dealer may be in excess of customary
commissions). The Selling Stockholders, their successors in
interest and/or any broker-dealers acting in connection with the
sale of the Shares hereunder may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act, and
any commissions or other compensation received by them and any
profits realized by them on the resale of the Shares as
principals may be deemed underwriting compensation under the
Securities Act. See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION."
The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol "ACLR". On January 27, 1998,
the closing price of the Company's Common Stock as reported on
the Nasdaq National Market was $1.6875.
ANY INVESTMENT IN THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
FORWARD-LOOKING STATEMENTS
Certain information contained herein and/or incorporated by
reference in this Prospectus includes "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor
created by that Act. There are several important factors that
could cause actual results to differ materially from those
anticipated by the forward-looking statements contained in such
discussions. Additional information on the risk factors which
could affect the Company's financial results is included in this
Prospectus and in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and the other documents
incorporated by reference herein.
AVAILABLE INFORMATION
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at
the Public Reference Room of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and copies of such material can be obtained from the
Public Reference Section of the Commission, Washington, D.C.
20549, at prescribed rates.
The Company has filed with the Commission a Registration
Statement on Form S-3, under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with
respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits
filed therewith or incorporated by reference. Statements
contained in this Prospectus regarding the contents of any
contract or any other document referred to are necessarily
incomplete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission,
each statement being qualified in all respects by such reference.
The Registration Statement may be inspected without charge at the
offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained
from such office upon the payment of the fees prescribed by the
Commission.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this
Prospectus the following documents and information heretofore
filed with the Commission:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 filed pursuant to Section 13 of the
Exchange Act.
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30,
1997 filed pursuant to Section 13 of the Exchange Act.
(3) The Company's Current Report on Form 8-K dated January 9,
1998 and filed with the Commission.
(4) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A, which became
effective December 23, 1996, filed pursuant to Section 12(g) of
the Exchange Act, including any amendment or report filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of
securities contemplated hereby shall be deemed to be incorporated
by reference in this Prospectus or any Prospectus Supplement and
to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference
or deemed to be incorporated by reference in this Prospectus or
any Prospectus Supplement shall be deemed to be modified or
superseded for all purposes of this Prospectus or such Prospectus
Supplement to the extent that a statement contained herein,
therein or in any subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein or
in such Prospectus Supplement modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute
a part of this Prospectus or any Prospectus Supplement.
The Company will provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the
written or oral request of such person, a copy of any and all of
the documents referred to above that have been or may be
incorporated in this Prospectus by reference (other than exhibits
to such documents, unless such exhibits are specifically
incorporated by reference therein). Requests for such copies
should be directed to: the Company's Vice President and Chief
Financial Officer, Accent Color Sciences, Inc., 800 Connecticut
Boulevard, East Hartford, Connecticut, 06108. The Company's
telephone number at that location is (860) 610-4000.
The documents incorporated by reference herein contain
forward-looking statements that involve risks and uncertainties.
The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited
to, those discussed in such documents and in "Risk Factors"
below.
No person is authorized to give any information or to
make any representations, other than those contained in this
Prospectus, in connection with the offering described herein,
and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, nor shall there be any sale of
these securities by any person in any jurisdiction in which it is
unlawful for such person to make such offer, solicitation or
sale. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication
that the information contained herein is correct as of any time
subsequent to the date hereof.
THE COMPANY
Accent Color designs, manufactures and sells innovative,
high-speed, spot color printing systems ("Truecolor Systems") for
integration with digital, high-speed, black-on-white printers and
sells related consumables. Spot color printing involves the use
of color to enhance traditional black-on-white documents by
accenting critical information, such as a balance due on a
billing statement, or by printing graphics, such as a company
logo. Truecolor Systems are designed to print spot color in
high-speed, high-volume applications at a low incremental cost
per page without diminishing the speed or performance of the
high-speed, black-on-white host printer or affecting the end
user's existing operational methods and are capable of printing
up to 480 pages per minute, simultaneously utilizing up to eight
different colors, including custom colors, to print or highlight
fixed or variable data. Truecolor Systems combine the Company's
proprietary paper handling technology with patented ink jet
technology from Spectra, Inc. ("Spectra"). Under the agreement
with Spectra, the Company holds an exclusive right to supply
products which include Spectra printheads to print color on the
black-on-white output from specified high-speed printers from
Xerox, IBM, Oce and certain other manufacturers through the year
2002. The Company also holds a right to extend the agreement
with Spectra for an additional seven years.
The Company also sells consumables comprised of standard and
custom color wax-based inks, as well as spare parts used with
Truecolor Systems. The Company expects that consumables will
generate recurring revenue which the Company believes will
increase as the installed base and usage of Truecolor Systems
increase.
Accent Color was incorporated under the laws of Connecticut
in May 1993. The Company's principal executive offices are
located at 800 Connecticut Boulevard, East Hartford, Connecticut,
06108 and its telephone number at that address is (860) 610-4000.
RISK FACTORS
An investment in the shares of Common Stock offered hereby
involves a high degree of risk. In addition to the risks set
forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1997, June 30, 1997
and September 30, 1997, the other documents incorporated herein
by reference and the other information in this Prospectus, the
following factors should be considered carefully in evaluating
the Company and its business before purchasing the Common Stock
offered hereby.
Immediate and Future Capital Requirements
The Company has ongoing working capital, capital equipment
and operations loss-funding requirements in order to continue to
operate and grow. As a result, the Company has and will likely
continue to seek equity or debt financing to fund operating
losses, future improvements and expansion of the Company's
research and manufacturing capabilities. There can be no
assurance that such financing will be available when needed, or
that, if available, it will be on satisfactory terms. The
failure to obtain financing would hinder the Company's ability to
make continued investments in capital equipment and expansion,
which could materially adversely affect results of operations.
Any such equity financing would result in dilution to the
then-existing stockholders of the Company.
Volatility of Stock Price
The Company's stock price has been, and in the future is
expected to be, volatile and to experience market fluctuation as
a result of a number of factors, including, but not limited to,
current and anticipated results of operations, future product
offerings by the Company or its competitors and factors unrelated
to the operating performance of the Company. The trading price
of the Company's Common Stock may also vary as a result of
changes in the business, operations, or financial results of the
Company, prospects of general market and economic conditions and
other factors.
Development Risks
Accent Color is a development stage company. The Company
has products in various stages of development, and minimal
revenue has been recognized from the sale of its products. The
Company has developed and plans to market new products and new
applications of technology and, accordingly, is subject to risks
associated with such ventures. The Company has delivered
prototype, pre-production and production Truecolor Systems and is
entering the pre-production phase for the enhanced version of
these systems. The probability of success of the Company must be
considered in light of the expenses and delays frequently
encountered in connection with the operation of a new business
and the development of practical production techniques for new
products.
The Company considers the enhancement of its present
products to be the Company's first development priority. Many of
these enhancements are contemplated in the Company's contract
with IBM, including the Company's plan to devote substantial
resources to improve its technology in the areas of printhead
width and print resolution. In addition, the Company's customers
have requested advanced paper handling functionality,
particularly duplex printing (the ability to print on both sides
of a page). There can be no assurance, however, that the Company
will be successful in developing enhancements for its products or
that these enhancements will prove to be desirable to end users
or that the Company will be able to obtain the necessary
components for contemplated product enhancements. Failure to
develop enhancements to its existing products, particularly the
enhancements contemplated by the agreement with IBM, could have a
material adverse effect on the market acceptance of the Company's
products. As a result, any such failures could have a material
adverse effect on the Company's business, financial condition and
results of operations. Further, the development of product
enhancements will likely render portions of the Company's
inventory obsolete, which could have a material adverse effect on
the Company's ability to sell such inventory profitably. For the
quarter ending December 31, 1997, the Company anticipates a
charge for obsolete inventory due to product transition of
approximately $1,000,000 to $1,400,000.
Limited History of Product Manufacturing
To date, the Company has manufactured only limited
quantities of Truecolor Systems. To be profitable, the Company's
products must be manufactured in sufficient quantities and at
acceptable costs. To date, manufacturing costs have exceeded
average selling price. Future production in sufficient
quantities may pose technical and financial challenges for the
Company. The Company has limited manufacturing history, and no
assurance can be given that the Company will be able to make a
successful transition to high-volume production. The failure to
make a successful transition and to manufacture at a cost
sufficiently below its selling price could have a material
adverse effect on the business, financial condition and results
of operations of the Company.
Limited Operating History; History of Losses; Uncertainty of
Future Financial Results;
The Company was formed in May 1993 and is a development
stage company with a limited operating history. The Company
incurred net losses of $45,000, $1,154,000, $4,217,000,
$13,739,000 and $13,106,000 for the period from inception to
December 31, 1993, the years ended December 31, 1994, 1995 and
1996 and the nine-month period ended September 30, 1997,
respectively. These losses were primarily due to the substantial
research and development costs associated with the development of
Truecolor Systems, all of which costs were expensed as incurred.
Through September 30, 1997, $1,285,000 of revenue had been
recognized from the sale of the Company's products. As a result
of these losses, as of September 30, 1997, the Company had an
accumulated deficit of $32,260,000 and total shareholders' equity
of $8,368,000. It is expected that quarterly net losses will
continue through at least the 2nd quarter of 1998. There can be
no assurance that the Company will be profitable thereafter or
that profitability, if achieved, will be sustained. In order to
support the anticipated growth of its business, the Company
expects to expand its manufacturing, marketing and sales
capabilities, technical and other customer support functions, and
research and product development activities. The anticipated
increase in the Company's operating expenses caused by any
expansion could have a material adverse effect on the Company's
operating results if revenue does not increase at an equal or
greater rate. Also, the Company's expenses for these and other
activities are based in significant part on its expectations
regarding future revenue and are fixed to a large extent in the
short term. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue
shortfalls.
Uncertainty of Market Development; Acceptance of Accent Color's
Products
The digital, high-speed printing market has traditionally
relied mainly on black-on-white print. There can be no assurance
that a market for high-speed, variable data color printing will
develop or achieve significant growth. The failure of such
market to develop or achieve significant growth would have a
material adverse effect on the Company's business, financial
condition and results of operations.
The Company's products are currently designed for the
digital, high-speed production printing and production publishing
market segments. There can be no assurance that the Company will
be successful in developing or marketing its existing or future
products or that, if any such products achieve market acceptance,
such acceptance will be sustained. The Company also plans to
further enhance its products and is investing substantial capital
and other resources in the development of such enhancements. The
Company plans to devote substantial resources to improve
technology in the areas of ink jet printhead width. There can be
no assurance that the Company's Truecolor Systems or enhancements
will be a preferable alternative to existing products or that
they will not be rendered obsolete or noncompetitive by products
offered by other companies. Any quality, durability or
reliability problems with the Company's products, regardless of
materiality, or any other actual or perceived problems with any
Company products, could have a material adverse effect on market
acceptance of such products. There can be no assurance that such
problems or perceived problems will not arise or that, even in
the absence of such problems, the Company's products will achieve
market acceptance. A failure of any of the Company's products to
achieve market acceptance for any reason could have a material
adverse effect on the Company's business, financial condition and
results of operations. In addition, the announcement by the
Company or its OEM customers or competitors of new products and
technologies could cause customers to defer purchases of the
Company's existing products, which could have a material adverse
effect on the Company's business, financial condition and results
of operations.
Dependence on a Limited Number of Customers; Revenue
Concentration
The Company anticipates that sales of its Truecolor Systems
and consumables to a limited number of customers will account for
substantially all of the Company's revenue. As of September 30,
1997, the Company had contracts with two customers, International
Business Machines Corporation ("IBM") and Groupe SET ("SET"), and
was in contract discussions with Oce Printing Systems USA, Inc.
("Oce"). Generally, the Company's customers provide non-binding
forecasts of future orders. There can be no assurance that these
customers will purchase a significant volume of the Company's
products. A substantial difference between forecast orders and
actual orders by any one of its customers, or the failure of its
customers to purchase a significant volume of the Company's
products, could have a material adverse effect on the business,
financial condition and results of operations of the Company.
There can be no assurance that the Company's OEM customers,
including IBM and SET, or other companies will not compete with
the Company in the future.
Dependence on Third Party Marketing, Distribution and Support
A significant element of the Company's marketing strategy is
to form alliances with third parties for the marketing and
distribution of its products. To this end, the Company is a
party to multi-year agreements with IBM (the "IBM Agreement") and
Groupe Set and is in contract discussions with Oce, for the
marketing, distribution and support of the Company's products.
The Company's contract with IBM is for an initial term of three
years with IBM having the right to terminate its contract in
certain circumstances, such as a material breach of the contract
by Accent Color or the Company's bankruptcy or insolvency. There
can be no assurance that (i) the Company will be successful in
maintaining such alliances or forming and maintaining other
alliances, (ii) the Company will be able to satisfy its
contractual obligations with its OEM customers or (iii) the
Company's OEM customers will devote adequate resources to market
and distribute the Company's products successfully. Any
disruption in the Company's relationships with IBM or SET, or any
future customer of the Company, may have a material adverse
effect on the Company's business, financial condition or results
of operations.
As a result of its relationships with its OEM customers, the
Company's ability to interact with end users of Truecolor Systems
and observe their experience with the Company's products may be
limited. The Company also does not have control over the
marketing, distribution and support efforts of its OEM customers.
This may result in a delay by the Company in the recognition and
correction of any problems experienced by the OEM customers or
the end users. Failure of the Company to respond to customer and
end-user preferences or experience with its products, or a
failure by the Company's OEM customers to market and support the
Company's products successfully, could have a material adverse
effect on the business, financial condition and results of
operations of the Company. In addition, the Company's OEM
customers will control the timing of the introduction of the
Company's products, including its existing products.
Consequently, the timing of the introduction of the Company's
products may be delayed for reasons unrelated to the Company and
its products, such as delays in the introduction of products
offered by the OEM customers with which the Company's products
are integrated. Delays in the introduction of the Company's
products could have a significant adverse effect on the Company's
business, financial condition and results of operations.
Further, third-party distribution provides the Company with less
information regarding the amount of inventory that is in the
process of distribution. This lack of information may reduce the
Company's ability to predict fluctuations in revenue resulting
from a surplus or a shortage in its distribution channels and
contribute to volatility in the Company's financial results, cash
flow and inventory.
Dependence on Spectra
The Company is dependent on Spectra, a wholly owned
subsidiary of Markem, Inc., as its sole source supplier of ink
jet printheads and the hot melt, wax-based inks used by Truecolor
Systems. Spectra has agreed to supply the Company with ink jet
printheads and wax-based inks under a supply agreement, subject
to a number of conditions. The Company's reliance on Spectra
involves several risks, including a potential inability to obtain
an adequate supply of required printheads or inks, and reduced
control over the quality, pricing and timing of delivery of these
items. Because the production of printheads is specialized and
requires long lead times, there can be no assurance that delays
or shortages of printheads will not occur. To date, Spectra has
only produced a limited number of ink jet printheads.
Accordingly, there can be no assurance that Spectra will be able
to provide a stable source of supply of these components. As the
Company increases the production of Truecolor Systems, it will
become more reliant upon Spectra's ability to manufacture and
deliver ink jet printheads as required. Any interruption in the
Company's ability to obtain Spectra printheads could have a
material adverse effect on the Company's business, financial
condition and results of operations. Further, the Company and
Spectra are devoting substantial resources to improve technology
in the areas of ink jet printhead width. There can be no
assurance that, if such improvements are made, Spectra will be
able to produce printheads embodying such improvements for the
Company in sufficient quantities at an acceptable price, or at
all. Any inability to incorporate such improvements or produce
printheads embodying them could have a material adverse effect on
the Company's business, financial condition and results of
operations.
Spectra, itself, is also reliant upon licenses granted to it
by third parties. The Spectra agreement allows the Company, in
certain instances, to utilize Spectra's technology to either
manufacture wax-based inks or ink jet printheads itself or
arrange for their manufacture by third parties utilizing such
technology. There can be no assurance, however, that, if
necessary, the Company would be able to manufacture ink jet
printheads and wax-based inks itself or negotiate with third
parties for the timely manufacture of ink jet printheads or
supply of wax-based inks on acceptable terms or at all.
Furthermore, the use of Spectra's technology may require the
consent of certain other licensors to Spectra, and there is no
assurance that the Company will be able to obtain any such
consents on acceptable terms or at all.
Spectra has granted the Company the exclusive right to
supply products including Spectra printheads in the worldwide
market for printing color on the output from specified
high-speed, black-on-white printers manufactured or marketed by
Xerox, IBM, Oce and certain other manufacturers through December
31, 2002 with the Company holding an option to renew the contract
for an additional seven years. To maintain such exclusive
rights, the Company is required to purchase a minimum number of
ink jet printheads each year, to continue to purchase its
wax-based ink requirements from Spectra and to make certain
payments. There can be no assurance that the Company will be
able to meet the minimum purchase requirements or make these
payments. The Company's agreement with Spectra required
quarterly payments of $250,000 through 1997 to maintain the
exclusivity rights. These specified payments, together with
similar payments from other Spectra customers (which vary in
amount from customer to customer), are used by Spectra to fund
ink jet printhead development, the results of which are available
to participating customers. In addition, the Company has a
development arrangement with Spectra that requires the Company to
make additional payments to support developing a wider printhead
manufacturing capability. Any disruption in the Company's
relationship with Spectra, or in Spectra's relationship with its
licensors, may have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Major Subcontractors and Suppliers
The Company relies on subcontractors and suppliers to
manufacture, subassemble and perform certain testing of some
modules and parts of Truecolor Systems. Currently, the Company's
ink jet printheads are manufactured solely by Spectra. The
Company currently performs the final assembly and testing of
various Truecolor System components and of each complete
Truecolor System. The Company plans to outsource the manufacture
of major components and complete final assembly and testing of
Truecolor Systems in house. The inability to develop
relationships with, or the loss of, subcontractors or suppliers,
or the failure of its subcontractors or suppliers to meet the
Company's price, quality, quantity and delivery requirements,
could have a material adverse effect on the Company's business,
financial condition and results of operations.
Significant Fluctuations in Quarterly Results
The Company's quarterly operating results are likely to vary
significantly in the future based upon a number of factors,
including the volume, timing, delivery and acceptance of customer
orders, the introduction and market acceptance of new products
offered by the Company and its OEM customers or competitors,
changes in the pricing policies of the Company or its OEM
customers or competitors, the level of product and price
competition, the relative proportion of printer and consumables
sales, the timely availability of sufficient volume of sole
source components, fluctuations in research and development
expenditures, the availability of financing arrangements for
certain of the Company's customers, general economic conditions,
as well as other factors. Additionally, because the purchase of
a printing system and peripherals involves a significant capital
commitment, the sales cycle for the Company's products is
susceptible to delays and lengthy acceptance procedures
associated with large capital expenditures. Historically, there
has existed seasonality in the purchase of major equipment such
as the Company's Truecolor Systems, with many companies
experiencing higher sales in the fourth calendar quarter. The
Company expects such seasonality to apply to the purchase of its
systems. Furthermore, due to the Company's high average sales
price and low unit volume, a delay in the sale of, or the
recognition of revenue from the sale of a few units could have a
material adverse effect on the results of operations for a fiscal
quarter.
Quarterly revenue and operating results depend primarily on
the volume, timing, shipping and acceptance of orders during the
quarter, which are difficult to forecast due to the length of the
sales cycle. As of September 30, 1997, the Company has
recognized $1,285,000 of revenue from the sale of its products.
Through September 30, 1997, the Company had shipped 15 production
versions of its Truecolor Systems. Consequently, the Company has
minimal experience with the rate of customer and end-user
acceptance of its products or the volume or nature of warranty
claims relating to its products. The Company's policy is to
recognize revenue upon customer acceptance, which generally
occurs at the end of the warranty period. Thereafter, once the
Company gains sufficient experience regarding customer acceptance
of, and warranty claims regarding, its products, the Company
intends to recognize revenue upon shipment of the products. As a
result, the Company expects a difference between the timing of
shipments and the recognition of related revenue, which may be
substantial and inconsistent. There can be no assurance that the
timing of revenue recognition will not result in significant
fluctuations in the Company's quarterly operating results. A
significant portion of the Company's operating expenses is
relatively fixed in the short term, and planned expenditures are
based on sales forecasts. Sales forecasts by the Company's
customers are generally not binding. If revenue levels are below
expectations, operating results may be disproportionately
affected because only a small portion of the Company's expenses
vary with revenue in the short term, which could have a material
adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the
Company will experience or sustain any revenue growth or
profitability.
Potential Need for Additional Funding for Operating and Capital
Requirements
The Company's currently anticipated levels of revenue and
cash flow are subject to many uncertainties and cannot be
assured. Further, the Company's business plan may change, or
unforeseen events may occur, requiring the Company to raise
additional funds. The amount of funds required by the Company
will depend on many factors, including the extent and timing of
the sale of Truecolor Systems, the timing and cost associated
with the expansion of the Company's manufacturing, development
and engineering, sales and marketing and customer support
capabilities and the Company's operating results. There can be
no assurance that, if and when needed, additional financing will
be available, or available on acceptable terms. The inability to
obtain additional financing or generate sufficient cash from
operations could require the Company to reduce or eliminate
expenditures for research and development, production or
marketing of its products, or otherwise to curtail or discontinue
its operations, which could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Product Warranty; Limit on Prices for Spare Parts
The Company warrants its Truecolor Systems to be free of
defects in workmanship and materials for 90 days from
installation at the location of the end user. Furthermore, under
the IBM Agreement, the Company has agreed to provide spare parts
for its products to IBM at prices which will yield a monthly
parts cost per Truecolor System not to exceed a specified amount.
There can be no assurance that the Company will not experience
warranty claims or parts failure rates in excess of those which
it has assumed in pricing its products and spare parts. Any such
excess warranty claims or spare parts failure rates could have a
material adverse effect on the Company's business, financial
condition or results of operations. The Company currently has
minimal experience with the volume or nature of warranty claims
relating to its products.
Dependence on a Single Product Line
The Company anticipates that it will derive substantially
all of its revenue in the foreseeable future from sales of
Truecolor Systems, related consumables and spare parts. If the
Company is unable to generate sufficient sales of Truecolor
Systems due to market conditions, manufacturing difficulties or
other reasons, it may not be able to continue its business.
Similarly, if purchasers of Truecolor Systems were to purchase
wax-based ink or spare parts from suppliers other than the
Company, the Company's business, results of operations and
financial condition could be materially adversely affected.
Dependence on a single product line makes the Company
particularly vulnerable to the successful introduction of
competitive products.
Rapid Technological Change Requires Ongoing Product Development
Efforts
The high-speed printer industry is characterized by evolving
technology and changing market requirements. The Company's
future success will depend on a number of factors, including its
ability to continue to develop and manufacture new products and
to enhance existing products. Consequently, the Company
considers the enhancement of its products to be a development
priority. Certain enhancements of its existing products are
required by the Company's contract with IBM. Additionally, in a
new and evolving market, customer preferences can change rapidly
and new technology could render existing technology and product
inventory obsolete. Failure by the Company to respond adequately
to changes in its target market, to develop or acquire new
technology or to successfully conform to market preferences could
have a material adverse effect on the business, financial
condition and results of operations of the Company. The failure
by the Company to anticipate or respond adequately to competitive
and technological changes could have a material adverse effect on
the business, financial condition and results of operations of
the Company.
Risk of Delisting from Nasdaq Stock Market
The Company's stock is currently traded on the Nasdaq
National Market. There are no assurances, however, that the
Company's Common Stock will continue to be included in such
market, or that an active market for such stock will exist. The
failure to meet the listing requirements for the National Market
could result in the Company's Common Stock alternatively either
being listed on the Nasdaq Small Capitalization Market if the
Company could meet the initial listing criteria for that market
or deletion from the Nasdaq Stock Market ("NASDAQ") altogether if
the Company failed to meet the National or Small Capitalization
Market listing criteria. If the Common Stock is delisted from
trading on NASDAQ, trading, if any, would thereafter be conducted
in the over-the-counter market in the so-called "pink sheets" or
the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. (the "NASD") and consequently an
investor will likely find it more difficult to dispose of, or to
obtain accurate quotations as to the price of the Common Stock.
The Securities Enforcement and Penny Stock Reform Act of
1990 requires additional disclosure relating to the market for
penny stocks in connection with trades in any stock defined as a
penny stock. Regulations promulgated by the Commission generally
define a penny stock to be an equity security that has a market
price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed
on NASDAQ or a national securities exchange and any equity
security issued by an issuer that has (i) net tangible assets of
at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for
less than three years or (iii) average annual revenue of at least
$6,000,000, if such issuer has been in continuous operation for
less than three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
In addition, if the Common Stock is not quoted on NASDAQ, or
if the Company does not meet the other exceptions to the penny
stock regulations cited above, trading in the Common Stock would
be covered by Rule 15g-9 promulgated under the Exchange Act for
non-NASDAQ and non-national securities exchange listed
securities. Under such rule, broker/dealers who recommend such
securities to persons other than established customers and
accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities
also are exempt from this rule if the market price is at least
$5.00 per share.
If the Common Stock becomes subject to the regulations
applicable to penny stocks, the market liquidity for the Common
Stock could be adversely affected. In such event, the
regulations on penny stocks could limit the ability of
broker/dealers to sell the Common Stock and thus the ability of
purchasers of the Common Stock to sell their securities in the
secondary market.
Limited Protection of Proprietary Technology and Risks of
Third-party Claims
The Company's ability to compete effectively will depend, in
part, on the ability of the Company to maintain the proprietary
nature of its technology. The Company relies, in part, on
proprietary technology, know-how and trade secrets related to
certain aspects of its principal products and operations but
there can be no assurance that others, including the Company's
OEM customers, may not independently develop the same or similar
technology or otherwise obtain access to the Company's
proprietary technology. To protect its rights in these areas,
the Company generally requires its OEM customers, suppliers,
employees and independent contractors to enter into nondisclosure
agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's
trade secrets, know-how or other proprietary information. If the
Company is unable to maintain the proprietary nature of its
products through nondisclosure agreements or other protection,
its business could be materially adversely affected. The U.S.
Patent and Trademark Office (the "Patent Office") has granted
patent number 5,602,624 related to the Company's color printing
apparatus. In addition, the Patent Office has filed a Notice of
Allowance with respect to another patent application filed by the
Company relating to the paper path and the placement of print on
a page. Furthermore, the Company has filed additional
applications for patents related to certain enhancements of the
Truecolor Systems. There can be no assurance, however, as to the
degree of protection offered by the Notice of Allowance, or as to
the likelihood that pending patent applications will be issued.
There can be no assurance that potential competitors, many of
which may have substantially greater resources than the Company
and may have made substantial investments in competing
technologies, do not currently have or will not obtain patents
that will prevent, limit or interfere with the Company's ability
to make, use or sell its products or will not intentionally
infringe on the Company's patents if and when issued. Moreover,
no assurance can be given that Accent Color's technology does not
conflict with existing enforceable patents. Although patents may
be issued to Accent Color as a result of patent applications it
has filed, Accent Color's technology may fall within the scope of
existing enforceable patents. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will
be adequate to prevent misappropriation of its technology or
independent development by others of similar technology. In
addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of
the U.S. There can be no assurance that these protections will be
adequate.
The Company has an exclusive right, under an agreement with
Spectra, to supply products including Spectra's ink jet
printheads in the worldwide market for printing color on the
output from specified high-speed, black-on-white printers
marketed by Xerox, IBM, Oce and certain other parties through
December 31, 2002. The Company also has an option to renew this
agreement for an additional seven year term. To the extent that
wax-based inks and ink jet printheads purchased from Spectra are
covered under patents or licenses, the Company relies on
Spectra's rights under such patents and licenses and Spectra's
willingness and ability to enforce its patents and maintain its
licenses. There can be no assurance that Spectra will be willing
or able to enforce its patents and maintain its licenses and any
such unwillingness or inability could have a material adverse
effect on the Company's business, financial condition and results
of operations.
Although the Company believes that its products and
technology do not infringe any existing proprietary rights of
others, there can be no assurance that third parties will not
assert such claims against the Company in the future or that such
future claims will not be successful. The Company could incur
substantial costs and diversion of management resources with
respect to the defense of any claims relating to proprietary
rights, which could have a material adverse effect on the
Company's business, financial condition and results of
operations. Furthermore, parties making such claims could secure
a judgment awarding substantial damages, as well as injunctive or
other equitable relief, which could effectively block the
Company's ability to make, use, sell, distribute or market its
products and services in the U.S. or abroad. Such a judgment
could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event a
claim relating to proprietary technology or information is
asserted against the Company, the Company may seek licenses to
such intellectual property. There can be no assurance, however,
that such a license could be obtained on commercially reasonable
terms, if at all, or that the terms of any offered licenses will
be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could preclude the sale,
manufacture or distribution of the Company's products and,
therefore, could have a material adverse effect on the Company's
business, financial condition and results of operations. The
cost of responding to any such claim may be material, whether or
not the assertion of such claim is valid.
Potential for Dilution
As of January 27, 1998, 4,500 shares of the Series B Stock
were issued and outstanding. Each share of Series B Stock is
convertible into such number of shares of Common Stock as is
determined by dividing the stated value ($1,000) of each share of
Series B Stock (as such value is increased by an annual premium
of 6%) by the then current conversion price of the Series B Stock
(which is determined, generally, by reference to 85% of the
average of the closing market price of the Common Stock during
the five consecutive trading days immediately preceding the date
of determination). Based on a conversion price of $1.875 per
share for the stated value of the Series B Stock in accordance
with Rule 416, the Series B Stock would be convertible into
approximately 2,400,000 shares of Common Stock. The number of
shares issuable upon conversion may be less than or greater than
this number, depending upon: (a) the market price of the Common
Stock at the time of conversion, (b) the Company's ability to
maintain its NASDAQ listing; and (c) the Company's ability to
obtain Shareholder Approval for the issuance of Common Stock upon
the conversion of the Series B Stock and the exercise of the
Warrants. In the event of a decrease in the trading price of the
Common Stock, holders of the Common Stock could experience
commensurately greater dilution upon conversion of the Series B
Stock. The shares of Common Stock into which the Series B Stock
may be converted are being registered pursuant to this
Registration Statement. This Registration Statement also
pertains to an additional 1,500,000 shares issuable under the
terms of the Certificate of Designation in the event of certain
failures by the Company to comply with the various provisions
thereof.
Difficulties in Managing Rapid Growth
Since inception, the Company has experienced rapid growth,
which has placed a significant strain on the Company's (i)
administrative, operational and financial personnel, (ii)
management information systems, (iii) manufacturing operations
and (iv) other resources. The Company's future development plans
anticipate additional management, operating and financial
resources. For example, the Company intends to significantly
increase production capacity, create new marketing programs, hire
additional personnel and develop further enhancements to the
Company's products. There can be no assurance that the Company
will be able to successfully implement its business strategy,
that operations will generate sufficient cash flow, or that
adequate financing will be available on acceptable terms to fund
continuing growth, or that management will successfully manage
continued growth. The failure to manage growth effectively may
have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Key Personnel
The business of the Company is substantially dependent on
the capabilities and services of a number of key technical and
managerial personnel, including Richard J. Coburn, its Chairman,
and Norman L. Milliard, its President and Chief Executive
Officer. Mr. Coburn has an employment agreement with the Company
which has a term that expires at the end of 1998. Mr. Milliard
entered into a three-year contract with the Company at the end of
1994 which is automatically extended each year for one year
unless Mr. Milliard or the Company gives notice prior to the year
end. Both Mr. Coburn and Mr. Milliard may terminate the
employment relationship with the Company at any time with no
penalty other than the loss of future compensation. The loss of
the services of Messrs. Coburn or Milliard or other key personnel
could have a material adverse effect upon the business of the
Company. The Company has keyman life insurance on Messrs. Coburn
and Milliard in the amount of $1,000,000 each. There can be no
assurance, however, that the Company will continue such insurance
coverage or that such amount is sufficient. The Company's future
success will further depend on both its ability to retain key
personnel and its ability to attract qualified personnel.
Competition for qualified personnel is intense, and there can be
no assurance that the Company will be successful in hiring or
retaining them. The inability of the Company to retain key
personnel or attract qualified personnel may have a material
adverse effect on the Company's business, financial condition and
results of operations.
Competition
The Company expects to encounter varying degrees of
competition in the markets in which it competes. The Company
competes, in significant part, on the basis of advanced
proprietary technology in the areas of paper handling, ink jet
color printing and interface software which allows the Company's
products to print variable data, in multiple standard and custom
colors at high speeds.
Competition to supply color printing is fragmented. The
Xerox 4890 (a similar product is also marketed by Xerox as the
DocuTech 390HC) is a spot color printer which prints in black and
one color per job (out of a limited palette). It is capable of
printing 92 pages per minute but does not offer custom colors.
BESTE Bunch Systems markets a color offset press used as a
downstream add-on to an Oce or IBM high-speed, black-on-white
printer. While providing color logos and fixed data, it does not
offer variable data, requires longer time to set up, and is more
labor intensive. It also requires additional processes of
negative production and plate making. There are production full
process color printers available which have relatively high per
page print costs and operate at much lower speeds than those
required by typical production printing, making them impractical
for high-speed print jobs. However, many of the companies that
may compete with the Company in the future have longer operating
histories and significantly greater financial, technical, sales,
marketing and other resources, as well as greater name
recognition than the Company.
In addition to direct competition from other firms utilizing
high-speed color technologies, there exists potential direct
competition from firms improving technologies used in low-speed
to medium-speed color printers and indirect competition from
firms producing pre-printed forms.
Products or product improvements based on new technologies
could be introduced by other companies with little or no advance
notice. Manufacturers of high-speed, black-on-white printers may
also, in time, develop comparable or more effective color
capability within their own products which may render the
Company's products obsolete. There can be no assurance that the
Company will be able to compete against future competitors
successfully or that competitive pressures faced by the Company
will not have a material adverse effect upon its business,
financial condition and results of operations.
Risks Associated with International Operations
The Company intends to have its products marketed worldwide
and therefore may enter into contracts with foreign companies.
International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements, tariffs
and other trade barriers, fluctuations in exchange rates, credit
risks, government controls, political instability, longer payment
cycles, increased difficulties in collecting accounts receivable
and potentially adverse tax consequences. There can be no
assurance that these factors will not have a material adverse
effect on the Company's business, financial condition and results
of operations.
Dividends
The Company has not declared or paid dividends on its common
stock in the past and does not anticipate declaring or paying any
dividends in the foreseeable future.
Environmental Regulation
The Company is subject to regulation under various federal,
state and local laws relating to the environment and to employee
safety and health. These environmental regulations relate to the
generation, storage, transportation, disposal and emission of
various substances into the environment. The Company cannot
predict the environmental legislation or regulations that may be
enacted in the future or how existing or future laws or
regulations will be administered or interpreted. Compliance with
more stringent laws or regulations, as well as more vigorous
enforcement policies of the regulatory agencies or stricter
interpretation of existing laws, may require additional
expenditures by the Company, some or all of which may be
material.
Potential Adverse Impact of Anti-takeover Provisions on Market
Price of Shares
The Company's Restated Certificate of Incorporation contains
provisions that could discourage a proxy contest or make more
difficult the acquisition of a substantial block of the Company's
Common Stock. The Restated Certificate of Incorporation provides
for a classified Board of Directors, and members of the Board of
Directors may be removed only upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of
the Company issued and outstanding and entitled to vote. In
addition, the Board of Directors is authorized to issue shares of
Common Stock and Preferred Stock which, if issued, could dilute
and adversely affect various rights of the holders of shares of
Common Stock and, in addition, could be used to discourage an
unsolicited attempt to acquire control of the Company.
The Company is subject to the Connecticut Business
Corporation Act (the "Connecticut Act"), some provisions of which
prohibit a publicly held Connecticut corporation from engaging in
a "business combination" (including the issuance of equity
securities which have an aggregate market value of 5% or more of
the total market value of the outstanding shares of the Company)
with an "interested shareholder" (as defined in the Connecticut
Act) for a period of five years from the date of the
shareholder's purchase of stock unless approved in a prescribed
manner. The application of this statute could prevent a change
of control of the Company. Generally, approval is required by
the Board of Directors and by a majority of the non-employee
directors of the Company and by 80% of the outstanding voting
shares of the Company and two-thirds of the voting power of the
outstanding shares of the voting stock other than shares held by
the interested shareholder. There can be no assurance that these
provisions will not prevent the Company from entering into a
business combination that otherwise would be beneficial to the
Company. The Connecticut Act also requires that any action of
the stockholders of the Company taken by written consent without
a meeting must be unanimous.
Common Stock Eligible for Future Sale
Future sales of shares of Common Stock by existing
stockholders under Rule 144 of the Act or through the exercise of
outstanding registration rights, or the issuance of shares of
Common Stock upon conversion of the Series B Stock, exercise of
the Warrants, and/or exercise of options or other warrants to
purchase Common Stock could materially adversely affect the
market price of the Common Stock and could materially impair the
Company's future ability to raise capital through an offering of
equity securities. A substantial number of shares of Common
Stock are available for sale under Rule 144 in the public market
and no predictions can be made as to the effect, if any, that
market sales of such shares or the availability of such shares
for future sale will have on the market price of the Common Stock
prevailing from time to time.
SELLING STOCKHOLDERS
The Shares being offered for resale by the Selling
Stockholders were acquired in connection with the 1998 Private
Placement and consist of the shares of Common Stock issuable upon
the conversion of or otherwise with respect to the Series B Stock
and upon exercise of the Warrants. In connection with the 1998
Private Placement, the Company granted the Selling Stockholders
certain registration rights pursuant to which the Company agreed
to keep the Registration Statement, of which this Prospectus is a
part, effective until the date that all of such Shares have been
sold pursuant to the Registration Statement. The Company has
agreed to indemnify the Selling Stockholders and each of their
officers, directors, members, employees, partners, agents and
each person who controls any of the Selling Stockholders against
certain expenses, claims, losses, damages and liabilities (or
action, proceeding or inquiry by any regulatory or self-
regulatory organization in respect thereof). The Company has
agreed to pay its expenses of registering the Shares under the
Securities Act, including registration and filing fees, blue sky
expenses, printing expenses, accounting fees, administrative
expenses and its own counsel fees.
The following table sets forth the name of each Selling
Stockholder, the number of shares of Common Stock beneficially
owned by such Selling Stockholder as of January 28, 1998 and the
number of Shares being offered by each Selling Stockholder. The
Shares being offered hereby are being registered to permit public
secondary trading, and the Selling Stockholders may offer all or
part of the Shares for resale from time to time. However, such
Selling Stockholders are under no obligation to sell all or any
portion of such Shares nor are such Selling Stockholders
obligated to sell any Shares immediately under this Prospectus.
All information with respect to share ownership has been
furnished by the Selling Stockholders. Because the Selling
Stockholders may sell all or part of their Shares, no estimates
can be given as to the number of Shares that will be held by any
Selling Stockholder upon termination of any offering made hereby.
See "PLAN OF DISTRIBUTION."
In the case of the Shares underlying the Series B Stock, the
number of Shares owned and offered for sale hereby represents an
estimate of the number of shares of Common Stock issuable upon
conversion of or otherwise with respect to the Series B Stock,
based on 200% of the number of shares of Common Stock issuable at
a conversion price of $1.875 in accordance with Rule 416 and in
certain other events described in the Certificate of Designation.
Pursuant to Rule 416 under the Securities Act, Selling
Stockholders may also offer and sell Shares issued with respect
to the Series B Stock and/or the Warrants as a result of (i)
stock splits, stock dividends or similar transactions, (ii) the
effect of anti-dilution provisions contained in the Certificate
of Designation of the Series B Stock and in the Warrants and
(iii) by reason of changes in the conversion price of the Series
B Stock accordance with the terms thereof. This is not intended
to constitute a prediction as to the number of Shares into which
the Series B Stock will be converted and the Warrants will be
exercised.
Shares
Beneficially Shares
Name of Owned Prior Shares to be Owned After
Selling to the Sold in the the
Stockholder Offering(1) Offering Offering(1)(2)
RGC International
Investors, LDC 3,666,667(3)(7) 3,666,667 0
Zanett
Lombardier, LTD. 2,845,333(4)(7) 2,845,333 0
Bruno Guazzoni 88,000(5)(7) 88,000 0
The Zanett
Securities
Corporation 115,385(6)(7) 115,385 0
(1) Except as set forth in footnote (7) below, beneficial
ownership is determined in accordance with Rule 13d-3 of the
Exchange Act. Shares of Common Stock subject to warrants
currently exercisable or exercisable within 60 days of
January 28, 1998 are deemed outstanding for computing the
percentage of the person holding such warrants but are not
deemed outstanding for computing the percentage of any other
person. The persons named in the table above have sole
voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Assumes all Shares offered hereby are sold in the Offering.
(3) Includes 166,667 shares of Common Stock issuable upon
exercise of Warrants.
(4) Includes 129,333 shares of Common Stock issuable upon
exercise of Warrants.
(5) Includes 4,000 shares of Common Stock issuable upon exercise
of Warrants.
(6) Includes 115,385 shares of Common Stock issuable upon
exercise of Warrants.
(7) In accordance with Rule 416, the number of shares of Common
Stock set forth in the table represents an estimate of the number
of shares of Common Stock to be offered by the Selling
Stockholders, based on 200% of the number of shares of Common
Stock that would have been issuable upon conversion of or
otherwise with respect to the Series B Stock at a conversion
price of $1.875 per share in accordance with Rule 416 (4,800,000
shares). In addition, the Registration Statement also covers up
to 1,500,000 shares that may become issuable upon certain events
described in the Certificate of Designation and 415,385 shares
that may become issuable upon the exercise of Warrants. The
actual number of shares of Common Stock issuable upon conversion
of the Series B Stock is determined by a formula based on the
market price at the time of conversion, is therefore subject to
adjustment and could be materially less or more than such
estimated number depending on factors which cannot be predicted
by the Company. Specifically, at any given time, the Series B
Stock is convertible into a number of shares of Common Stock
determined by dividing the sum of (a) the stated value of the
Series B Stock and (b) a premium amount equal to 6% (on an
annualized basis) of the stated value of the Series B Stock, by
the then applicable conversion price (calculated generally as 85%
of the average closing bid prices of the Common Stock for the
five (5) consecutive trading days immediately preceding the date
of determination) subject to certain restrictions and
adjustments. The Shares offered hereby, and included in the
Registration Statement of which this Prospectus is a part,
include such additional number of shares of Common Stock as may
be issued or issuable upon conversion of the Series B Stock by
reason of the floating rate conversion price mechanism or other
adjustment mechanisms described in the Certificate of Designation
for the Series B Stock, or by reason of any stock split, stock
dividend or similar transaction involving the Common Stock, in
order to prevent dilution, in accordance with Rule 416. Pursuant
to the terms of the Series B Stock and the Warrants, the shares
of Series B Stock and the Warrants are convertible or exercisable
by any holder only to the extent that the number of shares of
Common Stock thereby issuable, together with the number of shares
of Common Stock owned by such holder and its affiliates (but not
including shares of Common Stock underlying unconverted shares of
Series B Stock or unexercised portions of the Warrants) would not
exceed 4.99% of the then outstanding Common Stock as determined
in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of Shares set forth in the table for a
Selling Stockholder may exceed the number of Shares that such
Selling Stockholder could own beneficially at any given time
through such Selling Stockholder's ownership of the Series B
Stock and the Warrants. In that regard, beneficial ownership of
such Selling Stockholder set forth in the table is not determined
in accordance with Rule 13d-3 under the Exchange Act.
USE OF PROCEEDS
All the Shares offered hereby are being offered for the
account of the Selling Stockholders. Accordingly the Company
will not receive any proceeds of any sales made hereunder, but
will receive the exercise price of any Warrants exercised by the
Selling Stockholders. Any proceeds received from the exercise of
Warrants will be used for working capital and general corporate
purposes.
PLAN OF DISTRIBUTION
The Shares may be sold or distributed from time to time by
the Selling Stockholders or by pledgees, donees or transferees
of, or successors in interest to, the Selling Stockholders,
directly to one or more purchasers (including pledgees) or
through brokers, dealers or underwriters who may act solely as
agents or may acquire Shares as principals, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed
prices, which may be changed. The distribution of the Shares may
be effected in one or more of the following methods: (i)
ordinary brokers transactions, which may include long or short
sales, (ii) transactions involving cross or block trades or
otherwise on the NASDAQ National Market, (iii) purchases by
brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this Prospectus,
(iv) "at the market" to or through market makers or into an
existing market for the Common Stock, (v) in other ways not
involving market makers or established trading markets, including
direct sales to purchasers or sales effected through agents, (vi)
through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise), or (vii) any combination
of the foregoing, or by any other legally available means. In
addition, the Selling Stockholders or their successors in
interest may enter into hedging transactions with broker-dealers
who may engage in short sales of shares of Common Stock in the
course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders or their successors in
interest may also enter into option or other transactions with
broker-dealers that require that delivery by such broker-dealers
of the Shares, which Shares may be resold thereafter pursuant to
this Prospectus.
Brokers, dealers, underwriters or agents participating in
the distribution of the Shares may receive compensation in the
form of discounts, concessions or commission from the Selling
Stockholders and/or the purchasers of Shares for whom such broker-
dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). The Selling Stockholders
and any broker-dealers acting in connection with the sale of the
Shares hereunder may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, and any
commissions received by them and any profit realized by them on
the resale of Shares as principals may be deemed underwriting
compensation under the Securities Act. Neither the Company nor
any Selling Stockholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements
between any Selling Stockholder and any other stockholder,
broker, dealer, underwriter or agent relating to the sale or
distribution of the Shares.
Each Selling Stockholder and any other persons participating
in a distribution of securities will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which
may restrict certain activities of, and limit the timing of
purchases and sales of securities by, Selling Stockholders and
other persons participating in a distribution of securities.
Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with
respect to such securities for a specified period of time prior
to the commencement of such distributions subject to specified
exceptions or exemptions. All of the foregoing may affect the
marketability of the securities offered hereby.
Any securities covered by this Prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold
under that Rule rather than pursuant to this Prospectus.
There can be no assurance that the Selling Stockholders will
sell any or all of the shares of Common Stock offered by them
hereunder.
LEGAL MATTERS
Counsel for the Company, Murtha, Cullina, Richter and
Pinney, LLP, CityPlace I, 185 Asylum Street, Hartford,
Connecticut 06103-3469, has rendered an opinion to the effect
that the Common Stock offered for resale hereby is duly and
validly issued, fully paid and non-assessable. Willard F.
Pinney, Jr., a partner in such firm, is a stockholder of the
Company as well as Corporate Secretary and a Director.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Accent Color
Sciences, Inc. for the year ended December 31, 1996 have been so
incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE SUCH
INFORMATION OR REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
TABLE OF CONTENTS PAGE
Forward Looking Statements ........................ 2
Available Information ............................. 2
Information Incorporated .......................... 3
The Company ....................................... 4
Risk Factors ...................................... 6
Selling Stockholders .............................. 24
Use of Proceeds ................................... 27
Plan of Distribution .............................. 27
Legal Matters ..................................... 29
Experts ........................................... 29
6,715,385
SHARES OF COMMON STOCK
No Par Value per Share
(Issuable upon the conversion of Series B Preferred Stock
& the exercise of Common Stock Warrants)
ACCENT COLOR SCIENCES, INC.
ACCENT COLOR SCIENCES, INC.
REGISTRATION STATEMENT ON FORM S-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
AMOUNT
----------
Registration Fees--Securities
and Exchange Commission... $ 3,219.19
Legal Fees and Expenses... 5,000.00*
Accounting Fees and Expenses... 3,000.00*
TOTAL........................................$ 11,219.19
*Estimated.
The Company shall pay reasonable legal and accounting fees,
filing and registration fees of the Registration. The Selling
Stockholder shall pay all commissions, transfer taxes, and the
fees and expenses of counsel to the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Connecticut corporation. Sections 33-770
through 33-778 of the Connecticut Act provide that, unless
limited by its certificate of incorporation, a corporation shall
indemnify any director or officer of the corporation against
reasonable expenses incurred by him in connection with any
action, suit or proceeding in which he is made or is threatened
to be made a party by reason of having been a director or officer
of the corporation if he was wholly successful in the action, on
the merits or otherwise.
In addition, such sections of the Connecticut Act allow a
corporation by action of the Board of Directors to indemnify an
individual made a party to a proceeding because he was a director
or officer of the corporation if: (1) he conducted himself in
good faith, and (2) he reasonably believed (A) in the case of
conduct in his official capacity with the corporation, his
conduct was in the best interests of the corporation and (B) in
all other cases, that his conduct was at least not opposed to the
best interests of the corporation and (3) in the case of any
criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful. Section 33-771 also provides, however,
that a corporation may not indemnify a director or officer (1) in
connection with a proceeding by or in the right of the
corporation in which the director or officer was adjudged liable
to the corporation or (2) in connection with any
other proceeding charging improper personal benefit to the
director or officer in which he was adjudged liable on the basis
that personal benefit was improperly received by him, whether or
not the action involved was taken in his official capacity.
The Restated Certificate of Incorporation of the Company
includes a provision limiting the personal liability of a
director to the Company or its shareholders for monetary damages
for breach of duty as a director, to an amount equal to the
amount of compensation received by the Director for serving the
Company during the calendar year in which the violation occurred,
subject to a number of exceptions, including violations involving
a knowing and culpable violation of law, a breach of duty which
enables a director or an associate to receive an improper
personal gain, conduct showing a lack of good faith and conscious
disregard of duty to the Company, a sustained and unexcused
pattern of inattention, or the approval of an illegal
distribution of assets of the Company to its shareholders. An
associate of a director, in terms of improper personal gains, is
defined as (A) any corporation or organization of which a Company
director is an officer or partner or is, directly or indirectly,
the beneficial owner of ten percent or more of any class of
voting stock, (B) any trust or other estate in which a Company
director has at least ten percent beneficial interest or as to
which a Company director serves as trustee or in a similar
fiduciary capacity and (C) any relative or spouse of a Company
director, or any relative of such spouse who has the same name as
the Company director. In addition, the Company also maintains a
directors' and officers' insurance and reimbursement policy.
Item 16. EXHIBITS.
3 (i) Restated Certificate of Incorporation of the
Registrant, as amended *
3 (ii) Bylaws of the Registrant, as amended December 29,
1997**
5 Opinion of Murtha, Cullina, Richter and Pinney, LLP
10 (i) Form of Securities Purchase Agreement dated as of
1/09/98
10 (ii) Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock
10 (iii) Form of Warrant issued in connection with the 1998
Private Placement
10 (iv) Form of Registration Rights Agreement dated as of
1/09/98
23 (i) Consent of Murtha, Cullina, Richter and Pinney, LLP
(included in the opinion under Exhibit 5)
23 (ii) Consent of Price Waterhouse LLP
24 Power of Attorney pursuant to which this Registration
Statement is signed by certain Directors
* incorporated by reference to Exhibit 3(ii) filed in connection
with the Current Report on Form 8-K dated January 9, 1998 and
filed with the Commission
** incorporated by reference to Exhibit 3(ii) filed in connection
with the Registration Statement on Form S-3 and filed with the
Commission on December 30, 1997, as amended (file no. 333-43467)
Item 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, to the extent that the
information required to be included in the post-effective
amendment is not contained in periodic reports filed by the
Company with or furnished to the SEC pursuant to Section 13 or
Section 15(d)of the Securities Exchange Act of 1934 and
incorporated by reference herein;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement, to
the extent that the information required to be included in the
post-effective amendment is not contained in periodic reports
filed by the Company with or furnished to the SEC pursuant to
Section 13 or Section 15(d)of the Securities Exchange Act of 1934
and incorporated by reference herein; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated
by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of East Hartford, State of Connecticut on this 30th day
of January 1998.
ACCENT COLOR SCIENCES, INC.
By: /s/ Norman L. Milliard
Title:President,Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
President, January 30, 1998
Chief
/s/ Norman L. Milliard Executive
- ----------------------- Officer (Principal
Norman L. Milliard Executive Officer)
and Director
/s/ Patrick J. Pedonti
- ------------------------ Chief Financial January 30, 1998
Patrick J. Pedonti Officer and
Treasurer
(Principal Financial
and Accounting Officer)
* Director - January 30, 1998
- -------------------------------
Richard J. Coburn
* Director -
- -------------------------------
Richard Hodgson
* Director -
- -------------------------------
Willard F. Pinney, Jr.
* Director -
- -------------------------------
Robert H. Steele
/s/ Norman L. Milliard January 30, 1998
- -------------------------------
Norman L. Milliard,
Attorney-in-Fact
* Signature by Attorney-in-Fact
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------- --------------- ------------
3 (i) Restated Certificate of Incorporation
of the Registrant, as amended *
3 (ii) Bylaws of the Registrant, as amended December 29,
1997**
5 Opinion of Murtha, Cullina, Richter and Pinney, LLP
10 (i) Form of Securities Purchase Agreement dated as of
1/09/98
10 (ii) Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock
10 (iii) Form of Warrant issued in connection with the 1998
Private Placement
10 (iv) Form of Registration Rights Agreement dated as of
1/09/98
23 (i) Consent of Murtha, Cullina, Richter and Pinney, LLP
(included in the opinion under Exhibit 5)
23 (ii) Consent of Price Waterhouse LLP
24 Power of Attorney pursuant to which this Registration
Statement is signed by Certain Directors
* incorporated by reference to Exhibit 3(ii) filed in connection
with the Current Report on Form 8-K dated January 9, 1998 and
filed with the Commission
** incorporated by reference to Exhibit 3(ii) filed in connection
with the Registration Statement on Form S-3 and filed with the
Commission on December 30, 1997, as amended (file no. 333-43467)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
does hereby appoint and constitute Richard J. Coburn and
Norman L. Milliard and each of them as his agent and attorney-in-
fact to execute in his name, place and stead (whether on behalf
of the undersigned individually or as an officer or director of
Accent Color Sciences, Inc. or otherwise) a Registration
Statement on Form S-3 of Accent Color Sciences, Inc. respecting
the registration of shares of Common Stock of certain
stockholders of Accent Color Sciences, Inc. and to file such
Registration Statement and any such amendment thereto with the
Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned have executed this
instrument this 28th day of January, 1998.
/s/ Richard J. Coburn /s/ Richard Hodgson
Richard J. Coburn Richard Hodgson
/s/ Norman L. Milliard /s/ Robert H. Steele
Norman L. Milliard Robert H. Steele
/s/ Willard F. Pinney, Jr.
Willard F. Pinney, Jr.
PHIL.\97657-6
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
of January 9, 1998, by and among Accent Color Sciences, Inc., a
corporation organized under the laws of the State of Connecticut
with headquarters located at 800 Connecticut Boulevard, East
Hartford, Connecticut 06108 (the "Company"), and each of the
purchasers (the "Purchasers") set forth on the execution pages
hereof (the "Execution Pages").
WHEREAS:
A. The Company and each Purchaser are executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by the provisions 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 "Securities Act");
B. The Company desires to sell, and the Purchasers
collectively desire to purchase, upon the terms and conditions
stated in this Agreement, 4,500 units (the "Units"), for a
purchase price of One Thousand Dollars ($1,000.00) per Unit (the
"Purchase Price "), each Unit consisting of (i) one (1) share of
the Company's Series B Convertible Preferred Stock, no par value
per share (the "Preferred Shares"), convertible into shares of
the Company's common stock, no par value per share (the "Common
Stock"), and (ii) warrants, in the form attached hereto as
Exhibit B, to acquire one (1) share of Common Stock for each
Fifteen Dollars ($15.00) of aggregate Purchase Price paid for
such Unit (or an aggregate of up to 300,000 shares of Common
Stock) (the "Warrants"). The rights, preferences and privileges
of the Preferred Shares, including the terms upon which such
Preferred Shares are convertible into shares of Common Stock, are
set forth in the form of Certificate of Designations, Preferences
and Rights attached hereto as Exhibit A (the "Certificate of
Designation"). The shares of Common Stock issuable upon
conversion of the Preferred Shares or otherwise pursuant to the
Certificate of Designation are referred to herein as the
"Conversion Shares" and the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants are referred to
herein as the "Warrant Shares." The Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares are
collectively referred to herein as the "Securities."
C. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as
Exhibit C (the "Registration Rights Agreement"), pursuant to
which the Company has agreed to provide certain registration
rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchasers hereby agree
as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. On the Closing Date (as defined
below), subject to the satisfaction (or waiver) of the conditions
set forth in Section 6 and Section 7 below, the Company shall
issue and sell to each Purchaser and each Purchaser severally
agrees to purchase from the Company, such number of Units as is
set forth on such Purchaser's Execution Page hereto. Each
Purchaser's obligation to purchase Units hereunder is distinct
and separate from each other Purchaser's obligation to purchase
Units and no Purchaser shall be required to purchase hereunder
more than the number of Units set forth on such Purchaser's
Execution Page hereto notwithstanding any failure by any other
Purchaser to purchase Units hereunder.
b. Form of Payment. On the Closing Date, each Purchaser
shall pay the aggregate Purchase Price for the Units being
purchased by such Purchaser on the Closing Date by wire transfer
to the Company, in accordance with the Company's written wiring
instructions, against delivery of duly executed certificates
representing the Preferred Shares and Warrants being purchased by
such Purchaser and the Company shall deliver such certificates
and Warrants against delivery of such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver)
of the conditions thereto set forth in Section 6 and Section 7
below, the date and time of the issuance and sale of the Units to
each of the Purchasers pursuant to this Agreement (the "Closing")
shall be 12:00 noon, New York City time, on January 9, 1998,
subject to a two (2) business day grace period at either party's
option, but in any event not later than January 12, 1998, or such
other time as may be mutually agreed upon by the Company and the
Purchasers (the "Closing Date"). The closing shall occur at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401
Walnut Street, Philadelphia, Pennsylvania 19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the
Company as follows:
a. Investment Purpose. Purchaser is purchasing the
Securities for Purchaser=s own account for investment purposes
only and not with a present view towards the public sale or
distribution thereof, except pursuant to sales that are exempt
from the registration requirements of the Securities Act and/or
sales registered under the Securities Act. Purchaser understands
that Purchaser must bear the economic risk of this investment
indefinitely, unless the Securities are registered pursuant to
the Securities Act and any applicable state securities or blue
sky laws or an exemption from such registration is available, and
that the Company has no present intention of registering the
resale of any such Securities other than as contemplated by the
Registration Rights Agreement. Notwithstanding anything in this
Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold 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
Securities Act.
b. Accredited Investor Status. Purchaser is an
"Accredited Investor" as that term is defined in Rule 501(a) of
Regulation D.
c. Reliance on Exemptions. Purchaser understands that the
Securities are being offered and sold to Purchaser in reliance
upon specific exemptions from the registration requirements of
United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and
Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set
forth herein in order to determine the availability of such
exemptions and the eligibility of Purchaser to acquire the
Securities.
d. Information. Purchaser and its counsel, if any, have
been furnished 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 specifically requested
by Purchaser or its counsel. Purchaser and its counsel have been
afforded the opportunity to ask questions of the Company and have
received what Purchaser believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other
investigation conducted by Purchaser or its counsel or any of its
representatives shall modify, amend or affect Purchaser=s right
to rely on the Company=s representations and warranties contained
in Section 3 below. Purchaser understands that Purchaser=s
investment in the Securities involves a high degree of risk.
e. Governmental Review. Purchaser understands that no
United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i)
except as provided in the Registration Rights Agreement, the sale
or resale of the Securities have not been and are not being
registered under the Securities Act or any state securities laws,
and the Securities may not be transferred unless (a) the resale
of the Securities has been registered thereunder; or (b)
Purchaser shall have delivered to the Company an opinion of
counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to
the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such
registration; or (c) the Securities are sold under Rule 144
promulgated under the Securities Act (or a successor rule) ("Rule
144"); or (d) the Securities are sold or transferred to an
affiliate of Purchaser who agrees to sell or otherwise transfer
the Securities only in accordance with the provisions of this
Section 2(f) and who is an Accredited Investor; and (ii) neither
the Company nor any other person is under any obligation to
register such Securities under the Securities Act or any state
securities laws (other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged
as collateral in connection with a bona fide margin account or
other lending arrangement.
g. Legends. Purchaser understands that the Preferred
Shares and the Warrants and, until such time as the Conversion
Shares and Warrant Shares have been registered under the
Securities Act (including registration pursuant to Rule 416
thereunder) as contemplated by the Registration Rights Agreement
or otherwise may be sold by Purchaser under Rule 144, the
certificates for the Conversion Shares and Warrant Shares may
bear a restrictive legend in substantially the following form:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, or the securities laws of any state of the
United States. The securities represented hereby may
not be offered, sold, transferred or assigned in the
absence of an effective registration statement for the
securities under applicable securities laws unless
offered, sold, transferred or assigned under an
available exemption from the registration requirements
of those laws.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of
any Security upon which it is stamped, if, unless otherwise
required by state securities laws, (a) the sale of such Security
is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement; (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to
the effect that a public sale or transfer of such Security may be
made without registration under the Securities Act; or (c) such
holder provides the Company with reasonable assurances that such
Security can be sold under Rule 144. Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from
which the legend has been removed, pursuant to an effective
registration statement or under an exemption from the
registration requirements of the Securities Act. In the event
the above legend is removed from any Security and thereafter the
effectiveness of a registration statement covering such Security
is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then
upon reasonable advance notice to Purchaser the Company may
require that the above legend be placed on any such Security that
cannot then be sold pursuant to an effective registration
statement or under Rule 144 and Purchaser shall cooperate in the
replacement of such legend. Such legend shall thereafter be
removed when such Security may again be sold pursuant to an
effective registration statement or under Rule 144.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of Purchaser and are
valid and binding agreements of Purchaser enforceable in
accordance with their terms.
i. Residency. Purchaser is a resident of the jurisdiction
set forth under such Purchaser's name on the Execution Page
hereto executed by such Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as
follows:
a. Organization and Qualification. The Company and each
of its subsidiaries is a corporation duly organized and existing
in good standing under the laws of the jurisdiction in which it
is incorporated, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted.
The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted
by it makes such qualification necessary and where the failure so
to qualify would have a Material Adverse Effect. "Material
Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its
obligations hereunder or under the Certificate of Designation,
the Warrants or the Registration Rights Agreement or (iii) the
business, operations, properties, prospects or financial
condition of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform
its obligations under this Agreement, the Warrants and the
Registration Rights Agreement, to issue and sell the Units in
accordance with the terms hereof, to issue the Conversion Shares
upon conversion of the Preferred Shares in accordance with the
terms of the Certificate of Designation and to issue the Warrant
Shares upon exercise of the Warrants in accordance with the terms
of such Warrants; (ii) the execution, delivery and performance of
this Agreement, the Warrants and the Registration Rights
Agreement 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 Warrants and
the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares) have been duly authorized by the
Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, any
committee of the Board of Directors, or its stockholders is
required (under Rule 4460(i) promulgated by the National
Association of Securities Dealers ("NASD") or otherwise); (iii)
this Agreement has been duly executed and delivered by the
Company; and (iv) this Agreement constitutes, and, upon execution
and delivery by the Company of the Warrants and the Registration
Rights Agreement, such agreements will constitute, valid and
binding obligations of the Company enforceable against the
Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as
of the date hereof, including the authorized capital stock, the
number of shares issued and outstanding, the number of shares
issuable and reserved for issuance pursuant to the Company=s
stock option plans, the number of shares issuable and reserved
for issuance pursuant to securities (other than the Preferred
Shares and Warrants) exercisable or exchangeable for, or
convertible into, any shares of capital stock and the number of
shares to be reserved for issuance upon conversion of the
Preferred Shares and exercise of the Warrants is set forth on
Schedule 3(c). All of such outstanding shares of capital stock
have been, or upon issuance in accordance with the terms of any
such warrants, options or preferred stock, will be, validly
issued, fully paid and non-assessable. No shares of capital
stock of the Company (including the Preferred Shares, the
Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders
of the Company or any liens or encumbrances. Except for the
Securities and as set forth on Schedule 3(c), as of the date of
this Agreement, (i) 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 or exercisable or exchangeable for, any shares
of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or
their securities under the Securities Act (except the
Registration Rights Agreement). Except as set forth on Schedule
3(c), there are no securities or instruments containing
antidilution or similar provisions that will be triggered by the
issuance of the Securities in accordance with the terms of this
Agreement, the Certificate of Designation or the Warrants. The
Company has furnished to the Purchasers true and correct copies
of the Company's Certificate of Incorporation as in effect on the
date hereof ("Certificate of Incorporation"), the Company's By-
laws as in effect on the date hereof (the "By-laws"), and all
other instruments and agreements governing securities convertible
into or exercisable or exchangeable for capital stock of the
Company. The Certificate of Designation, in the form attached
hereto, will be duly filed prior to Closing with the Secretary of
State of the State of Connecticut and, upon the issuance of the
Preferred Shares in accordance with the terms hereof, each
Purchaser shall be entitled to the rights set forth therein.
d. Issuance of Shares. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms of
this Agreement, will be validly issued, fully paid and non-
assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not
impose personal liability on the holders thereof. The Conversion
Shares and Warrant Shares are duly authorized and reserved for
issuance, and, upon conversion of the Preferred Shares and
exercise of the Warrants in accordance with the terms thereof,
will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances and will not be
subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal
liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance
of this Agreement, the Warrants and the Registration Rights
Agreement by the Company, the performance by the Company of its
obligations under the Certificate of Designation, and the
consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance
and reservation for issuance, as applicable, of the Preferred
Shares, Warrants, Conversion Shares and Warrant Shares) will not
(i) result in a violation of the Certificate of Incorporation or
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 (including, without limitation, the triggering of any
anti-dilution provisions), acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree (including U.S.
federal and state securities laws and regulations and rules or
regulations of any self-regulatory organizations to which either
the Company or its securities are subject) applicable to the
Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or
affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company
nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and
neither the Company nor any of its subsidiaries is in default
(and no event has occurred which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its
subsidiaries is a party, except for actual or possible
violations, defaults or rights as would not, individually or in
the aggregate, have a Material Adverse Effect. The businesses of
the Company and its subsidiaries are not being conducted, and
shall not be conducted so long as a Purchaser owns any of the
Securities, in violation of any law, ordinance or regulation of
any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and the Registration Rights
Agreement, the Company is not required to obtain any consent,
approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement,
the Warrants or the Registration Rights Agreement or to perform
its obligations under the Certificate of Designation, in each
case in accordance with the terms hereof or thereof. The Company
is not in violation of the listing requirements of the Nasdaq
National Market ("NNM") and does not reasonably anticipate that
the Common Stock will be delisted by the NNM for the foreseeable
future.
f. SEC Documents, Financial Statements. Since December
18, 1996, the date on which the Company consummated its initial
public offering (the "IPO Date"), the Company has timely filed
(within applicable extension periods) 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 "Exchange Act")
(all of the foregoing filed prior to the date hereof and after
the IPO Date, and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by
reference therein, together with the Company=s registration
statement on Form S-1 declared effective by the SEC as of
December 18, 1996, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to the Purchasers
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 Exchange Act or the
Securities Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated
under applicable law. As of their respective dates, the
financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and
fairly present in all material respects the consolidated
financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to immaterial year-
end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed
prior to the date hereof, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to the date of such
financial statements, (ii) liabilities not required by generally
accepted accounting principles ("GAAP") to be disclosed on a
balance sheet prepared in accordance with GAAP, and (iii)
obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial
statements, which liabilities and obligations referred to in
clauses (i), (ii) and (iii), individually or in the aggregate,
are not material to the financial condition or operating results
of the Company.
g. Absence of Certain Changes. Since December 31, 1996,
there has been no material adverse change and no material adverse
development in the business, properties, operations, prospects,
financial condition or results of operations of the Company and
its subsidiaries, taken as a whole, except as disclosed in
Schedule 3(g) or in the SEC Documents filed prior to the date
hereof.
h. Absence of Litigation. Except as disclosed in the SEC
Documents filed prior to the date hereof, 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, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such, which could
reasonably be expected to have a Material Adverse Effect. There
are no facts which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the
Company or any of its subsidiaries, could reasonably be expected
to have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its
subsidiaries owns or is licensed to use all patents, patent
applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses,
permits, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct
of its business as now being conducted and as described in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither
the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any
Intangibles which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have
a Material Adverse Effect. Except as disclosed in the SEC
Documents, neither the Company nor any of its subsidiaries has
received written notice of any pending conflict with or
infringement upon such third party Intangibles, which alleged
pending conflict or alleged infringement, if adversely
determined, would result in a Material Adverse Effect. Except as
disclosed in the SEC Documents, the termination of the Company's
ownership of, or right to use, any single Intangible would not
result in a Material Adverse Effect on the Company. Neither the
Company nor any of its subsidiaries has entered into any consent
agreement, indemnification agreement, forbearance to sue or
settlement agreement with respect to the validity of the
Company's or its subsidiaries' ownership or right to use its
Intangibles and, to the best knowledge of the Company, there is
no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or
canceled or is the subject of cancellation or other adversarial
proceedings, and all applications therefor are pending and in
good standing. The Company and its subsidiaries have complied,
in all material respects, with their respective contractual
obligations relating to the protection of the Intangibles used
pursuant to licenses. To the best knowledge of the Company, no
person is infringing on or violating the Intangibles owned or
used by the Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any
of its subsidiaries, nor any director, officer, agent, employee
or other person acting on behalf of the Company or any subsidiary
has, in the course of his actions for, or on behalf of, the
Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official
or employee.
k. Disclosure. All information relating to or concerning
the Company set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted
to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company
or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by the Company in a
registration statement filed on the date hereof by the Company
under the Securities Act with respect to the primary issuance of
the Company's securities.
l. Acknowledgment Regarding Purchasers' Purchase of the
Units. The Company acknowledges and agrees that none of the
Purchasers is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this
Agreement or the transactions contemplated hereby, the
relationship between the Company and the Purchasers is "arms-
length" and any statement made by any Purchaser or any of its
representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to such Purchaser's
purchase of Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company
further acknowledges that the Company's decision to enter into
this Agreement has been based solely on an independent evaluation
by the Company and its representatives.
m. Form S-3 Eligibility. The Company is currently
eligible to register the resale of its Common Stock on a
registration statement on Form S-3 under the Securities Act.
There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on
Form S-3 with respect to the Registrable Securities (as defined
in the Registration Rights Agreement).
n. No General Solicitation. Neither the Company nor any
distributor participating on the Company=s behalf in the
transactions contemplated hereby (if any) nor any person acting
for the Company, or any such distributor, has conducted any
"general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under
circumstances that would require registration of the Securities
being offered hereby under the Securities Act or cause this
offering of Securities to be integrated with any prior offering
of securities of the Company for purposes of the Securities Act
or any applicable stockholder approval provisions.
p. No Brokers. The Company has taken no action which
would give rise to any claim by any person for brokerage
commissions, finder=s fees or similar payments by any Purchaser
relating to this Agreement or the transactions contemplated
hereby, except for dealings with The Zanett Securities
Corporation, whose commissions and fees will be paid by the
Company.
q. Acknowledgment of Dilution. The number of Conversion
Shares issuable upon conversion of the Preferred Shares may
increase in certain circumstances, including the circumstance
wherein the trading price of the Common Stock declines. The
Company's executive officers have studied and fully understand
the nature of the Securities being sold hereunder. The Company
acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with the
Certificate of Designation is absolute and unconditional,
regardless of the dilution that such issuance may have on the
ownership interests of other stockholders. Taking the foregoing
into account, the Company's Board of Directors has determined in
its good faith business judgment that the issuance of the
Preferred Shares and Warrants hereunder and the consummation of
the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
r. 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(r) or such as do not
materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries. Any real
property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries.
s. Tax Status. Except as set forth on Schedule 3(s), the
Company and each of its subsidiaries has made or filed all
foreign, federal, state and local 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 provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. Except as set forth on
Schedule 3(s), there are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to any
statute of limitations relating to the assessment or collection
of any federal, state or local tax. Except as set forth on
Schedule 3(s), none of the Company's tax returns is presently
being audited by any taxing authority.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts
timely to satisfy each of the conditions described in Section 6
and Section 7 of this Agreement.
b. Form D: Blue Sky Laws. The Company agrees to file a
Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Purchaser
promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the
Purchasers pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States or obtain
exemption therefrom, and shall provide evidence of any such
action so taken to the Purchasers on or prior to the Closing
Date.
c. Reporting Status. So long as any Purchaser
beneficially owns any of the Securities, the Company shall timely
file all reports required to be filed with the SEC pursuant to
the Exchange Act, and the Company shall not terminate its status
as an issuer required to file reports under the Exchange Act even
if the Exchange Act or the rules and regulations thereunder would
permit such termination. In addition, the Company shall take all
actions necessary to continue to be eligible to register the
resale of its Common Stock on a registration statement on Form S-
3 under the Securities Act.
d. Use of Proceeds. The Company shall use the proceeds
from the sale of the Preferred Shares and Warrants as set forth
in Schedule 4(d).
e. Expenses. Except as otherwise provided herein and in
Section 5 of the Registration Rights Agreement, each party hereto
shall be responsible for its own expenses incurred in connection
with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be
executed in connection herewith.
f. Financial Information. The Company agrees to send the
following reports to each Purchaser until such Purchaser
transfers, assigns or sells all of its Securities: (i) within ten
(10) days after the filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q, its
proxy statements and any Current Reports on Form 8-K; and (ii)
within one (1) day after release, copies of all press releases
issued by the Company or any of its subsidiaries.
g. Reservation of Shares. The Company shall at all times
have authorized and reserved for the purpose of issuance a
sufficient number of shares of Common Stock to provide for the
full conversion of the outstanding Preferred Shares and issuance
of the Conversion Shares in connection therewith, the full
exercise of the Warrants and the issuance of the Warrant Shares
in connection therewith subject to and as otherwise required by
the Certificate of Designation and the Warrants.
h. Listing. The Company shall promptly secure the listing
of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain, so long as any Purchaser
(or any of their affiliates) own any Securities, such listing of
all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Preferred Shares and exercise of
the Warrants. The Company will use its best efforts to continue
the listing and trading of its Common Stock on the NNM, the New
York Stock Exchange ("NYSE"), the American Stock Exchange
("AMEX") or the Nasdaq SmallCap Market ("SmallCap") and will
comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and such
exchanges, as applicable. The Company shall promptly provide to
each holder of Preferred Shares and/or Warrants copies of any
notices it receives regarding the continued eligibility of the
Common Stock for trading on the NNM or, if applicable, any
securities exchange or automated quotation system on which
securities of the same class or series issued by the Company are
then listed or quoted, if any.
i. Corporate Existence. So long as a Purchaser
beneficially owns any Preferred Shares or Warrants, the Company
shall maintain its corporate existence, and in the event of a
merger, consolidation or sale of all or substantially all of the
Company=s assets, the Company shall ensure that the surviving or
successor entity in such transaction (i) assumes the Company=s
obligations hereunder and under the Certificate of Designation,
the Warrants and the agreements and instruments entered into in
connection herewith regardless of whether or not the Company
would have had a sufficient number of shares of Common Stock
authorized and available for issuance in order to effect the
conversion of all Preferred Shares and exercise in full of all
Warrants outstanding as of the date of such transaction and (ii)
is a publicly traded corporation whose common stock is listed for
trading on the NNM, SmallCap, NYSE or AMEX.
j. No Integrated Offerings. The Company shall not make
any offers or sales of any security (other than the Securities)
under circumstances that would require registration of the
Securities being offered or sold hereunder under the Securities
Act or cause this offering of Securities to be integrated with
any other offering of securities by the Company for purposes of
any stockholder approval provision applicable to the Company or
its securities.
k. No Manipulation. So long as a Purchaser beneficially
owns any Preferred Shares, neither the Purchaser nor any person
acting on behalf of such Purchaser shall take any action intended
to decrease the trading price of the Company=s Common Stock
during any period in which the Conversion Price (as defined in
the Certificate of Designation) is being computed for purposes of
any conversion of Preferred Shares under the Certificate of
Designation. Notwithstanding the foregoing, the provisions of
this Section 4(k) shall not prohibit a sale by a Purchaser of
shares of Common Stock effected on the date on which a notice of
conversion of Preferred Shares is delivered to the Company
entitling such Purchaser to receive a number of shares of Common
Stock at least equal to the number of shares so sold.
l. Legal Compliance. The Company shall conduct its
business and the business of its subsidiaries in compliance with
all laws, ordinances or regulations of governmental entities
applicable to such businesses, except where the failure to do so
would not have a Material Adverse Effect.
m. Shareholder Approval. The Company shall hold an annual
or special meeting of its shareholders no later than May 31, 1998
and use its best efforts to obtain at such meeting such approvals
of the Company's shareholders as may be required to issue all of
the shares of Common Stock issuable upon conversion of, or
otherwise with respect to, the Preferred Shares and the shares of
Common Stock issuable upon exercise of, or otherwise with respect
to, the Warrants without violating NASD Rule 4460(i) (or any
successor rule thereto which may then be in effect) (the
"Shareholder Approval"). The Company shall comply with the
filing and disclosure requirements of Section 14 promulgated
under the Exchange Act in connection with the solicitation,
acquisition and disclosure of such Shareholder Approval. The
Company represents and warrants that its Board of Directors has
unanimously recommended that the Company's shareholders approve
the proposal contemplated by this Section 4(m) and shall so
indicate such recommendation in the proxy statement used to
solicit such Shareholder Approval.
n. Voting by Purchasers. Each Purchaser hereby
acknowledges that the Company also intends to solicit the
approval by its shareholders at the meeting referred to in
Section 4(m) above of an amendment to the Certificate of
Incorporation increasing the number of authorized shares of
Common Stock thereunder. Each Purchaser hereby agrees that, to
the extent it is permitted to vote at such meeting pursuant to
applicable law, the Certificate of Designation and the provisions
of the Certificate of Incorporation and By-laws, it will vote in
favor of such proposal to increase the number of authorized
shares of Common Stock.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue
certificates, registered in the name of each Purchaser or its
nominee, for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by such Purchaser to the
Company upon conversion of the Preferred Shares or exercise of
the Warrants, as applicable. To the extent and during the
periods provided in Section 2(f) and 2(g) of this Agreement, all
such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than
such instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof in
the case of the transfer of the Conversion Shares or Warrant
Shares prior to registration of the Conversion Shares and Warrant
Shares under the Securities Act or without an exemption
therefrom, will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in
this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way each Purchaser's obligations
and agreement set forth in Section 2(g) hereof to resell the
Securities pursuant to an effective registration statement or
under an exemption from the registration requirements of
applicable securities law.
c. If a Purchaser provides the Company and the transfer
agent with an opinion of counsel, which opinion of counsel shall
be in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an
exemption from registration, or a Purchaser provides the Company
with reasonable assurances that such Securities may be sold under
Rule 144, the Company shall permit the transfer, and, in the case
of the Conversion Shares and Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates in such name
and in such denominations as specified by such Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell
the Units to a Purchaser hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the
following conditions thereto, provided that these conditions are
for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. Each Purchaser shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the
Company.
b. Each Purchaser shall have delivered the Purchase Price
for the Units in accordance with Section 1(b) above.
c. The representations and warranties of each Purchaser
shall be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as
of such date), and such Purchaser shall have performed, satisfied
and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or
prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the
Units to be purchased by it at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for such
Purchaser's sole benefit and may be waived by such Purchaser at
any time in the Purchaser=s sole discretion:
a. The Company shall have executed this Agreement, the
Warrants and the Registration Rights Agreement, and delivered the
same to such Purchaser.
b. The Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of
Connecticut and a copy thereof certified by the Secretary of
State of Connecticut shall have been delivered to such Purchaser.
c. The Company shall have delivered to such Purchaser duly
executed Warrants and certificates (in such denominations as such
Purchaser shall request) representing the Preferred Shares being
so purchased by such Purchaser in accordance with Section 1(b)
above.
d. The Common Stock shall be authorized for quotation and
listed on the NNM and trading in the Common Stock (or the NNM
generally) shall not have been suspended by the SEC or the NNM.
e. The representations and warranties of the Company shall
be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as
of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing Date. The Purchasers shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as
of the Closing Date to the foregoing effect and as to such other
matters as may be reasonably requested by the Purchasers.
f. No litigation, statute, rule, regulation, executive
order, decree, ruling, injunction, action or proceeding shall
have been enacted, entered, promulgated or endorsed by any court
or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters
contemplated hereby which questions the validity of, or
challenges or prohibits the consummation of any of the
transactions contemplated by this Agreement.
g. Such Purchaser shall have received an opinion of the
Company=s counsel, dated as of the Closing Date, in form, scope
and substance reasonably satisfactory to the Purchaser and in
substantially the form of Exhibit D attached hereto.
h. The Company shall have delivered evidence reasonably
satisfactory to the Purchasers that the Company's transfer agent
has agreed to act in accordance with irrevocable instructions in
the form attached hereto as Exhibit E.
i. The aggregate number of Units being purchased hereunder
by all Purchasers hereunder shall be 4,500.
j. There shall have been no material adverse changes and
no material adverse developments in the business, properties,
operations, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole,
since the date hereof, and no information, of which the
Purchasers are not currently aware, shall come to the attention
of the Purchasers that is materially adverse to the Company.
k. Each of Richard Coburn, Chairman of the Board of the
Company, and Norman L. Milliard, Chief Executive Officer of the
Company, shall have executed and delivered to the Purchasers
letter agreements, in the form attached hereto as Exhibit F,
pursuant to which they agree to vote all shares of Common Stock
which they own or control in favor of the shareholder proposal
contemplated by Section 4(m) hereof.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be
performed in the State of New York. The Company and the
Purchasers irrevocably consent to the jurisdiction of the United
States federal courts and the state courts located in the City of
New York in the State of New York in any suit or proceeding based
on or arising under this Agreement and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in
such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the
Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such
suit or proceeding. Nothing herein shall affect the right of any
Purchaser to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. This
Agreement, once executed by a party, may be delivered to the
other parties hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause
the manually executed Execution Page(s) to be physically
delivered to the other party within five (5) days of the
execution hereof.
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 or the validity
or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of
the parties with respect to the matters covered herein and
therein. No provision of this Agreement may be waived other than
by an instrument in writing signed by the party to be charged
with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the
Company and each Purchaser.
f. Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered
personally or by courier or by confirmed telecopy, and shall be
effective five days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Accent Color Sciences, Inc.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
Telecopy: (860) 610-4019
Attn: Norman L. Milliard, CEO
with a copy to:
Murtha, Cullina, Richter and Pinney
CityPlace I
185 Asylum Street
Hartford, Connecticut 06103-3469
Telecopy: (860) 240-6150
Attn: Willard F. Pinney, Jr., Esquire
If to any Purchaser, to such address set forth under such
Purchaser's name on the Execution Page hereto executed by such
Purchaser.
Each party shall provide notice to the other parties of any
change in address.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and assigns. Except as provided herein or therein,
neither the Company nor any Purchaser shall assign this
Agreement, the Registration Rights Agreement or the Warrants or
any rights or obligations hereunder or thereunder.
Notwithstanding the foregoing, any Purchaser may assign its
rights hereunder to any of its "affiliates" (as that term is
defined under the Exchange Act) who are Accredited Investors
without the consent of the Company, or to any other person or
entity with the consent of the Company, which consent shall not
be unreasonably withheld. This provision shall not limit a
Purchaser=s right to transfer the Securities pursuant to the
terms of the Certificate of Designation, the Warrants and this
Agreement or to assign such Purchaser=s rights hereunder and/or
thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of,
nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the
Company and the agreements and covenants set forth in Sections 3,
4, 5 and 8 shall survive the Closing hereunder notwithstanding
any investigation conducted by or on behalf of any Purchasers.
Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies a
Purchaser may have under applicable federal or state securities
laws. The Company agrees to indemnify and hold harmless each
Purchaser and each of such Purchaser=s officers, directors,
employees, partners, members, agents and affiliates for loss or
damage arising as a result of or related to any breach or alleged
breach by the Company of any of its representations or covenants
set forth herein, including advancement of reasonable expenses as
they are incurred.
j. Publicity. The Company and each Purchaser shall have
the right to review before issuance any press releases, SEC, NNM
or NASD filings, or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior review of the
Purchasers, to make any press release or SEC, NNM or NASD filings
with respect to such transactions as is required by applicable
law and regulations (although the Purchasers shall be consulted
by the Company in connection with any such press release and
filing prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform,
or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. Termination. In the event that the Closing Date shall
not have occurred on or before January 12, 1998, unless the
parties agree otherwise, this Agreement shall terminate at the
close of business on such date. Notwithstanding any termination
of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or
relating to the termination hereof.
m. Joint Participation in Drafting. Each party to this
Agreement has participated in the negotiation and drafting of
this Agreement, the Certificate of Designation, the Warrants and
the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by
the parties hereto to express their mutual intent, and no rule of
strict construction will be applied against any party to this
Agreement.
n. Equitable Relief. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable
harm to a Purchaser by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its
obligations pursuant to Section 5 hereof) will be inadequate and
agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a
Purchaser shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer of the Securities, without the
necessity of showing economic loss and without any bond or other
security being required.
IN WITNESS WHEREOF, the undersigned Purchaser and the
Company have caused this Agreement to be duly executed as of the
date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Title:
PURCHASER:
[NAME]
By:
By:
Name:
Title:
RESIDENCE:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased:
Purchase Price ($1,000 per Unit): $
IN WITNESS WHEREOF, the undersigned Purchaser and the
Company have caused this Agreement to be duly executed as of the
date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Title:
PURCHASER:
RGC International Investors, LDC
By: Rose Glen Capital Management, L.P., as
Investment Manager
By: RGC General Partner Corp., as
General Partner
By:
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East
Suite 200
251 St. Asaph=s Road
Bala Cynwyd, PA 19004
Telecopy: (610) 617-0570
Attention: Wayne D. Bloch
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased: 2,500
Purchase Price ($1,000 per Unit):$2,500,000
IN WITNESS WHEREOF, the undersigned Purchaser and the
Company have caused this Agreement to be duly executed as of the
date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Title:
PURCHASER:
Zanett Lombardier, Ltd.
By:
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: Zanett Lombardier, Ltd.
c/o Bank Julius Baer
Kirk House, P.O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (809) 949-0993
Attention: Peter Goulden
With a copy to:
c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Telecopy: (212) 759-3301
Attention: Claudio Guazzoni
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased: 1,940
Purchase Price ($1,000 per Unit):$1,940,000
IN WITNESS WHEREOF, the undersigned Purchaser and the
Company have caused this Agreement to be duly executed as of the
date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Title:
PURCHASER:
______ ___
Bruno Guazzoni
RESIDENCE: Italy
ADDRESS: c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Telecopy: (212) 759-3301
Attention: Claudio Guazzoni
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units to be Purchased: 60
Purchase Price ($1,000 per Unit):$60,000
PHIL1\97916-8
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
ACCENT COLOR SCIENCES, INC.
(Pursuant to Section 33-666 of the Connecticut Business Corporat
ion Act)
Accent Color Sciences, Inc., a corporation organized and
existing under the laws of the State of Connecticut (the
"Corporation"), hereby certifies that the following resolutions
were adopted by the Board of Directors of the Corporation
pursuant to authority of the Board of Directors as required by
Section 33-666 of the Connecticut Business Corporation Act.
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 Certificate of Incorporation and Bylaws, each as amended
and restated through the date hereof, the Board of Directors
hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, no par value per share (the
"Preferred Stock"), and hereby states the designation and number
of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,500
shares of Preferred Stock, is the Series B Convertible Preferred
Stock (the "Series B Preferred Stock") and the face amount shall
be One Thousand U.S. Dollars ($1000.00) per share (the "Face
Amount").
II. DIVIDENDS
The Series B Preferred Stock shall bear no dividends, and
the holders of the Series B Preferred Stock shall not be entitled
to receive dividends on the Series B Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the
following terms shall have the following meanings:
A. "Average Price" means, as of any date, the average of
the Closing Prices for the Common Stock during the five (5)
consecutive trading days ending on the trading day immediately
preceding such date of determination (subject to equitable
adjustment for any stock splits, stock dividends,
reclassifications or similar events during such five (5) trading
day period).
B. "Closing Price" means, for any security as of any date,
the last sale price of such security on the principal securities
exchange or trading market where such security is listed or
traded as reported by Bloomberg Financial Markets or a comparable
reporting service of national reputation selected by the
Corporation and reasonably acceptable to holders of a majority of
the then outstanding shares of Series B Preferred Stock if
Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such
security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if
no sale 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 Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing
Price of such security on such date shall be the fair market
value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to holders
of a majority of the then outstanding shares of Series B
Preferred Stock, with the costs of such appraisal to be borne by
the Corporation.
C. "Conversion Date" means, for any Conversion, the date
specified in the notice of conversion in the form attached hereto
(the "Notice of Conversion"), so long as the copy of the Notice
of Conversion is faxed (or delivered by other means resulting in
notice) to the Corporation before 11:59 p.m., New York City time,
on the Conversion Date indicated in the Notice of Conversion. If
the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the
holder faxes or otherwise delivers the Notice of Conversion to
the Corporation.
D. "Conversion Percentage" shall initially mean eighty-
five percent (85%). In the event the Corporation's Common Stock
is no longer designated for quotation on the Nasdaq National
Market ("NNM") and is designated for quotation on the Nasdaq
SmallCap Market ("SmallCap"), the Conversion Percentage shall be
permanently reduced by two percent (2%) to 83%. In addition, in
the event that the Corporation fails to obtain the Shareholder
Approval contemplated by Section 4(m) of the Securities Purchase
Agreement (as defined herein) on or before May 31, 1998, the
Conversion Percentage shall be permanently reduced by ten percent
(10%) to 75%. The Conversion Percentage also shall be subject to
adjustment as provided herein and as provided in Section 2(c) of
the Registration Rights Agreement entered into in connection with
and pursuant to the Securities Purchase Agreement (the
"Registration Rights Agreement").
E. "Conversion Price" means, with respect to any
Conversion Date, the lower of (i) the Variable Conversion Price
in effect as of such date and (ii) in the event that the Average
Price as of such date is greater than the Fixed Conversion Price
in effect as of such date, the arithmetic average between the
Fixed Conversion Price in effect as of such date and the Average
Price (but in no event greater than $5.00).
F. "Fixed Conversion Price" means $2.75, and shall be
subject to adjustment as provided herein.
G. "Floor Price" means $2.50, and shall be subject to
adjustment as provided herein.
H. "Issuance Date" means the date of the closing under
that certain Securities Purchase Agreement by and among the
Corporation and the purchasers named therein with respect to the
issuance of the Series B Preferred Stock (the "Securities
Purchase Agreement").
I. "N" means the number of days from, but excluding, the
Issuance Date.
J. "Premium" means an amount equal to
(.06)x(N/365)x(1,000).
K. "Variable Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion
Percentage then in effect by the Average Price as of such date,
and shall be subject to adjustment as provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to
the limitations on conversions contained in Paragraph C of this
Article IV, each holder of shares of Series B Preferred Stock
may, at any time and from time to time after the Issuance Date,
convert (a "Conversion") each of its shares of Series B Preferred
Stock into a number of fully paid and nonassessable shares of
Common Stock determined in accordance with the following formula
if the Corporation timely redeems the Premium thereon in cash in
accordance with subparagraph (ii) below:
1,000
Conversion Price
or in accordance with the following formula if the Corporation
does not timely redeem the Premium thereon in accordance with
subparagraph (ii) below:
1,000 + the Premium
Conversion Price
(ii) (a) The Corporation shall have the right, in its
sole discretion, upon receipt of a Notice of Conversion, to
redeem the Premium subject to such conversion for a sum of cash
equal to the amount of the Premium being so redeemed. All cash
redemption payments hereunder shall be paid in lawful money of
the United States of America at such address for the holder as
appears on the record books of the Corporation (or at such other
address as such holder shall hereafter give to the Corporation by
written notice). In the event the Corporation so elects to
redeem the Premium in cash and fails to pay such holder the
applicable redemption amount to which such holder is entitled by
depositing a check in the U.S. Mail to such holder within three
(3) business days of receipt by the Corporation of a Notice of
Conversion, the Corporation shall thereafter forfeit its right to
redeem such Premium in cash and such Premium shall thereafter be
converted into shares of Common Stock in accordance with Article
IV.A(i).
(b) Each holder of Series B Preferred Stock shall
have the right to require the Corporation to provide advance
notice to such holder stating whether the Corporation will elect
to redeem the Premium in cash pursuant to the Corporation's
redemption rights discussed in subparagraph (a) of this Article
IV.A(ii). A holder may exercise such right from time to time by
sending notice (an "Election Notice") to the Corporation, by
facsimile, requesting that the Corporation disclose to such
holder whether the Corporation would elect to redeem the Premium
for cash in lieu of issuing shares of Common Stock therefor if
such holder were to exercise its right of conversion pursuant to
this Article IV.A. The Corporation shall, no later than the
close of business on the second business day following receipt of
an Election Notice, disclose to such holder whether the
Corporation would elect to redeem the Premium in connection with
a conversion pursuant to a Notice of Conversion delivered over
the subsequent five (5) business day period. If the Corporation
does not respond to such holder within such two (2) business day
period via facsimile, the Corporation shall, with respect to any
conversion pursuant to a Conversion Notice delivered within the
subsequent five (5) business day period, forfeit its right to
redeem such Premium in accordance with subparagraph (a) of this
Article IV.A(ii) and shall be required to convert such Premium
into shares of Common Stock.
B. Mechanics of Conversion. In order to effect a
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy
of the fully executed Notice of Conversion to the Corporation or
the transfer agent for the Common Stock and (y) surrender or
cause to be surrendered the original certificates representing
the Series B Preferred Stock being converted (the "Preferred
Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion as soon as practicable thereafter to the
Corporation or the transfer agent. Upon receipt by the
Corporation of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall immediately send, via facsimile, a
confirmation to such holder stating that the Notice of Conversion
has been received, the date upon which the Corporation expects to
deliver the Common Stock issuable upon such conversion and the
name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated
to issue shares of Common Stock upon a conversion unless either
the Preferred Stock Certificates are delivered to the Corporation
or the transfer agent as provided above, or the holder notifies
the Corporation or the transfer agent that such certificates have
been lost, stolen or destroyed and delivers the documentation to
the Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon
the surrender of Preferred Stock Certificates from a holder of
Series B Preferred Stock accompanied by a Notice of Conversion,
the Corporation shall, no later than the later of (a) the second
business day following the Conversion Date and (b) the business
day following the date of such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of
indemnity pursuant to Article XIV.B) (the "Delivery Period"),
issue and deliver to the holder or its nominee (x) that number of
shares of Common Stock issuable upon conversion of such shares of
Series B Preferred Stock being converted and (y) a certificate
representing the number of shares of Series B Preferred Stock not
being converted, if any. If the Corporation's transfer agent is
participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend and the holder thereof
is not obligated to return such certificate for the placement of
a legend thereon, the Corporation shall cause its transfer agent
to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of the holder
or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC Transfer"). If the aforementioned
conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver to the holder physical certificates representing
the Common Stock issuable upon conversion. Further, a holder may
instruct the Corporation to deliver to the holder physical
certificates representing the Common Stock issuable upon
conversion in lieu of delivering such shares by way of DTC
Transfer.
(ii) Taxes. The Corporation shall pay any and all
taxes which may be imposed upon it with respect to the issuance
and delivery of the shares of Common Stock upon the conversion of
the Series B Preferred Stock.
(iii) No Fractional Shares. If any conversion of
Series B Preferred Stock would result in the issuance of a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock shall be the next
higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute
with respect to a conversion, the Corporation shall promptly
issue such number of shares of Common Stock as are not disputed
in accordance with subparagraph (i) above. If such dispute
involves the calculation of the Conversion Price, the Corporation
shall submit the disputed calculations to an independent outside
accountant via facsimile within two (2) business days of receipt
of the Notice of Conversion. The accountant, at the
Corporation's sole expense, shall audit the calculations and
notify the Corporation and the holder of the results no later
than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then
issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares
of Series B Preferred Stock shall be subject to the following
limitations (each of which limitations shall be applied
independently):
(i) Cap Amount. Unless permitted by the applicable
rules and regulations of the principal securities market on which
the Common Stock is listed or traded, in no event shall the total
number of shares of Common Stock issued upon conversion of the
Series B Preferred Stock exceed the maximum number of shares of
Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the National Association of Securities Dealers
("NASD") (or any successor rule) (the "Cap Amount") which, as of
the date of issuance of the Series B Preferred Stock, shall be
2,397,000 shares. The Cap Amount shall be allocated pro-rata to
the holders of Series B Preferred Stock as provided in Article
XIV.C. In the event the Corporation is prohibited from issuing
shares of Common Stock as a result of the operation of this
subparagraph (i), the Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of
shares of Series B Preferred Stock delivers a waiver in
accordance with the last sentence of this subparagraph (ii), in
no event shall a holder of shares of Series B Preferred Stock be
entitled to receive shares of Common Stock upon a conversion to
the extent that the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates
(exclusive of shares issuable upon conversion of the unconverted
portion of the shares of Series B Preferred Stock or the
unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants (the
"Warrants") issued by the Corporation pursuant to the Securities
Purchase Agreement) subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y)
the number of shares of Common Stock issuable upon the conversion
of the shares of Series B Preferred Stock with respect to which
the determination of this subparagraph is being made, would
result in beneficial ownership by the holder and its affiliates
of more than 4.99% of the outstanding shares of Common Stock.
For purposes of this subparagraph, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) above.
Except as provided in the immediately succeeding sentence, the
restriction contained in this subparagraph (ii) shall not be
altered, amended, deleted or changed in any manner whatsoever
unless the holders of a majority of the outstanding shares of
Common Stock and each holder of outstanding shares of Series B
Preferred Stock shall approve such alteration, amendment,
deletion or change. Notwithstanding the foregoing, a holder of
shares of Series B Preferred Stock may waive the restriction set
forth in this subparagraph (ii) by written notice to the
Corporation upon not less than sixty-one (61) days prior notice
(with such waiver taking effect only upon the expiration of such
sixty-one (61) day period).
(iii) Conversions Below Floor Price. (a) For
purposes hereof, "Below Floor Conversion" means any Conversion
occurring on a Conversion Date on which the Average Price in
effect as of such date is less than the Floor Price in effect as
of such date.
(b) So long as no Conversion Default (as defined
in Article VI hereof) or Mandatory Redemption Event (as defined
in Article VIII.A hereof) has occurred and is then continuing,
holders of shares of Series B Preferred Stock shall not be
entitled to effect a Below Floor Conversion on or before March
31, 1998 (the "Lockup Expiration Date"). Following the Lockup
Expiration Date, there shall be no restrictions pursuant to this
Article IV.C.(iii) on the ability of holders of shares of Series
B Preferred Stock to effect Below Floor Conversions.
(c) Notwithstanding the foregoing, the
restrictions on conversion set forth in subparagraph (b) of this
Article IV.C.(iii) shall not apply to conversions taking place on
any Conversion Date (I) on or after the date the Corporation
makes a public announcement that it intends to merge or
consolidate with any other entity (other than a merger in which
the Corporation is the surviving or continuing entity and its
capital stock is unchanged) or to sell or transfer all or
substantially all of the assets of the Corporation or (II) on or
after the date any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or
another transaction to purchase 50% or more of the Corporation's
Common Stock or otherwise publicly announces an intention to
replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the
shares of Series B Preferred Stock, the Corporation shall reserve
4,800,000 shares of the authorized but unissued shares of Common
Stock for issuance upon conversion of the Series B Preferred
Stock and thereafter the number of authorized but unissued shares
of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the
conversion of the Series B Preferred Stock outstanding at the
then current Conversion Price thereof. The Reserved Amount shall
be allocated to the holders of Series B Preferred Stock as
provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount
for any three (3) consecutive trading days (the last of such
three (3) trading days being the "Authorization Trigger Date")
shall be less than 135% of the number of shares of Common Stock
issuable upon conversion of the then outstanding shares of Series
B Preferred Stock, the Corporation shall immediately notify the
holders of Series B Preferred Stock of such occurrence and shall
take immediate action (including, if necessary, seeking
shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200%
of the number of shares of Common Stock then issuable upon
conversion of the outstanding Series B Preferred Stock. In the
event the Corporation fails to so increase the Reserved Amount
within ninety (90) days after an Authorization Trigger Date, each
holder of Series B Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time
to time by delivery of a Mandatory Redemption Notice (as defined
in Article VIII.C) to the Corporation, to require the Corporation
to purchase for cash, at an amount per share equal to the
Mandatory Redemption Amount (as defined in Article VIII.B), a
portion of the holder's Series B Preferred Stock such that, after
giving effect to such purchase, the holder's allocated portion of
the Reserved Amount exceeds 135% of the total number of shares
of Common Stock issuable to such holder upon conversion of its
Series B Preferred Stock. If the Corporation fails to redeem any
of such shares within five (5) business days after its receipt of
such Mandatory Redemption Notice, then such holder shall be
entitled to the remedies provided in Article VIII.C.
C. Limitations on Redemption Right. Notwithstanding the
provisions of Paragraph B of this Article V, the holders of
Series B Preferred Stock shall have no right to require the
Corporation to effect a redemption of their outstanding shares of
Series B Preferred Stock as provided in Paragraph B of this
Article V so long as (i) the Corporation has not, at any time,
decreased the Reserved Amount below 4,800,000 shares of Common
Stock; (ii) the Corporation shall have taken immediate action
following the applicable Authorization Trigger Date (including,
if necessary, seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock
then issuable upon conversion of the outstanding Series B
Preferred Stock; and (iii) the Corporation continues to use its
good faith best efforts (including the resolicitation of
shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200%
of the number of shares of Common Stock then issuable upon
conversion of the outstanding Series B Preferred Stock. The
Corporation will be deemed to be using "its good faith best
efforts" to increase the Reserved Amount so long as it solicits
shareholder approval to authorize the issuance of additional
shares of Common Stock not less than three (3) times during each
twelve month period following the applicable Authorization
Trigger Date during which any shares of Series B Preferred Stock
remain outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a
holder of shares of Series B Preferred Stock submits a Notice of
Conversion and the Corporation fails for any reason (other than
because such issuance would exceed such holder's allocated
portion of the Reserved Amount or Cap Amount, for which failures
the holders shall have the remedies set forth in Articles V and
VII, respectively) to deliver, on or prior to the fourth (4th)
business day following the expiration of the Delivery Period for
such conversion, such number of freely tradeable shares of Common
Stock to which such holder is entitled upon such conversion, or
(y) the Corporation provides notice to any holder of Series B
Preferred Stock at any time of its intention not to issue freely
tradeable shares of Common Stock upon exercise by any holder of
its conversion rights in accordance with the terms of this
Certificate of Designation (other than because such issuance
would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount) (each of (x) and (y) being a "Conversion
Default"), then the Corporation shall pay to the affected holder,
in the case of a Conversion Default described in clause (x)
above, and to all holders, in the case of a Conversion Default
described in clause (y) above, an amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the
Delivery Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all
shares of Series B Preferred Stock held by such holder, plus (ii)
the total accrued Premium as of the first day of the Conversion
Default on all shares of Series B Preferred Stock included in
clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion
Default described in clause (x) of its definition, the date the
Corporation effects the conversion of the full number of shares
of Series B Preferred Stock and (ii) with respect to a Conversion
Default described in clause (y) of its definition, the date the
Corporation begins to issue freely tradeable shares of Common
Stock in satisfaction of all conversions of Series B Preferred
Stock in accordance with Article IV.A, and (iii) with respect to
either type of a Conversion Default, the date on which the
Corporation redeems shares of Series B Preferred Stock held by
such holder pursuant to Paragraph D of this Article VI.
The payments to which a holder shall be entitled pursuant to
this Paragraph A are referred to herein as "Conversion Default
Payments." A holder may elect to receive accrued Conversion
Default Payments in cash or to convert all or any portion of such
accrued Conversion Default Payments, at any time, into Common
Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the
Conversion Date with respect to such Conversion Default Payments.
In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing.
Such payment shall be made in accordance with and be subject to
the provisions of Article XIV.E. In the event a holder elects to
convert all or any portion of the Conversion Default Payments
into Common Stock, the holder shall indicate on a Notice of
Conversion such portion of the Conversion Default Payments which
such holder elects to so convert and such conversion shall
otherwise be effected in accordance with the provisions of
Article IV.
B. Adjustment to Conversion Price. If a holder has not
received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Delivery
Period with respect to a conversion of Series B Preferred Stock
for any reason (other than because such issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap
Amount, for which failures the holders shall have the remedies
set forth in Articles V and VII), then the Fixed Conversion Price
in respect of any shares of Series B Preferred Stock held by such
holder (including shares of Series B Preferred Stock submitted to
the Corporation 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 Notice of Conversion which resulted in the
Conversion Default and (ii) the lowest Conversion Price in effect
during the period beginning on, and including, such Conversion
Date through and including the earlier of (x) the day such shares
of Common Stock are delivered to the holder and (y) the day on
which the holder regains its rights as a holder of Series B
Preferred Stock with respect to such unconverted shares of Series
B Preferred Stock pursuant to the provisions of Article XIV.F
hereof. If there shall occur a Conversion Default of the type
described in clause (y) of Article VI.A, then the Fixed
Conversion Price with respect to any conversion thereafter shall
be the lowest Conversion Price in effect at any time during the
period beginning on, and including, the date of the occurrence of
such Conversion Default through and including the Default Cure
Date. The Fixed Conversion Price shall thereafter be subject to
further adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the
applicable holder in writing prior to the delivery by such holder
of a Notice of Conversion that the Corporation is unable to honor
conversions, if (i) (a) the Corporation fails for any reason to
deliver during the Delivery Period shares of Common Stock to a
holder upon a conversion of shares of Series B Preferred Stock or
(b) there shall occur a Legend Removal Failure (as defined in
Article VIII.A(iii) below) and (ii) thereafter, such holder
purchases (in an open market transaction or otherwise) shares of
Common Stock to make delivery in satisfaction of a sale by such
holder of the unlegended shares of Common Stock (the "Sold
Shares") which such holder anticipated receiving upon such
conversion (a "Buy-In"), the Corporation shall pay such holder
(in addition to any other remedies available to the holder) the
amount by which (x) such holder's total purchase price (including
brokerage commissions, if any) for the unlegended shares of
Common Stock so purchased exceeds (y) the net proceeds received
by such holder from the sale of the Sold Shares. For example, if
a holder purchases unlegended shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for $10,000, the Corporation will
be required to pay the holder $1,000. A holder shall provide the
Corporation written notification and supporting documentation
indicating any amounts payable to such holder pursuant to this
Paragraph C. The Corporation shall make any payments required
pursuant to this Paragraph C in accordance with and subject to
the provisions of Article XIV.E.
D. Redemption Right. If the Corporation fails, and such
failure continues uncured for five (5) business days after the
Corporation has been notified thereof in writing by the holder,
for any reason (other than because such issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap
Amount, for which failures the holders shall have the remedies
set forth in Articles V and VII) to issue shares of Common Stock
within ten (10) business days after the expiration of the
Delivery Period with respect to any conversion of Series B
Preferred Stock, then the holder may elect at any time and from
time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Mandatory Redemption Notice to the
Corporation, to have all or any portion of such holder's
outstanding shares of Series B Preferred Stock purchased by the
Corporation for cash, at an amount per share equal to the
Mandatory Redemption Amount (as defined in Article VIII.B). If
the Corporation fails to redeem any of such shares within five
(5) business days after its receipt of such Mandatory Redemption
Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after March 2, 1998
the then unissued portion of any holder's Cap Amount is less than
135% of the number of shares of Common Stock then issuable upon
conversion of such holder's shares of Series B Preferred Stock (a
"Trading Market Trigger Event"), the Corporation shall
immediately notify the holders of Series B Preferred Stock of
such occurrence and shall take immediate action (including, if
necessary, seeking the approval of its shareholders to authorize
the issuance of the full number of shares of Common Stock which
would be issuable upon the conversion of the then outstanding
shares of Series B Preferred Stock but for the Cap Amount) to
eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the
Corporation or any of its securities on the Corporation's ability
to issue shares of Common Stock in excess of the Cap Amount.
B. Remedies. In the event the Corporation fails to
eliminate all prohibitions on its ability to issue shares of
Common Stock in excess of the Cap Amount within ninety (90) days
after the Trading Market Trigger Event and thereafter the
Corporation is prohibited, at any time, from issuing shares of
Common Stock upon conversion of Series B Preferred Stock to any
holder because such issuance would exceed the then unissued
portion of such holder's Cap Amount because of applicable law or
the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Corporation or its securities, any holder
who is so prohibited from converting its Series B Preferred Stock
may elect either or both of the following remedies:
(i) to require, with the consent of holders of at
least fifty percent (50%) of the outstanding shares of Series B
Preferred Stock (including any shares of Series B Preferred Stock
held by the requesting holder), the Corporation to terminate the
listing of its Common Stock on the NNM (or any other stock
exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq
SmallCap Market or on the over-the-counter electronic bulletin
board, at the option of the requesting holder; or
(ii) to require the Corporation to issue shares of
Common Stock in accordance with such holder's Notice of
Conversion at a conversion price equal to the greater of (x) the
Average Price and (y) the book value per share of Common Stock,
each in effect as of the date of the holder's written notice to
the Corporation of its election to receive shares of Common Stock
pursuant to this subparagraph (ii);
provided, however, that the Corporation may, at its option, by
delivery of an Optional Redemption Notice within five (5)
business days after the Corporation's receipt of any notice of
election delivered by a holder pursuant to this Article VII.B,
elect to purchase for cash, at an amount per share equal to the
Optional Redemption Amount, a number of the holder's shares of
Series B Preferred Stock such that, after giving effect to such
redemption, the then unissued portion of such holder's Cap Amount
exceeds 135% of the total number of shares of Common Stock
issuable upon conversion of such holder's shares of Series B
Preferred Stock.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events
described in clauses (i)-(v) below after expiration of the
applicable cure period (if any) being a "Mandatory Redemption
Event"):
(i) the Common Stock (including any of the shares of
Common Stock issuable upon conversion of the Series B Preferred
Stock) is suspended from trading on any of, or is not listed (and
authorized) for trading on at least one of, the New York Stock
Exchange, the American Stock Exchange, the NNM or the SmallCap
for an aggregate of ten (10) trading days in any nine (9) month
period;
(ii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to
the holders of Series B Preferred Stock upon conversion of the
Series B Preferred Stock as and when required by this Certificate
of Designation, the Securities Purchase Agreement or the
Registration Rights Agreement (a "Legend Removal Failure"), and
any such failure continues uncured for five (5) business days
after the Corporation has been notified thereof in writing by the
holder;
(iii) the Corporation provides notice to any holder
of Series B Preferred Stock, including by way of public
announcement, at any time, of its intention not to issue shares
of Common Stock to any holder of Series B Preferred Stock upon
conversion in accordance with the terms of this Certificate of
Designation (other than due to the circumstances contemplated by
Articles V or VII for which the holders shall have the remedies
set forth in such Articles);
(iv) the Corporation shall:
(a) sell, convey or dispose of all or
substantially all of its assets;
(b) merge, consolidate or engage in any other
business combination with any other entity (other than pursuant
to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Corporation); or
(c) have approved, recommended or otherwise
consented to any transaction or series of related transactions
which result in fifty percent (50%) or more of the voting power
of the Corporation's capital stock being owned beneficially by
one person, entity or "group" (as such term is used under Section
13(d) of the Securities Exchange Act of 1934, as amended);
(v) the Corporation otherwise shall breach any other
material term hereunder or under the Securities Purchase
Agreement or the Registration Rights Agreement and such breach
continues uncured for ten (10) business days after the
Corporation has been notified thereof in writing by the holder;
then, upon the occurrence of any such Mandatory Redemption Event,
each holder of shares of Series B Preferred Stock shall
thereafter have the option, exercisable in whole or in part at
any time and from time to time by delivery of a Mandatory
Redemption Notice (as defined in Paragraph C below) to the
Corporation while such Mandatory Redemption Event continues, to
require the Corporation to purchase for cash any or all of the
then outstanding shares of Series B Preferred Stock held by such
holder for an amount per share equal to the Mandatory Redemption
Amount (as defined in Paragraph B below) in effect at the time of
the redemption hereunder. For the avoidance of doubt, the
occurrence of any event described in clauses (i), (iii) or (iv)
above shall immediately constitute a Mandatory Redemption Event
and there shall be no cure period; provided, however, that the
holders of Series B Preferred Stock shall have no right to
deliver a Mandatory Redemption Notice following the occurrence of
a Mandatory Redemption Event specified in clause (i) above if the
Corporation pays to each holder within five (5) business days
after the occurrence of such Mandatory Redemption Event, as
liquidated damages for the decrease in the value of the Series B
Preferred Stock (and the shares of the Corporation's Common Stock
issuable upon conversion thereof) which will result from the
occurrence of such Mandatory Redemption Event, an amount (the
"Damages Amount") equal to twenty-five percent (25%) of the
aggregate Face Amount of the shares of Series B Preferred Stock
then held by each such holder. The Damages Amount shall be
payable, at the Corporation's option, in cash or shares of Common
Stock (based upon a price per share of Common Stock equal to
fifty percent (50%) of the Average Price as of the date of such
Mandatory Redemption Event). Upon the initial issuance of shares
of Series B Preferred Stock, the Corporation shall reserve
1,500,000 shares of Common Stock to satisfy its obligation with
respect to the Damages Amount and thereafter the number of
authorized but unissued shares of Common Stock so reserved shall
not be decreased. In the event that the number of shares
required to be issued by the Corporation with respect to the
Damages Amount exceeds 1,500,000 shares of Common Stock and the
Corporation does not have a sufficient number of shares of Common
Stock authorized and available for issuance to satisfy its
obligation with respect to the Damages Amount, the Corporation
shall issue and deliver to the holders, on a pro-rata basis based
on the number of shares of Series B Preferred Stock then held by
each such holder, a number of shares of Common Stock equal to the
greater of (i) the number of shares authorized and available for
issuance by the Corporation to satisfy such obligation and (ii)
all 1,500,000 shares of Common Stock so reserved for such purpose
and, upon such issuance, the holders shall have no right of
redemption with respect to such Mandatory Redemption Event, but
shall retain all other remedies to which they may be entitled at
law or in equity (which remedies shall not include the right of
redemption).
Upon the Corporation's receipt of any Mandatory Redemption
Notice hereunder (other than during the three (3) trading day
period following the Corporation's delivery of a Mandatory
Redemption Announcement (as defined below) to all of the holders
in response to the Corporation's initial receipt of a Mandatory
Redemption Notice from a holder of Series B Preferred Stock), the
Corporation shall immediately (and in any event within one (1)
business day following such receipt) deliver a written notice (a
"Mandatory Redemption Announcement") to all holders of Series B
Preferred Stock stating the date upon which the Corporation
received such Mandatory Redemption Notice and the amount of
Series B Preferred Stock covered thereby. The Corporation shall
not redeem any shares of Series B Preferred Stock during the
three (3) trading day period following the delivery of a required
Mandatory Redemption Announcement hereunder. At any time and from
time to time during such three (3) trading day period, each
holder of Series B Preferred Stock may request (either orally or
in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate
number of shares of Series B Preferred Stock covered by Mandatory
Redemption Notices received by the Corporation) and the
Corporation shall furnish (either orally or in writing) as soon
as practicable such requested information to such requesting
holder.
B. Definition of Mandatory Redemption Amount. The
"Mandatory Redemption Amount" with respect to a share of Series B
Preferred Stock means an amount equal to the greater of:
(i) V x M
C P
and
(ii) The sum of (x) the product of (I) one hundred
percent (100%) divided by the Conversion Percentage in effect on
the date on which the Corporation receives the Mandatory
Redemption Notice, times (II) the Face Amount thereof, plus (y)
the accrued Premium thereon and all unpaid Conversion Default
Payments owing (if any) with respect thereto through the date of
payment of the Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium
thereon and all unpaid Conversion Default Payments owing (if any)
with respect thereto through the date of payment of the Mandatory
Redemption Amount;
"CP" means the Conversion Price in effect on the date on
which the Corporation receives the Mandatory Redemption Notice;
and
"M" means (i) with respect to all redemptions other than
redemptions pursuant to Article VIII.A(iv) hereof, the highest
Closing Price of the Corporation's Common Stock during the period
beginning on the date on which the Corporation receives the
Mandatory Redemption Notice and ending on the date immediately
preceding the date of payment of the Mandatory Redemption Amount
and (ii) with respect to redemptions pursuant to Article
VIII.A(iv) hereof, the greater of (a) the amount determined
pursuant to clause (i) of this definition or (b) the fair market
value, as of the date on which the Corporation receives the
Mandatory Redemption Notice, of the consideration payable to the
holder of a share of Common Stock pursuant to the transaction
which triggers the redemption. For purposes of this definition,
"fair market value" shall be determined by the mutual agreement
of the Company and holders of a majority-in-interest of the
shares of Series B Preferred Stock then outstanding, or if such
agreement cannot be reached within five (5) business days prior
to the date of redemption, by an investment banking firm selected
by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series B
Preferred Stock, with the costs of such appraisal to be borne by
the Corporation.
C. Redemption Defaults. If the Corporation fails to pay
any holder the Mandatory Redemption Amount with respect to any
share of Series B Preferred Stock within five (5) business days
after its receipt of a notice requiring such redemption (a
"Mandatory Redemption Notice"), then the holder of Series B
Preferred Stock delivering such Mandatory Redemption Notice (i)
shall be entitled to interest on the Mandatory Redemption Amount
at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law
from the date on which the Corporation receives the Mandatory
Redemption Notice until the date of payment of the Mandatory
Redemption Amount hereunder, and (ii) shall have the right, at
any time and from time to time prior to payment thereof in cash,
to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of Paragraph A of Article
IV) all or any portion of the Mandatory Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest
Conversion Price in effect during the period beginning on the
date on which the Corporation receives the Mandatory Redemption
Notice and ending on the Conversion Date with respect to the
conversion of such Mandatory Redemption Amount. In the event the
Corporation is not able to redeem all of the shares of Series B
Preferred Stock subject to Mandatory Redemption Notices delivered
prior to the date upon which such redemption is to be effected,
the Corporation shall redeem shares of Series B Preferred Stock
from each holder pro rata, based on the total number of shares of
Series B Preferred Stock outstanding at the time of redemption
included by such holder in all Mandatory Redemption Notices
delivered prior to the date upon which such redemption is to be
effected relative to the total number of shares of Series B
Preferred Stock outstanding at the time of redemption included in
all of the Mandatory Redemption Notices delivered prior to the
date upon which such redemption is to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time,
so long as no Conversion Default or Mandatory Redemption Event
shall have occurred and be continuing, to redeem (an "Optional
Redemption") all, but not less than all, of the then outstanding
shares of Series B Preferred Stock (excluding shares of Series B
Preferred Stock subject to a Notice of Conversion delivered to
the Corporation prior to the date of the Optional Redemption
Notice (as defined in subparagraph (iii) below)) for cash, at an
amount per share equal to the Optional Redemption Amount (as
defined below), by delivering an Optional Redemption Notice to
the holders of Series B Preferred Stock. Subject to the
provisions of Article IV.C hereof, holders of Series B Preferred
Stock may convert all or any part of their shares of Series B
Preferred Stock selected for redemption hereunder into Common
Stock by delivering a Notice of Conversion to the Corporation at
any time prior to the Effective Date of Redemption. For purposes
hereof, the "Optional Redemption Amount" with respect to a share
of Series B Preferred Stock means an amount equal to the greater
of:
(a) V x M
C P
and
(b) The sum of (x) the product of (I) one hundred
percent (100%) divided by the Conversion Percentage in effect on
the date of the Optional Redemption Notice, times (II) the Face
Amount thereof, plus (y) the accrued Premium thereon and all
unpaid Conversion Default Payments owing (if any) with respect
thereto through the Effective Date of Redemption (as defined in
subparagraph (iii) below).
where:
"V" means the Face Amount thereof plus the accrued Premium
thereon and all unpaid Conversion Default Payments owing (if any)
with respect thereto through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the
Optional Redemption Notice; and
"M" means the Closing Price of the Corporation's Common
Stock on the date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional
Redemption Notice to the holders of Series B Preferred Stock
unless on or prior to the date of delivery of such Optional
Redemption Notice, the Corporation shall have deposited with an
escrow agent reasonably acceptable to holders of a majority of
the outstanding shares of Series B Preferred Stock, as a trust
fund, cash sufficient in amount to pay all amounts to which the
holders of Series B Preferred Stock are entitled upon such
redemption pursuant to subparagraph (i) of this Paragraph D, with
irrevocable instructions and authority to such escrow agent to
complete the redemption thereof in accordance with this Paragraph
D. Any Optional Redemption Notice delivered in accordance with
the immediately preceding sentence shall be accompanied by a
statement executed by a duly authorized officer of its escrow
agent, certifying the amount of funds which have been deposited
with such escrow agent and that the escrow agent has been
instructed and agrees to act as redemption agent hereunder.
(iii) The Corporation shall effect an Optional
Redemption under this Section VIII.D by giving at least thirty
(30) business days prior written notice (the "Optional Redemption
Notice") of the date on which such redemption is to become
effective (the "Effective Date of Redemption") and the Optional
Redemption Amount to (i) the holders of Series B Preferred Stock
at the address and facsimile number of each holder appearing in
the Corporation's register for the Series B Preferred Stock and
(ii) the transfer agent for the Common Stock, which Optional
Redemption Notice shall be deemed to have been delivered on the
business day after the Corporation's fax (with a copy sent by
overnight courier to the holders of Series B Preferred Stock) of
such notice to the holders of Series B Preferred Stock.
(iv) The Optional Redemption Amount shall be paid to
the holder of the Series B Preferred Stock being redeemed within
three (3) business days of the Effective Date of Redemption;
provided, however, that the Corporation shall not be obligated to
deliver any portion of the Optional Redemption Amount until
either the certificates evidencing the Series B Preferred Stock
being redeemed are delivered to the office of the Corporation or
the escrow agent or the holder notifies the Corporation or the
escrow agent that such certificates have been lost, stolen or
destroyed and delivers the documentation in accordance with
Article XIV.B hereof. Notwithstanding anything herein to the
contrary, in the event that the certificates evidencing the
Series B Preferred Stock being redeemed are not delivered to the
Corporation or the escrow agent prior to the third business day
following the Effective Date of Redemption, the redemption of the
Series B Preferred Stock pursuant to this Article VIII.D shall
still be deemed effective as of the Effective Date of Redemption
and the Optional Redemption Amount shall be paid to the holder of
Series B Preferred Stock being redeemed within five (5) business
days of the date the certificates evidencing the Series B
Preferred Stock being redeemed are actually delivered to the
Corporation or the escrow agent.
E Redemptions Below Floor Price. In the event that any
holder of Series B Preferred Stock attempts to effect a Below
Floor Conversion, the Corporation shall have the option, in lieu
of issuing shares of Common Stock to the converting holder, to
redeem all or any portion of the shares of Series B Preferred
Stock submitted for conversion for an amount per share in cash
equal to the Optional Redemption Amount (treating, for purposes
of this Article VIII.E, the Conversion Date applicable to such
Below Floor Conversion as the "date of the Optional Redemption
Notice" and the date on which the Corporation delivers the
Optional Redemption Amount to the holder as the "Effective Date
of Redemption"). From time to time, the holders may request
advance notice as to whether the Corporation will issue shares of
Common Stock, deliver cash in redemption or any combination
thereof in respect of the shares of Series B Preferred Stock
submitted for conversion. Such request shall be made in writing
and the Corporation shall respond in writing as promptly as
practicable but in any event within three (3) business days of
receipt of the request. The Corporation will be bound by such
response for a period of thirty (30) trading days from the date
of its response. A failure to respond within three (3) business
days shall be deemed to be an election to issue Common Stock on
conversion. Any amounts payable hereunder shall be paid to the
converting holder within five (5) business days of the applicable
Conversion Date. If the Corporation fails to pay any holder the
Optional Redemption Amount with respect to any share of Series B
Preferred Stock within such five (5) business day period, then
the Corporation shall thereafter be deemed to have forfeited all
of its rights to effect redemptions under this Article VIII.E and
under Article VIII.D above and the holder (i) shall be entitled
to interest on the Optional Redemption Amount at a per annum rate
equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law, and (ii) shall have
the right, at any time and from time to time, to require the
Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article IV) all or
any portion of such Optional Redemption Amount, plus interest as
aforesaid, into shares of Common Stock at the lowest Conversion
Price in effect during the period beginning on and including the
Conversion Date with respect to such attempted Below Floor
Conversion and ending on the Conversion Date with respect to the
conversion of such Optional Redemption Amount.
IX RANK
All shares of the Series B Preferred Stock shall rank (i)
prior to the Corporation's Common Stock and Series A Convertible
Preferred Stock; (ii) prior to any class or series of capital
stock of the Corporation hereafter created (unless, with the
consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof, such class or series of
capital stock specifically, by its terms, ranks senior to or pari
passu with the Series B Preferred Stock) (collectively with the
Common Stock and Series A Convertible Preferred Stock, "Junior
Securities"); (iii) pari passu with any class or series of
capital stock of the Corporation hereafter created (with the
consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series B Preferred Stock (the "Pari
Passu Securities"); and (iv) junior to any class or series of
capital stock of the Corporation hereafter created (with the
consent of the holders of Series B Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its
terms, senior to the Series B Preferred Stock (the "Senior
Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
X LIQUIDATION PREFERENCE
A If the Corporation shall commence a voluntary case
under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law, or consent to the entry of
an order for relief in an involuntary case under any law or to
the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become
due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the U.S. Federal
bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part
of its property, or ordering the winding up or liquidation of its
affairs, and any such decree or order shall be unstayed and in
effect for a period of sixty (60) consecutive days and, on
account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, including, but not limited to,
the sale or transfer of all or substantially all of the
Corporation's assets in one transaction or in a series of related
transactions (a "Liquidation Event"), no distribution shall be
made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the holders of
shares of Series B Preferred Stock shall have received the
Liquidation Preference with respect to each share. If, upon the
occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series B Preferred
Stock and holders of Pari Passu Securities shall be insufficient
to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series B
Preferred Stock and the Pari Passu Securities shall be
distributed ratably among such shares in proportion to the ratio
that the Liquidation Preference payable on each such share bears
to the aggregate Liquidation Preference payable on all such
shares.
B The purchase or redemption by the Corporation 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 Corporation. Neither the consolidation or
merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation 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 Corporation.
C The "Liquidation Preference" with respect to a share of
Series B Preferred Stock means an amount equal to the Face Amount
thereof plus the accrued Premium thereon through the date of
final distribution. The Liquidation Preference with respect to
any Pari Passu Securities shall be as set forth in the
Certificate of Designation filed in respect thereof.
XI ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to
adjustment from time to time as follows:
A Stock Splits, Stock Dividends, Etc. If at any time on
or after the Issuance Date, the number of outstanding shares of
Common Stock is increased by a stock split, stock dividend,
combination, reclassification or other similar event, the Fixed
Conversion Price and the Floor Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Fixed
Conversion Price and the Floor Price shall be proportionately
increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the
effective date thereof.
B Adjustment Due to Merger, Consolidation, Etc. If, at
any time after the Issuance Date, there shall be (i) any
reclassification or change of the outstanding shares of Common
Stock (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation or merger of
the Corporation with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and
its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv)
any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or
property (each of (i) - (iv) above being a "Corporate Change"),
then the holders of Series B Preferred Stock shall thereafter
have the right to receive upon conversion, in lieu of the shares
of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or
payable in such Corporate Change with respect to or in exchange
for the number of shares of Common Stock which would have been
issuable upon conversion (without giving effect to the
limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions
shall be made with respect to the rights and interests of the
holders of the Series B Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and the Floor Price and of the
number of shares of Common Stock issuable upon conversion of the
Series B Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the conversion thereof.
The Corporation shall not effect any Corporate Change unless (i)
each holder of Series B Preferred Stock has received written
notice of such transaction at least seventy-five (75) days prior
thereto, but in no event later than twenty (20) days prior to the
record date for the determination of shareholders entitled to
vote with respect thereto, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written
instrument the obligations of this Certificate of Designation.
The above provisions shall apply regardless of whether or not
there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of
the shares of Series B Preferred Stock outstanding as of the date
of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
C Adjustment Due to Major Announcement. In the event the
Corporation at any time after the Issuance Date (i) makes a
public announcement that it intends to consolidate or merge with
any other entity (other than a merger in which the Corporation is
the surviving or continuing entity and its capital stock is
unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer,
exchange offer or another transaction to purchase 50% or more of
the Corporation's Common Stock or otherwise publicly announces an
intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise (the date of the
announcement referred to in clause (i) or (ii) of this Paragraph
C is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date
and continuing through the sixth (6th) trading day following the
earlier of the consummation of the proposed transaction or tender
offer, exchange offer or another transaction or the Abandonment
Date (as defined below), be equal to the lower of (x) the
Conversion Price which would have been applicable for a
Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.E on
the Conversion Date set forth in the Notice of Conversion for the
Conversion. From and after the sixth (6th) trading day following
the Abandonment Date, the Conversion Price shall be determined as
set forth in Article III.E. "Abandonment Date" means with respect
to any proposed transaction or tender offer, exchange offer or
another transaction for which a public announcement as
contemplated by this Paragraph C has been made, the date upon
which the Corporation (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another
transaction which caused this Paragraph C to become operative.
D Adjustment Due to Distribution. If at any time after
the Issuance Date the Corporation shall declare or make any
distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way
of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary
(i.e. a spin-off)) (a "Distribution"), then the holders of Series
B Preferred Stock shall be entitled, upon any conversion of
shares of Series B Preferred Stock after the date of record for
determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable
to the holder with respect to the shares of Common Stock issuable
upon such conversion (without giving effect to the limitations
contained in Article IV.C) had such holder been the holder of
such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E Issuance of Other Securities With Variable Conversion
Price. If the Corporation shall issue any securities which are
convertible into or exchangeable for Common Stock ("Convertible
Securities") at a conversion or exchange rate based on a discount
to the market price of the Common Stock at the time of conversion
or exercise, then the Conversion Percentage in respect of any
conversion of Series B Preferred Stock after such issuance shall
be calculated utilizing the higher of the greatest discount
applicable to any such Convertible Securities and the difference
between one hundred percent (100%) and the Conversion Percentage
then in effect hereunder.
F Purchase Rights. If at any time after the Issuance
Date, the Corporation issues any Convertible Securities or rights
to purchase stock, warrants, securities or other property (the
"Purchase Rights") pro rata to the record holders of any class of
Common Stock, then the holders of Series B Preferred Stock will
be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder
could have acquired if such holder had held the number of shares
of Common Stock acquirable upon complete conversion of the Series
B Preferred Stock (without giving effect to the limitations
contained in Article IV.C) 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.
G Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price and/or Floor
Price pursuant to this Article XI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to each holder of Series B Preferred
Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock,
furnish to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price and/or
Floor Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a
share of Series B Preferred Stock.
XII VOTING RIGHTS
Except as otherwise provided herein, the holders of the
Series B Preferred Stock shall have such voting rights as are
provided in the Corporation's Certificate of Incorporation as in
effect on the date hereof and as the same may be amended or
restated hereafter (the "Certificate of Incorporation") and as
otherwise provided by the Connecticut Business Corporation Act
(the "Business Corporation Act") and in Article XIII below.
The Corporation shall provide each holder of Series B
Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information
sent to shareholders). If the Corporation takes a record of its
shareholders for the purpose of determining shareholders entitled
to (a) receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire (including
by way of merger, consolidation or recapitalization) any share of
any class or any other securities or property, or to receive any
other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of
the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the
Corporation shall mail a notice to each holder, at least twenty
(20) days prior to the record date specified therein (or seventy-
five (75) days prior to the consummation of the transaction or
event, whichever is earlier, but in no event earlier than public
announcement of such proposed transaction), of the date on which
any such record is to be taken for the purpose of such vote,
dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such vote,
dividend, distribution, right or other event to the extent known
at such time.
To the extent that under the Business Corporation Act or the
Certificate of Incorporation the vote of the holders of the
Series B Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at
least a majority of the then outstanding shares of the Series B
Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series B
Preferred Stock (except as otherwise may be required hereunder or
under the Business Corporation Act or the Certificate of
Incorporation) shall constitute the approval of such action by
the class. To the extent that under the Business Corporation Act
or the Certificate of Incorporation holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series
B Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article
IV.C(ii)) using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is
calculated.
XIII PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not without first obtaining
the approval (by vote or written consent, as provided by the
Business Corporation Act) of the holders of (i) all of the then
outstanding shares of Series B Preferred Stock with respect to
subsection (a) below or (ii) at least 67% of the then outstanding
shares of Series B Preferred Stock with respect to subsections
(b) through (h) below:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to
affect adversely the Series B Preferred Stock;
(c) create any new class or series of capital
stock having a preference over the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding
up of the Corporation (as previously defined in Article IX
hereof, "Senior Securities");
(d) create any new class or series of capital
stock ranking pari passu with the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding
up of the Corporation (as previously defined in Article IX
hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of
Series B Preferred Stock;
(f) issue any shares of Senior Securities or Pari
Passu Securities;
(g) issue any shares of Series B Preferred Stock
other than pursuant to the Securities Purchase Agreement; or
(h) redeem, or declare or pay any cash dividend
or distribution on, any Junior Securities.
Notwithstanding the foregoing, no change pursuant to this
Article XIII shall be effective to the extent that, by its terms,
it applies to less than all of the holders of shares of Series B
Preferred Stock then outstanding.
XIV MISCELLANEOUS
A Cancellation of Series B Preferred Stock. If any
shares of Series B Preferred Stock are converted pursuant to
Article IV, the shares so converted shall be cancelled, shall
return to the status of authorized, but unissued preferred stock
of no designated series, and shall not be issuable by the
Corporation as Series B Preferred Stock.
B Lost or Stolen Certificates. Upon receipt by the
Corporation of (i) evidence of the loss, theft, destruction or
mutilation of any Preferred Stock Certificate(s) and (ii) (y) in
the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date.
However, the Corporation shall not be obligated to reissue such
lost or stolen Preferred Stock Certificate(s) if the holder
contemporaneously requests the Corporation to convert such Series
B Preferred Stock.
C Allocation of Cap Amount and Reserved Amount. The
initial Cap Amount and Reserved Amount shall be allocated pro
rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock issued to each
holder. Each increase to the Cap Amount and Reserved Amount
shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B
Preferred Stock held by each holder at the time of the increase
in the Cap Amount or Reserved Amount. In the event a holder
shall sell or otherwise transfer any of such holder's shares of
Series B Preferred Stock, each transferee shall be allocated a
pro rata portion of such transferor's Cap Amount and Reserved
Amount. Any portion of the Cap Amount or Reserved Amount which
remains allocated to any person or entity which does not hold any
Series B Preferred Stock shall be allocated to the remaining
holders of shares of Series B Preferred Stock, pro rata based on
the number of shares of Series B Preferred Stock then held by
such holders.
D Quarterly Statements of Available Shares. For each
calendar quarter beginning in the quarter in which the
registration statement required to be filed pursuant to Section
2(a) of the Registration Rights Agreement is declared effective
and thereafter so long as any shares of Series B Preferred Stock
are outstanding, the Corporation shall deliver (or cause its
transfer agent to deliver) to each holder a written report
notifying the holders of any occurrence which prohibits the
Corporation from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of
Series B Preferred Stock outstanding as of the end of such
quarter, (ii) the total number of shares of Common Stock issued
upon all conversions of Series B Preferred Stock prior to the end
of such quarter, (iii) the total number of shares of Common Stock
which are reserved for issuance upon conversion of the Series B
Preferred Stock as of the end of such quarter and (iv) the total
number of shares of Common Stock which may thereafter be issued
by the Corporation upon conversion of the Series B Preferred
Stock before the Corporation would exceed the Cap Amount and the
Reserved Amount. The Corporation (or its transfer agent) shall
deliver the report for each quarter to each holder prior to the
tenth (10th) day of the calendar month following the quarter to
which such report relates. In addition, the Corporation (or its
transfer agent) shall provide, within fifteen (15) days after
delivery to the Corporation of a written request by any holder,
any of the information enumerated in clauses (i) - (iv) of this
Paragraph D as of the date of such request.
E Payment of Cash; Defaults. Whenever the Corporation is
required to make any cash payment to a holder under this
Certificate of Designation (as a Conversion Default Payment, upon
redemption or otherwise), such cash payment shall be made to the
holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive
such payment in cash and the method (e.g., by check, wire
transfer) in which such payment should be made. If such payment
is not delivered within such five (5) business day period, such
holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four
percent (24%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the holder.
F Status as Stockholder. Upon submission of a Notice of
Conversion by a holder of Series B Preferred Stock, (i) the
shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount)
shall be deemed converted into shares of Common Stock and (ii)
the holder's rights as a holder of such converted shares of
Series B Preferred Stock shall cease and terminate, excepting
only the right to receive certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available
at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of
Designation. In situations where Article VI.B is applicable, the
number of shares of Common Stock referred to in clauses (i) and
(ii) of the immediately preceding sentence shall be determined on
the date on which such shares of Common Stock are delivered to
the holder. Notwithstanding the foregoing, if a holder has not
received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Delivery
Period with respect to a conversion of Series B Preferred Stock
for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the
Corporation within five (5) business days after the expiration of
such ten (10) business day period after expiration of the
Delivery Period) the holder shall regain the rights of a holder
of Series B Preferred Stock with respect to such unconverted
shares of Series B Preferred Stock and the Corporation shall, as
soon as practicable, return such unconverted shares to the
holder. In all cases, the holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to
receive Conversion Default Payments pursuant to Article VI.A to
the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions
determined in accordance with Article VI.B) for the Corporation's
failure to convert Series B Preferred Stock.
G Remedies Cumulative. The remedies provided in this
Certificate of Designation shall be cumulative and in addition to
all other remedies available under this Certificate of
Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any
failure by the Corporation to comply with the terms of this
Certificate of Designation. The Corporation acknowledges that a
breach by it of its obligations hereunder will cause irreparable
harm to the holders of Series B Preferred Stock and that the
remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or
threatened breach, that the holders of Series B Preferred Stock
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation this _8th_ day of January,
1998.
ACCENT COLOR SCIENCES, INC.
By: /s/ Norman L. Milliard
Name: Norman L. Milliard
Title: President
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________
shares of Series B Preferred Stock (the "Conversion"),
represented by stock certificate Nos(s). ___________ (the
"Preferred Stock Certificates") into shares of common stock
("Common Stock") of Accent Color Sciences, Inc. (the
"Corporation") according to the conditions of the Certificate of
Designations, Preferences and Rights of Series B Convertible
Preferred Stock (the "Certificate of Designation"), as of the
date written below. If securities are to be issued in the name
of a person other than the undersigned, the undersigned will pay
all transfer taxes payable with respect thereto. No fee will be
charged to the holder for any conversion, except for transfer
taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction
thereof).
The Corporation shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of
the undersigned or its nominee (which is _________________) with
DTC through its Deposit Withdrawal Agent Commission System ("DTC
Transfer").
The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned
upon conversion of the Series B Preferred Stock shall be made
pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption
from registration under the Act.
G In lieu of receiving the shares of Common Stock issuable
pursuant to this Notice of Conversion by way of DTC
Transfer, the undersigned hereby requests that the
Corporation issue and deliver to the undersigned physical
certificates representing such shares of Common Stock.
Date of
Conversion:___________________________
Applicable Conversion
Price:____________________
Amount of Conversion Default Payments
to be Converted, if
any:______________________
Number of Shares of
Common Stock to be
Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:_______________________________________
_______________________________________
_______________________________________
PHIL.\97687-5
EXHIBIT B
to
Securities Purchase
Agreement
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY __, 2003
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Right to Purchase ________
Shares of
Common Stock, no par value per
share
Date: January__, 1998
ACCENT COLOR SCIENCES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received,
______________________________, or its registered assigns, is
entitled to purchase from ACCENT COLOR SCIENCES, INC., a
corporation organized under the laws of the State of Connecticut
(the "Company"), at any time or from time to time during the
period specified in Section 2 hereof,
______________________________ (_______) fully paid and
nonassessable shares of the Company=s common stock, no par value
per share (the "Common Stock"), at an exercise price per share
(the "Exercise Price") equal to $_____. The number of shares of
Common Stock purchasable hereunder (the "Warrant Shares") and the
Exercise Price are subject to adjustment as provided in Section 4
hereof. The term "Warrants" means this Warrant and the other
warrants of the Company issued pursuant to that certain
Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the other signatories thereto (the
"Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions,
and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment
for Shares. Subject to the provisions hereof, including, without
limitation, the limitations contained in Section 7 hereof, this
Warrant may be exercised by the holder hereof, in whole or in
part, by the surrender of this Warrant, together with a completed
exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any
business day at the Company=s principal executive offices (or
such other office or agency of the Company as it may designate by
notice to the holder hereof), and upon (i) payment to the Company
in cash, by certified or official bank check or by wire transfer
for the account of the Company, of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the
holder is effectuating Cashless Exercise (as defined in Section
11(c) hereof) pursuant to Section 11(c) hereof, delivery to the
Company of a written notice of an election to effect a Cashless
Exercise for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or such holder's designee, as the
record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above
or, if such date is not a business date, on the next succeeding
business date. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the
Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised (the "Delivery
Period"). The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall
be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
If, at any time, a holder of this Warrant submits this
Warrant, an Exercise Agreement and payment to the Company of the
Exercise Price for each of the Warrant Shares specified in the
Exercise Agreement (including pursuant to a Cashless Exercise),
and the Company fails for any reason to deliver, on or prior to
the fourth business day following the expiration of the Delivery
Period for such exercise, the number of shares of Common Stock to
which the holder is entitled upon such exercise (an "Exercise
Default"), then the Company shall pay to the holder payments
("Exercise Default Payments") for an Exercise Default in the
amount of (a) (N/365), multiplied by (b) the amount by which the
Market Price (as defined in Section 4(l) hereof) on the date the
Exercise Agreement giving rise to the Exercise Default is
transmitted in accordance with Section 1 (the "Exercise Default
Date") exceeds the Exercise Price, multiplied by (c) the number
of shares of Common Stock the Company failed to so deliver in
such Exercise Default, multiplied by (d) .24, where N = the
number of days from the Exercise Default Date to the date that
the Company effects the full exercise of this Warrant which gave
rise to the Exercise Default. The accrued Exercise Default
Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock, at the holder=s option, as
follows:
(a) In the event holder elects to take such payment in
cash, cash payment shall be made to holder by the fifth (5th) day
of the month following the month in which it has accrued; and
(b) In the event holder elects to take such payment in
Common Stock, the holder may convert such payment amount into
Common Stock (in accordance with the terms contained in Article
IV of the Certificate of Designations, Preferences and Rights
(the "Certificate of Designation") governing the Company's Series
B Convertible Preferred Stock (the "Series B Preferred Stock"))
at the lower of the Exercise Price or the Market Price (as
defined in Section 4(l)) (as in effect at the time of conversion)
at any time after the fifth (5th) day of the month following the
month in which it has accrued.
Nothing herein shall limit the holder=s right to
pursue actual damages for the Company=s failure to maintain a
sufficient number of authorized shares of Common Stock as
required pursuant to the terms of Section 3(b) hereof or to
otherwise issue shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof, and the holder shall
have the right to pursue all remedies available at law or in
equity (including a decree of specific performance and/or
injunctive relief).
2. Period of Exercise.
(a) This Warrant is immediately exercisable, at any
time or from time to time on or after the date of initial
issuance of this Warrant (the "Issue Date") and before 5:00 p.m.,
New York City time, on the fifth (5th) anniversary of the Issue
Date (the "Exercise Period"). The Exercise Period shall
automatically be extended by one (1) day for each day on which
the Company does not have a number of shares of Common Stock
reserved for issuance upon exercise hereof at least equal to the
number of shares of Common Stock issuable upon exercise hereof.
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be
validly issued, fully paid, and nonassessable and free from all
taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise
Period, the Company shall at all times have authorized, and
reserved for the purpose of issuance upon exercise of this
Warrant, a sufficient number of shares of Common Stock to provide
for the exercise in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 7(g) hereof).
(c) Listing. The Company shall promptly secure the
listing of the shares of Common Stock issuable upon exercise of
this Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are
then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so
long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant; and the Company shall so list
on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of,
any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the
same class shall be listed on such national securities exchange
or automated quotation system.
(d) Certain Actions Prohibited. The Company will not,
by amendment of its charter or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of
this Warrant and in the taking of all such action as may
reasonably be requested by the holder of this Warrant in order to
protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of
any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this
Warrant.
(e) Successors and Assigns. This Warrant will be
binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all of the
Company=s assets.
(f) Blue Sky Laws. The Company shall, on or before
the date of issuance of any Warrant Shares, take such actions as
the Company shall reasonably determine are necessary to qualify
the Warrant Shares for, or obtain exemption for the Warrant
Shares for, sale to the holder of this Warrant upon the exercise
hereof 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 holder of this Warrant prior to such
date; provided, however, that the Company shall not be required
to qualify as a foreign corporation or file a general consent to
service of process in any such jurisdiction.
4. Antidilution Provisions. During the Exercise Period,
the Exercise Price and the number of Warrant Shares issuable
hereunder and for which this Warrant is then exercisable pursuant
to Section 2 hereof shall be subject to adjustment from time to
time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price. Except as otherwise
provided in Sections 4(c) and 4(e) hereof, if and whenever during
the Exercise Period the Company issues or sells, or in accordance
with Section 4(b) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a
consideration per share less than the Market Price (as
hereinafter defined) on the date of issuance (a "Dilutive
Issuance"), then effective immediately upon the Dilutive
Issuance, the Exercise Price will be adjusted in accordance with
the following formula:
E' = E x O + P/M
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price
(as defined in Section 4(1)(ii));
O = the number of shares of Common
Stock outstanding immediately prior to the
Dilutive Issuance;
P = the aggregate consideration,
calculated as set forth in Section 4(b)
hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of
Common Stock Deemed Outstanding (as defined
in Section 4(l)(i)) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For
purposes of determining the adjusted Exercise Price under Section
4(a) hereof, the following will be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner issues or grants any warrants, rights or
options, whether or not immediately exercisable, to subscribe for
or to purchase Common Stock or other securities exercisable,
convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred
to as "Options") and the price per share for which Common Stock
is issuable upon the exercise of such Options is less than the
Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable
upon the exercise of all such Below Market Options (assuming full
exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share.
For purposes of the preceding sentence, the Price per share for
which Common Stock is issuable upon the exercise of such Below
Market Options@ is determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration
for the issuance or granting of all such Below Market Options,
plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise of all such Below
Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the
minimum aggregate amount of additional consideration payable upon
the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon the
exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or
sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common
Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share.
For the purposes of the preceding sentence, the "price per share
for which Common Stock is issuable upon such exercise, conversion
or exchange" is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon exercise,
conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or
sells any Convertible Securities with a fluctuating conversion or
exercise price or exchange ratio (a "Variable Rate Convertible
Security"), then the "price per share for which Common Stock is
issuable upon such exercise, conversion or exchange" for purposes
of the calculation contemplated by Section 4(b)(ii)(A) shall be
deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any
discounts contained in such Convertible Security have been
satisfied) if the Market Price on the date of issuance of such
Convertible Security was 75% of the Market Price on such date
(the "Assumed Variable Market Price"). Further, if the Market
Price at any time or times thereafter is less than or equal to
the Assumed Variable Market Price last used for making any
adjustment under this Section 4 with respect to any Variable Rate
Convertible Security, the Exercise Price in effect at such time
shall be readjusted to equal the Exercise Price which would have
resulted if the Assumed Variable Market Price at the time of
issuance of the Variable Rate Convertible Security had been 75%
of the Market Price existing at the time of the adjustment
required by this sentence.
(iii) Change in Option Price or Conversion
Rate. If there is a change at any time in (i) the amount of
additional consideration payable to the Company upon the exercise
of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at
which any Convertible Securities are convertible into or
exchangeable for Common Stock (in each such case, other than
under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of
shares of Common Stock issuable upon exercise of any Option or
upon exercise, conversion or exchange of any Convertible
Securities 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 Exercise Price
then in effect will be readjusted to the Exercise Price which
would have been in 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.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued,
granted or sold for cash, the consideration received therefor for
purposes of this Warrant will 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,
grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair market
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 thereof as of
the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any merger
or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed
to be the fair market value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Options or Convertible Securities, as the case
may be. The fair market value of any consideration other than
cash or securities will be determined in good faith by an
investment banker or other appropriate expert of national
reputation selected by the Company and reasonably acceptable to
the holder hereof, with the costs of such appraisal to be borne
by the Company.
(vi) Exceptions to Adjustment of Exercise Price.
No adjustment to the Exercise Price will be made (i) upon the
exercise of any warrants, options or convertible securities
issued and outstanding on the Issue Date and set forth on
Schedule 3(c) of the Securities Purchase Agreement in accordance
with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee benefit plan of the
Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-
employee directors established for such purpose; (iii) upon the
issuance of any shares of Series B Preferred Stock or Warrants
issued or issuable in accordance with the terms of the Securities
Purchase Agreement; or (iv) upon conversion of the Series B
Preferred Stock or exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If
the Company, at any time during the Exercise Period, subdivides
(by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then, after the
date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time during the
Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of
this Section 4, the number of shares of Common Stock issuable
upon exercise of this Warrant and for which this Warrant is or
may become exercisable shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable or
for which this Warrant is or may become exercisable (as
applicable) upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into
any other corporation, or in case of any sale or conveyance of
all or substantially all of the assets of the Company other than
in connection with a plan of complete liquidation of the Company
at any time during the Exercise Period, then as a condition of
such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will
have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such
shares of stock, securities, cash or assets as may be issued or
payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable
upon exercise of this Warrant had such consolidation, merger or
sale or conveyance not taken place. In any such case, the
Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable
as nearly as may be in relation to any shares of stock or
securities thereafter deliverable upon the exercise of this
Warrant. The Company will not effect any consolidation, merger
or sale or conveyance unless prior to the consummation thereof,
the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Warrant and the
obligations to deliver to the holder of this Warrant such shares
of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall
declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a partial
liquidating dividend, stock repurchase by way of return of
capital or otherwise (including any dividend or distribution to
the Company=s shareholders of cash or shares (or rights to
acquire shares) of capital stock of a subsidiary) (a
"Distribution"), at any time during the Exercise Period, then the
holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common
Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the holder had such
holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to
such Distribution.
(g) Notice of Adjustment. Upon the occurrence of any
event which requires any adjustment of the Exercise Price, then,
and in each such case, the Company shall give notice thereof to
the holder of this Warrant, which notice shall state the Exercise
Price resulting from such adjustment and the increase or decrease
in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
Such calculation shall be certified by the chief financial
officer of the Company.
(h) Minimum Adjustment of Exercise Price. No
adjustment of the Exercise Price shall be made in an amount of
less than 1% of the Exercise Price in effect at the time such
adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant,
but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount
equal to the same fraction of the Market Price of a share of
Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of stock of any class or make
any other distribution (other than dividends or distributions
payable in cash out of retained earnings consistent with the
Company's past practices with respect to declaring dividends and
making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of
stock of any class or other rights;
(iii) there shall be any capital reorganiza
tion of the Company, or reclassification of the Common Stock, or
consolidation or merger of the Company with or into, or sale of
all or substantially all of its assets to, another corporation or
entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of
this Warrant (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining
the holders of Common Stock entitled to receive any such divi
dend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, notice of the date
(or, if not then known, a reasonable estimate thereof by the
Company) when the same shall take place. Such notice shall also
specify the date on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription
rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization, re
classification, consolidation, merger, sale, dissolution, liqui
dation, or winding-up, as the case may be. Such notice shall be
given at least seventy-five (75) days prior to the record date or
the date on which the Company=s books are closed in respect
thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
(k) Certain Events. If, at any time during the
Exercise Period, any event occurs of the type contemplated by the
adjustment provisions of this Section 4 but not expressly
provided for by such provisions, the Company will give notice of
such event as provided in Section 4(g) hereof, and the Company=s
Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of
the holder shall be neither enhanced nor diminished by such
event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean
the number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the treasury of the
Company), plus (x) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Options, the
maximum total number of shares of Common Stock issuable upon the
exercise of the Options for which the adjustment is required
(including any Common Stock issuable upon the conversion of
Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible
Securities, the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of the
Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the
average of the closing sale prices for the shares of Common Stock
as reported on the Nasdaq National Market by Bloomberg Financial
Markets ("Bloomberg") for the five (5) consecutive trading days
immediately preceding such date, or (ii) if the Nasdaq National
Market is not the principal trading market for the shares of
Common Stock, the average of the last sale prices reported by
Bloomberg on the principal trading market for the Common Stock
during the same period, or, if there is no sale price for such
period, the last bid price reported by Bloomberg for such period,
or (iii) if the foregoing do not apply, the last sale price of
such security in the over-the-counter market on the pink sheets
or bulletin board for such security as reported by Bloomberg, or
if no sale price is so reported for such security, the last bid
price of such security as reported by Bloomberg, or (iv) if
market value cannot be calculated as of such date on any of the
foregoing bases, the Market Price shall be the average fair
market value as reasonably determined by an investment banking
firm selected by the Company and reasonably acceptable to the
holder, with the costs of the appraisal to be borne by the
Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply
with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this
Section 4, includes the Common Stock and any additional class of
stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares
purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such Common
Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in
Section 4(e) hereof, the stock or other securities or property
provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without
charge to the holder of this Warrant or such shares for any
issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this
Warrant.
6. No Rights or Liabilities as a Shareholder. This
Warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company. No provision of
this Warrant, in the absence of affirmative action by the holder
hereof to purchase Warrant Shares, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise
to any liability of such holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
7. Transfer, Exchange, Redemption and Replacement of
Warrant.
(a) Restriction on Transfer. This Warrant and the
rights granted to the holder hereof are transferable, in whole or
in part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or
agency of the Company referred to in Section 7(e) below, pro
vided, however, that any transfer or assignment shall be subject
to the conditions set forth in Sections 7(f) and (g) hereof and
to the provisions of Sections 2(f) and 2(g) of the Securities
Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to
the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Section 8 hereof are
assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of the date hereof, by
and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the office or agency of the Company referred to
in Section 7(e) below, for new Warrants of like tenor of
different denominations representing in the aggregate the right
to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by
the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of
any such loss, theft, or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
(d) Cancellation; Payment of Expenses. Upon the
surrender of this Warrant in connection with any transfer,
exchange, or replacement as provided in this Section 7, this
Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and
all other expenses (other than legal expenses, if any, incurred
by the Holder or transferees) and charges payable in connection
with the preparation, execution, and delivery of Warrants
pursuant to this Section 7. The Company shall indemnify and
reimburse the holder of this Warrant for all costs and expenses
(including legal fees) incurred by such holder in connection with
the enforcement of its rights hereunder.
(e) Warrant Register. The Company shall maintain, at
its principal executive offices (or such other office or agency
of the Company as it may designate by notice to the holder
hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at
the time of the surrender of this Warrant in connection with any
exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable
hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company
may require, as a condition of allowing such exercise, transfer,
or exchange, (i) that the holder or transferee of this Warrant,
as the case may be, furnish to the Company a written opinion of
counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to
the effect that such exercise, transfer, or exchange may be made
without registration under the Securities Act and under
applicable state securities or blue sky laws (the cost of which
shall be borne by the Company if the Company's counsel renders
such an opinion and up to $250 of such cost shall be borne by the
Company if the holder's counsel is requested to render such
opinion), (ii) that the holder or transferee execute and deliver
to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under
the Securities Act; provided that no such opinion, letter, or
status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the
Securities Act.
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, unless
the holder hereof delivers a waiver in accordance with the last
sentence of this Section 7(g), this Warrant shall not be
exercisable by a holder hereof to the extent (but only to the
extent) that (a) the number of shares of Common Stock
beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned
through the ownership of the unexercised portion of the Warrants
or the unexercised or unconverted portion of any other securities
of the Company (including the Series B Preferred Stock) subject
to a limitation on conversion or exercise analogous to the
limitation contained herein) and (b) the number of shares of
Common Stock issuable upon exercise of the Warrant (or portion
thereof) with respect to which the determination described herein
is being made, would result in beneficial ownership by such
holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. To the extent the above limitation
applies, the determination of whether and to what extent this
Warrant shall be exercisable vis-a-vis other securities owned by
such holder shall be in the sole discretion of the holder and
submission of this Warrant for full or partial exercise shall be
deemed to be the holder's determination of whether and the extent
to which this Warrant is exercisable, in each case subject to
such aggregate percentage limitation. No prior inability to
exercise the Warrant pursuant to this Section shall have any
effect on the applicability of the provisions of this Section
with respect to any subsequent determination of exerciseability.
For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder, except as otherwise provided in clause (a)
hereof. Except as provided in the immediately succeeding
sentence, the restrictions contained in this Section 7(g) may not
be amended without the consent of the holder of this Warrant and
the holders of a majority of the Company's then outstanding
Common Stock. Notwithstanding the foregoing, the holder hereof
may waive the restrictions set forth in this Section 7(g) by
written notice to the Company upon not less than sixty- one (61)
days prior notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period).
8. Registration Rights. The initial holder of this
Warrant (and certain assignees thereof) is entitled to the
benefit of such registration rights in respect of the Warrant
Shares as are set forth in the Registration Rights Agreement,
including the right to assign such rights to certain assignees,
as set forth therein.
9. Notices. Any notices required or permitted to be given
under the terms of this Warrant shall be sent by certified or
registered mail (return receipt requested) or delivered
personally or by courier or by confirmed telecopy, and shall be
effective five days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
Accent Color Sciences, Inc.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
Telecopy: (860) 610-4019
Attn: Norman L. Milliard, CEO
with a copy to:
Murtha, Cullina, Richter and Pinney
CityPlace I
185 Asylum Street
Hartford, Connecticut 06103-3469
Telecopy: (860) 240-6150
Attn: Willard F. Pinney, Jr., Esquire
If to the holder, at such address as such holder shall have
provided in writing to the Company, or at such other address as
such holder furnishes by notice given in accordance with this
Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be
governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be
performed in the State of New York. The Company irrevocably
consents to the jurisdiction of the United States federal courts
and state courts located in the State of New York in the City of
New York in any suit or proceeding based on or arising under this
Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company
irrevocably waives any objection to the laying of venue and the
defense of an inconvenient forum to the maintenance of such suit
or proceeding. The Company further agrees that service of process
upon the Company mailed by certified or registered mail shall be
deemed in every respect effective service of process upon the
Company in any such suit or proceeding. Nothing herein shall
affect the holder's right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof
may only be amended by an instrument in writing signed by the
Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of
the several Sections of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction
of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to
the contrary contained in this Warrant, if the resale of the
Warrant Shares by the holder is not then registered pursuant to
an effective registration statement under the Securities Act,
this Warrant may be exercised at any time after the first
anniversary of the Issue Date until the end of the Exercise
Period, by presentation and surrender of this Warrant to the
Company at its principal executive offices with a written notice
of the holder=s intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock
to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless
Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then
current Market Price of a share of the Common Stock on the date
of exercise and the Exercise Price, and the denominator of which
shall be the then current Market Price per share of Common Stock.
(d) Business Day. For purposes of this Warrant, the
term "business day" means any day, other than a Saturday or
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law, regulation or executive
order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Warrant to
be signed by its duly authorized officer.
ACCENT COLOR SCIENCES, INC.
By: _________________________________
Name:_____________________________
Title:______________________________
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
To: Accent Color Sciences, Inc.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
Telecopy: (860) 610-4019
Attn: Norman L. Milliard, CEO
The undersigned hereby irrevocably exercises the right to
purchase _____________ shares of the Common Stock of Accent Color
Sciences, Inc., a corporation organized under the laws of the
State of Connecticut (the "Company"), evidenced by the attached
Warrant, and herewith makes payment of the Exercise Price with
respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or
otherwise dispose of any Common Stock obtained on exercise of the
Warrant, except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any state
securities laws, and agrees that the following legend may be
affixed to the stock certificate for the Common Stock hereby
subscribed for if resale of such Common Stock is not registered
or if Rule 144 is unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
(ii) The undersigned requests that stock certificates
for such shares be issued, and a Warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in
the name of the Holder and delivered to the undersigned at the
address set forth below:
Dated:_________________
_____________________________________
Signature of Holder
_____________________________________
Name of Holder (Print)
Address:
_____________________________________
_____________________________________
_____________________________________
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns,
and transfers all the rights of the undersigned under the within
Warrant, with respect to the number of shares of Common Stock
covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints
_____________________________________ as agent and attorney-in-
fact to transfer said Warrant on the books of the within-named
corporation, with full power of substitution in the premises.
Dated: _____________________, ____
In the presence of
__________________
Name: ____________________________
Signature: _______________________
Title of Signing Officer or
Agent (if any):
________________________
Address: ____________________
_____________________
Note: The above
signature should
correspond exactly with
the name on the face of
the within Warrant.
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY 9, 2003
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Right to Purchase 166,667 Shares of
Common Stock, no par value per
share
Date: January 9, 1998
ACCENT COLOR SCIENCES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL
INVESTORS, LDC, or its registered assigns, is entitled to
purchase from ACCENT COLOR SCIENCES, INC., a corporation
organized under the laws of the State of Connecticut (the
"Company"), at any time or from time to time during the period
specified in Section 2 hereof, One Hundred Sixty-Six Thousand Six
Hundred Sixty-Seven (166,667) fully paid and nonassessable shares
of the Company=s common stock, no par value per share (the
"Common Stock"), at an exercise price per share (the "Exercise
Price") equal to $2.75. The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise
Price are subject to adjustment as provided in Section 4 hereof.
The term "Warrants" means this Warrant and the other warrants of
the Company issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company
and the other signatories thereto (the "Securities Purchase
Agreement").
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY 9, 2003
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Right to Purchase 129,333 Shares of
Common Stock, no par value per
share
Date: January 9, 1998
ACCENT COLOR SCIENCES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, ZANETT LOMBARDIER,
LTD., or its registered assigns, is entitled to purchase from
ACCENT COLOR SCIENCES, INC., a corporation organized under the
laws of the State of Connecticut (the "Company"), at any time or
from time to time during the period specified in Section 2
hereof, One Hundred Twenty-Nine Thousand Three Hundred Thirty-
Three (129,333) fully paid and nonassessable shares of the
Company=s common stock, no par value per share (the "Common
Stock"), at an exercise price per share (the "Exercise Price")
equal to $2.75. The number of shares of Common Stock purchasable
hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term
"Warrants" means this Warrant and the other warrants of the
Company issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company
and the other signatories thereto (the "Securities Purchase
Agreement").
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY 9, 2003
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Right to Purchase 115,385 Shares of
Common Stock, no par value per
share
Date: January 9, 1998
ACCENT COLOR SCIENCES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, THE ZANETT
SECURITIES CORPORATION, or its registered assigns, is entitled to
purchase from ACCENT COLOR SCIENCES, INC., a corporation
organized under the laws of the State of Connecticut (the
"Company"), at any time or from time to time during the period
specified in Section 2 hereof, One Hundred Fifteen Thousand Three
Hundred Eighty-Five (115,385) fully paid and nonassessable shares
of the Company=s common stock, no par value per share (the
"Common Stock"), at an exercise price per share (the "Exercise
Price") equal to $2.50. The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise
Price are subject to adjustment as provided in Section 4 hereof.
The term "Warrants" means this Warrant and the other warrants of
the Company issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company
and the other signatories thereto (the "Securities Purchase
Agreement").
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY 9, 2003
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Right to Purchase 4,000 Shares of
Common Stock, no par value per
share
Date: January 9, 1998
ACCENT COLOR SCIENCES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI, or
his registered assigns, is entitled to purchase from ACCENT COLOR
SCIENCES, INC., a corporation organized under the laws of the
State of Connecticut (the "Company"), at any time or from time to
time during the period specified in Section 2 hereof, Four
Thousand (4,000) fully paid and nonassessable shares of the
Company=s common stock, no par value per share (the "Common
Stock"), at an exercise price per share (the "Exercise Price")
equal to $2.75. The number of shares of Common Stock purchasable
hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term
"Warrants" means this Warrant and the other warrants of the
Company issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company
and the other signatories thereto (the "Securities Purchase
Agreement").
PHIL.\97717-6
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of January 9, 1998, by and among ACCENT COLOR SCIENCES, INC., a
corporation organized under the laws of the State of Connecticut,
with headquarters located at 800 Connecticut Boulevard, East
Hartford, Connecticut 06108 (the "Company"), and the undersigned
(together with affiliates, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement of
even date herewith by and between the Company and the Initial
Investors (the "Securities Purchase Agreement"), the Company has
agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) shares of
its Series B Convertible Preferred Stock (the "Preferred Stock")
that are convertible into shares of the Company's common stock,
no par value per share (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in the
Certificate of Designations, Rights and Preferences with respect
to such Preferred Stock (the "Certificate of Designation") and
(ii) warrants (the "Investor Warrants") to acquire shares of
Common Stock;
B. To induce the Initial Investors to execute and deliver
the Securities Purchase Agreement, the Company has agreed to
provide certain registration rights under the Securities Act of
1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the "Securities
Act"), and applicable state securities laws; and
C. The Company has agreed to issue to The Zanett
Securities Corporation (the "Placement Agent") warrants (the
"Placement Agent Warrants" and, collectively with the Investor
Warrants, the "Warrants") to purchase shares of Common Stock
pursuant to that certain Placement Agency Agreement, dated as of
even date herewith, by and between the Company and the Placement
Agent and has agreed to provide the Placement Agent the rights
set forth herein. For purposes of this Agreement, the Placement
Agent shall be deemed an "Initial Investor" and the shares of
Common Stock issuable upon the exercise of, or otherwise pursuant
to, the Placement Agent Warrants shall be deemed "Warrant
Shares."
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Initial Investors hereby agree
as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms
shall have the following meanings:
(i) "Investors" means the Initial Investors and
any transferees or assignees who agree to become bound by the
provisions of this Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the
Securities Act and pursuant to Rule 415 under the Securities Act
or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the
Conversion Shares and the Warrant Shares (including any
Conversion Shares issuable with respect to Conversion Default
Payments or the Damages Amount under the Certificate of
Designation or in redemption of any Preferred Stock and any
Warrant Shares issuable with respect to Exercise Default Payments
under the Warrants) issued or issuable with respect to the
Preferred Stock and the Warrants and any shares of capital stock
issued or issuable, from time to time (with any adjustments), as
a distribution on or in exchange for or otherwise with respect to
any of the foregoing.
(iv) "Registration Statement" means a registration
statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in
the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall
prepare, and, on or before January 31, 1998 (the "Filing Date"),
file with the SEC a Registration Statement on Form S-3 (or, if
Form S-3 is not then available, on such form of Registration
Statement as is then available to effect a registration of all of
the Registrable Securities, subject to the consent of the Initial
Investors (as determined pursuant to Section 11(j) hereof))
covering the resale of at least 6,715,385 Registrable Securities,
which Registration Statement, to the extent allowable under the
Securities Act and the Rules promulgated thereunder (including
Rule 416), shall state that such Registration Statement also
covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred
Stock (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of reductions
in the Conversion Price of the Preferred Stock in accordance with
the terms thereof (including, but not limited to, the terms which
cause the Conversion Percentage to decrease and the terms which
cause the Variable Conversion Price to decrease to the extent the
average closing sale price of the Common Stock decreases). The
Registrable Securities initially set forth in the Registration
Statement shall be allocated to the Investors as set forth in
Section 11(k) hereof. The Registration Statement (and each
amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and
subject to the approval of) the Initial Investors and their
counsel prior to its filing or other submission.
b. Underwritten Offering. If any offering pursuant
to a Registration Statement pursuant to Section 2(a) hereof
involves an underwritten offering, the Investors who hold a
majority in interest of the Registrable Securities subject to
such underwritten offering, with the consent of the Initial
Investors, shall have the right to select one legal counsel to
represent the Investors and an investment banker or bankers and
manager or managers to administer the offering, which investment
banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. In the event that any Investors
elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities
shall contain appropriate plans of distribution reasonably
satisfactory to the Investors participating in such underwritten
offering and the Investors electing not to participate in such
underwritten offering (including, without limitation, the ability
of nonparticipating Investors to sell from time to time and at
any time during the effectiveness of such Registration
Statement).
c. Payments by the Company. The Company shall cause
the Registration Statement required to be filed pursuant to
Section 2(a) hereof to become effective as soon as practicable,
but in no event later than March 31, 1998 (the "Registration
Deadline"). If (i) (A) the Registration Statement required to be
filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC on or before the Registration
Deadline or (B) any Registration Statement required to be filed
by the Company pursuant to Section 3(b) hereof is not declared
effective by the SEC within sixty (60) days after the applicable
Registration Trigger Date (as defined in Section 3(b) hereof), or
(ii) if, after any such Registration Statement has been declared
effective by the SEC, sales of all of the Registrable Securities
(including any Registrable Securities required to be registered
pursuant to Section 3(b) hereof) cannot be made pursuant to such
Registration Statement (by reason of a stop order or the
Company's failure to update the Registration Statement or any
other reason outside the control of the Investors) or (iii) the
Common Stock is not listed or included for quotation on the
Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market
("SmallCap"), the New York Stock Exchange (the "NYSE") or the
American Stock Exchange (the "AMEX") at any time after the
Registration Deadline, then the Company will make payments to the
Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for
the damages to the Investors by reason of any such delay in or
reduction of their ability to sell the Registrable Securities
(which remedy shall not be exclusive of any other remedies
available at law or in equity). The Company shall pay to each
Investor an amount equal to the product of (i) the aggregate
Purchase Price of the Preferred Stock and Warrants held by such
Investor (including, without limitation, Preferred Stock that has
been converted into Conversion Shares and Warrants that have been
exercised for Warrant Shares then held by such Investor) (the
"Aggregate Share Price"), multiplied by (ii) two hundredths
(.02), multiplied by (iii) the sum of: (x) the number of months
(prorated for partial months) after the Registration Deadline and
prior to the date the Registration Statement filed pursuant to
Section 2(a) is declared effective by the SEC, plus (y) the
number of months (prorated for partial months) after the sixtieth
(60th) day following a Registration Trigger Date and prior to the
date the Registration Statement filed pursuant to Section 3(b)
hereof is declared effective by the SEC, plus (z) the number of
months (prorated for partial months) that sales of any
Registrable Securities cannot be made pursuant to any such
Registration Statement after the Registration Statement has been
declared effective or the Common Stock is not listed or included
for quotation on the NNM, SmallCap, NYSE or AMEX; provided,
however, that there shall be excluded from each such period any
delays which are solely attributable to changes (other than
corrections of Company mistakes with respect to information
previously provided by the Investors) required by the Investors
in the Registration Statement with respect to information
relating to the Investors, including, without limitation, changes
to the plan of distribution. (For example, if the Registration
Statement is not effective by the Registration Deadline, the
Company would pay $20,000 per month for each $1,000,000 of
Aggregate Share Price until the Registration Statement becomes
effective.) Such amounts shall be paid in cash or, at each
Investor's option, may be convertible into Common Stock at the
"Conversion Price" (as defined in the Certificate of Designation)
then in effect. Any shares of Common Stock issued upon
conversion of such amounts shall be Registrable Securities. If
the Investor desires to convert the amounts due hereunder into
Registrable Securities it shall so notify the Company in writing
within two (2) business days after the date on which such amounts
are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth under Article IV
of the Certificate of Designation), beginning on the last day
upon which the cash amount would otherwise be due in accordance
with the following sentence. Payments of cash pursuant hereto
shall be made within five (5) days after the end of each period
that gives rise to such obligation, provided that, if any such
period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period. In addition,
if the Registration Statement required to be filed by the Company
pursuant to Section 2(a) hereof has not been declared effective
by the SEC on or before May 31, 1998, or if any Registration
Statement required to be filed by the Company pursuant to Section
3(b) hereof has not been declared effective by the SEC within
ninety (90) days after the applicable Registration Trigger Date,
the Conversion Percentage set forth in the Certificate of
Designation shall be permanently reduced pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason
of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity). The
Conversion Percentage shall be permanently reduced by an amount
equal to the product of (i) two hundredths (.02) multiplied by
(ii) the sum of : (y) the number of weeks (prorated for partial
weeks) after May 31, 1998 and prior to the date the Registration
Statement filed pursuant to Section 2(a) hereof is declared
effective by the SEC and (z) the number of weeks (prorated for
partial weeks) after the ninetieth (90th) day following a
Registration Trigger Date and prior to the date the Registration
Statement filed pursuant to Section 3(b) hereof is declared
effective by the SEC; provided, however, that there shall be
excluded from each such period any delays which are solely
attributable to changes (other than corrections of Company
mistakes with respect to information previously provided by the
Investors) required by the Investors in the Registration
Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of
distribution.
d. Piggy-Back Registrations. If at any time prior to
the expiration of the Registration Period (as hereinafter
defined) the Company shall file with the SEC a Registration
Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then
equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or
other employee benefit plans), the Company shall send to each
Investor who is entitled to registration rights under this
Section 2(d) written notice of such determination and, if within
fifteen (15) days after the date of such notice, such Investor
shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that
if, in connection with any underwritten public offering, the
managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment,
marketing or other factors dictate such limitation is necessary
to facilitate public distribution, then the Company shall be
obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to
which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such Investors;
provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to
inclusion of such securities in such Registration Statement or
are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of
other securities having the right to include such securities in
the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration
Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d)
shall be construed to limit any registration required under
Section 2(d) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is
an underwritten offering, then each Investor whose Registrable
Securities are included in such Registration Statement shall,
unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares
of Common Stock included in such underwritten offering.
e. Eligibility for Form S-3. The Company represents
and warrants that it meets the requirements for the use of Form S-
3 for registration of the sale by the Initial Investors and any
other Investor of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
f. 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
Securities 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) by reason of reductions in the
Conversion Price of the Preferred Stock in accordance with the
terms thereof, including, but not limited to, the terms which
cause the Conversion Percentage to decrease and the terms which
cause the Variable Conversion Price to decrease to the extent the
average closing sale price of the Common Stock decreases
(collectively, the "Rule 416 Securities"). In this regard, the
Company agrees to take all steps necessary to ensure that all
Registrable Securities are registered pursuant to Rule 416 under
the Securities Act in the Registration Statement and, absent
guidance from the SEC or other definitive authority to the
contrary, the Company shall affirmatively support and not take
any action adverse to the position that the Registration
Statements filed hereunder cover all of the Rule 416 Securities.
If the Company determines that the Registration Statements filed
hereunder do not cover all of the Rule 416 Securities, the
Company shall immediately provide to each Investor written notice
(a "Rule 416 Notice") setting forth the basis for the Company's
position and the authority therefor. The Company acknowledges
that the number of shares of Common Stock initially included in
any Registration Statement relating to the Registrable Securities
represents a good faith estimate of the maximum number of shares
issuable upon conversion of the Preferred Stock and exercise of
the Warrants.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable
Securities, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC
the Registration Statement required by Section 2(a) as soon as
practicable after the date hereof (but in no event later than the
Filing Date), and cause such Registration Statement relating to
Registrable Securities to become effective as soon as practicable
after such filing (but in no event later than the Registration
Deadline), and keep the Registration Statement effective pursuant
to Rule 415 at all times until such date as is the earlier of (i)
the date on which all of the Registrable Securities have been
sold and (ii) the date on which all of the Registrable Securities
(in the reasonable opinion of counsel to the Initial Investors)
may be immediately sold to the public without registration under
Rule 144(k) under the Securities Act or any successor provision
(the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference
therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein not
misleading.
b. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus used
in connection with the Registration Statement as may be necessary
to keep the Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event (i) the
Company delivers a Rule 416 Notice to the Investors or the
Investors who hold a majority in interest of the Registrable
Securities shall reasonably determine, or the SEC shall state
formally or informally, that Rule 416 under the Securities Act
does not permit a registration statement to cover securities
which may become issuable upon conversion or exercise of
convertible or exercisable securities by reason of reductions in
the conversion or exercise price of such securities and (ii) the
number of shares available under a Registration Statement filed
pursuant to this Agreement is, for any three (3) consecutive
trading days (the last of such three (3) trading days being the
"Registration Trigger Date"), insufficient to cover one hundred
thirty five percent (135%) of the Registrable Securities issued
or issuable upon conversion (without giving effect to any
limitations on conversion contained in Article IV.C of the
Certificate of Designation) of the Preferred Stock and exercise
of the Warrants (without giving effect to any limitations on
exercise contained in Section 7 of the Warrants), the Company
shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover two hundred percent (200%)
of the Registrable Securities issued or issuable (without giving
effect to any limitations on conversion or exercise contained in
the Certificate of Designation or the Warrants) as of the
Registration Trigger Date, in each case, as soon as practicable,
but in any event within fifteen (15) days after the Registration
Trigger Date (based on the market price then in effect of the
Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall cause such
amendment and/or new Registration Statement to become effective
as soon as practicable following the filing thereof, but in any
event within sixty (60) days after a Registration Trigger Date.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement
and its legal counsel (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the
Company, one copy of the Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the
Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of
the SEC (including, without limitation, any request to accelerate
the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration
Statement (other than any portion, if any, thereof which contains
information for which the Company has sought confidential
treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the
Registration Statement or amendment has been declared effective,
and (iii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements
thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
d. The Company shall use its best efforts to (i)
register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or "blue sky"
laws of such jurisdictions in the United States as each Investor
who holds Registrable Securities being offered 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 necessary to
maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (b) subject itself to general
taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any
undertakings that cause the Company undue expense or burden, or
(e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary
to the best interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in
interest of the Registrable Securities being offered in an
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 of the
happening of any event, of which the Company has knowledge, as a
result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver such number of
copies of such supplement or amendment to each Investor as such
Investor may reasonably request.
g. The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, and, if such an order
is issued, to obtain the withdrawal of such order at the earliest
practicable moment (including in each case by amending or
supplementing such Registration Statement) and to notify each
Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of
the issuance of such order and the resolution thereof (and if
such Registration Statement is supplemented or amended, deliver
such number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request).
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration
Statement and all amendments and supplements thereto a reasonable
period of time prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects
and will not request acceleration of the effectiveness of any
Registration Statement without prior notice to such counsel.
i. The Company shall make generally available to its
security holders as soon as practical, but not later than ninety
(90) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration
Statement.
j. At the request of any Investor, the Company shall
furnish, on the date of effectiveness of the Registration
Statement (i) an opinion, dated as of such date, from counsel
representing the Company addressed to the Investors and in form,
scope and substance as is customarily given in an underwritten
public offering and (ii) in the case of an underwriting, 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, if
any, and the Investors.
k. The Company shall make available for inspection by
(i) any Investor, (ii) any underwriter participating in any
disposition pursuant to the Registration Statement, (iii) one
firm of attorneys and one firm of accountants or other agents
retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise
its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which
any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an
Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall
not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall
have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with
respect thereto, substantially in the form of this Section 3(k).
Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
Nothing herein shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make
any disclosure of information concerning an Investor provided to
the Company unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement,
(iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of
competent jurisdiction, (iv) such information has been made
generally available to the public other than by disclosure in
violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The
Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through
other means, give prompt notice to such Investor prior to making
such disclosure, and allow the Investor, at its expense, to
undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
m. The Company shall use its best efforts to promptly
either (i) cause all of the Registrable Securities covered by the
Registration Statement to be listed on the NYSE or the AMEX or
another national securities exchange and on each additional
national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if
the listing of such Registrable Securities is then permitted
under the rules of such exchange, or (ii) secure the designation
and quotation of all of the Registrable Securities covered by the
Registration Statement on the NNM or SmallCap and, without
limiting the generality of the foregoing, to arrange for or
maintain at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable
Securities not later than the effective date of the Registration
Statement.
o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be
offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case
may be, as the managing underwriter or underwriters, if any, or
the Investors may reasonably request and registered in such names
as the managing underwriter or underwriters, if any, or the
Investors may request, and, within three (3) business days after
a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such
Registration Statement) an opinion of such counsel in the form
attached hereto as Exhibit 1.
p. At the request of any Investor, the Company shall
prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to a Registration Statement
and the prospectus used in connection with the Registration
Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws
related to a Registration Statement and offering and sale of
securities and all applicable rules and regulations of
governmental authorities in connection therewith (including
without limitation the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated by the SEC.)
r. The Company shall take all such other actions as
any Investor or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of the
Registrable Securities.
s. From and after the date of this Agreement, the
Company shall not, and shall not agree to, allow the holders of
any securities of the Company to include any of their securities
in any Registration Statement under Section 2(a) hereof or any
amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority in interest of the
Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:
a. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. At
least five (5) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall
notify each Investor of the information the Company requires from
each such Investor.
b. Each Investor, by such Investor's acceptance of
the Registrable Securities, agrees to cooperate with the Company
as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority in
interest of the Registrable Securities being offered determine to
engage the services of an underwriter, each Investor agrees to
enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including,
without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in
writing of such Investor's election not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Sections 3(f) or 3(g), such Investor will
immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Sections 3(f)
or 3(g) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all
copies in such Investor's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of
such notice.
e. No Investor may participate in any underwritten
distribution hereunder unless such Investor (i) agrees to sell
such Investor's Registrable Securities on the basis provided in
any underwriting arrangements in usual and customary form entered
into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the
terms of such underwriting arrangements, and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company
pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts
and commissions, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 4,
including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and
disbursements of counsel for the Company, the fees and
disbursements contemplated by Section 3(k) hereof, and the
reasonable fees and disbursements of one counsel selected by the
Investors shall be borne by the Company. In addition, the
Company shall pay all of the Investors' costs and expenses
(including legal fees) incurred in connection with the
enforcement of the rights of the Investors hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds
such Registrable Securities, and (ii) the directors, officers,
partners, members, employees, agents and each person who controls
any Investor within the meaning of Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), if any, (each, an "Indemnified
Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject
insofar as such Claims arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact
in a Registration Statement or the omission or alleged omission
to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of
the circumstances under which the statements therein were made,
not misleading, or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any other
applicable securities law, including, without limitation, any
state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the
matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set
forth in Section 6(c) with respect to the number of legal
counsel, the Company shall reimburse the Investors and each other
Indemnified Person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in
writing to the Company by such Indemnified Person expressly for
use in the Registration Statement or any such amendment thereof
or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not
be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of
material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used
it. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9
hereof.
b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees
severally and not jointly to indemnify, hold harmless and defend,
to the same extent and in the same manner set forth in Section
6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any
person who controls such stockholder within the meaning of the
Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against any
Claim to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such
Claim arises out of or is 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(c) such Investor will reimburse any legal or other
expenses (promptly as such expenses are incurred and are due and
payable) reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall
not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable
under this Agreement (including this Section 6(b) and Section 7)
for only that amount as does not exceed the net proceeds actually
received by 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 hereof. 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, and the
Indemnified Party failed to utilize such corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written
notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified
Party, as the case may be; provided, however, that such
indemnifying party shall not be entitled to assume such defense
and an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by
such counsel of the Indemnified Person or Indemnified Party and
the indemnifying party would be inappropriate due to actual or
potential conflicts of interest between such Indemnified Person
or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants
in, or targets of, any such action include both the Indemnified
Person or the Indemnified Party and the indemnifying party and
any such Indemnified Person or Indemnified Party reasonably
determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from
or in addition to those available to such indemnifying party.
The indemnifying party shall pay for only one separate legal
counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the
Claim relates (with the approval of the Initial Investors if they
hold Registrable Securities included in such Registration
Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that
the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent 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 person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of such
fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this
Agreement) by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds received by such
seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the
benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the Company to the
public without registration ("Rule 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and
keep available all reports and other documents required of the
Company under the Securities Act and the Exchange 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 and availability of such reports and
other documents is required for the applicable provisions of Rule
144; and
b. furnish to each Investor so long as such Investor
owns shares of Preferred Stock, Warrants or Registrable
Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange 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 under Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right
to have the Company register Registrable Securities pursuant to
this Agreement, shall be automatically assignable by each
Investor to any transferee of all or any portion of the shares of
Preferred Stock, the Warrants or the 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 after such assignment, (ii) the Company
is furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect
to which such registration rights are being transferred or
assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable
state securities laws, (iv) the transferee or assignee agrees in
writing for the benefit of 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 written consent of the Company and Investors who hold a
majority in interest of the Registrable Securities; provided,
however, that no amendment hereto which restricts the ability of
an Investor to elect not to participate in an underwritten
offering shall be effective against any Investor which does not
consent in writing to such amendment; provided, further, however,
that no consideration shall be paid to an Investor by the Company
in connection with an amendment hereto unless each Investor
similarly affected by such amendment receives a pro-rata amount
of consideration from the Company. Unless an Investor otherwise
agrees, each amendment hereto must similarly affect each
Investor. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the
Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more
persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
b. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered
personally or by courier or by confirmed telecopy, and shall be
effective five (5) days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered
personally or by courier or confirmed telecopy, in each case
addressed to a party. The addresses for such communications
shall be:
If to the Company:
Accent Color Sciences, Inc.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
Telecopy: (860) 610-4019
Attn: Norman L. Milliard, CEO
with a copy to:
Murtha, Cullina, Richter and Pinney
CityPlace I
185 Asylum Street
Hartford, Connecticut 06103-3469
Telecopy: (860) 240-6150
Attn: Willard F. Pinney, Jr., Esquire
and if to any Investor, at such address as such Investor shall
have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with
this Section 11(b).
c. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.
d. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable
to contracts made and to be performed in the State of New York.
The Company irrevocably consents to the jurisdiction of the
United States federal courts and the state courts located in the
City of New York in the State of New York in any suit or
proceeding based on or arising under this Agreement and
irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further
agrees that service of process upon the Company, mailed by first
class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. Nothing
herein shall affect the Investors' right to serve process in any
other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
such judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement
and the Warrants (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. This
Agreement, the Securities Purchase Agreement and the Warrants
supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and
thereof.
f. Subject to the requirements of Section 9 hereof,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the
meaning hereof.
h. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents, approvals and other determinations
to be made by the Investors or the Initial Investors pursuant to
this Agreement shall be made by the Investors or the Initial
Investors holding a majority in interest of the Registrable
Securities (determined as if all shares of Preferred Stock and
Warrants then outstanding had been converted into or exercised
for Registrable Securities) held by all Investors or Initial
Investors, as the case may be.
k. The initial number of Registrable Securities
included on any Registration Statement and each increase (if any)
to the number of Registrable Securities included thereon 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 number of Registrable Securities included on
a Registration Statement for such transferor. Any shares of
Common Stock included on 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 shares 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 shares of Preferred Stock and
Warrants then outstanding were converted into or exercised for
Registrable Securities.
l. For purposes of this Agreement, the term "business
day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law, regulation or executive order to
close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Its:
INITIAL INVESTORS:
[NAME]
By:
By:
Name:
Its:
[NAME]
By:
By:
Name:
Its:
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Its:
INITIAL INVESTOR:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., as
Investment Manager
By: RGC General Partner Corp., as
General Partner
By:
Name:
Title:
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Its:
INITIAL INVESTOR:
ZANETT LOMBARDIER, LTD.
By:
Name:
Title:
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Its:
INITIAL INVESTOR:
THE ZANETT SECURITIES CORPORATION
By:
Name:
Title:
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
ACCENT COLOR SCIENCES, INC.
By:
Name:
Its:
INITIAL INVESTOR:
Bruno Guazzoni
EXHIBIT 1
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: ACCENT COLOR SCIENCES, INC.
Ladies and Gentlemen:
We are counsel to Accent Color Sciences, Inc., a corporation
organized under the laws of the State of Connecticut (the
"Company"), and we understand that [Name of Investor] (the
"Holder") has purchased from the Company (i) shares of the
Company's Series B Convertible Preferred Stock (the "Preferred
Stock") that are convertible into shares of the Company's common
stock, no par value per share (the "Common Stock"), and (ii)
warrants (the "Warrants") to acquire shares of Common Stock.
Pursuant to a Registration Rights Agreement, dated as of January
9, 1998, by and among the Company and the signatories thereto
(the "Registration Rights Agreement"), the Company agreed with
the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms provided in the Registration
Rights Agreement. In connection with the Company's obligations
under the Registration Rights Agreement, on _____ __, 1998, the
Company filed a Registration Statement on Form S-___ (File No.
333- _____________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the
Registrable Securities, which names the Holder as a selling
stockholder thereunder. The Registration Statement was declared
effective by the SEC on _____________, 1998.
[Other customary introductory and scope of examination
language to be inserted]
Based on the foregoing, we are of the opinion that the
Registrable Securities have been registered under the Securities
Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on
Form S-3 of our report dated February 26, 1997, except as to Note
13, which is as of March 27, 1997, appearing on page 16 of Accent
Color Sciences, Inc.'s Annual Report on 10-K for the year ended
December 31, 1996. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Hartford, CT
January 30, 1998
Securities and Exchange Commission
January 30, 1998
Page 2
January 30, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Accent Color Sciences, Inc.
Ladies and Gentlemen:
We have acted as counsel for Accent Color Sciences, Inc., a
Connecticut corporation ("the Company"), in connection with the
registration by the Company of up to an aggregate of 6,715,385
shares of the Company's common stock, without par value (the
"Common Stock"), for the account of certain security holders of
the Company (the "Registration") as described in the Company's
Registration Statement on Form S-3 (the "Registration Statement")
being filed this date under the Securities Act of 1933, as
amended.
In connection with the following opinion, we have reviewed
the Registration Statement and are familiar with the action taken
by the Company to date with respect to the approval and
authorization of the Registration. We have examined originals,
or copies, certified or otherwise authenticated to our
satisfaction, of such corporate records of the Company,
agreements and other instruments, certificates of public
officials, officers and representatives of the Company and such
other documents as we have deemed necessary as a basis for the
opinion hereinafter expressed. We are furnishing this opinion in
connection with the filing of the Registration Statement.
Based upon the foregoing, we are of the opinion that, upon
the effectiveness of the Registration Statement, the shares of
Common Stock proposed to be registered by the Company under the
Registration Statement will be, when sold, validly issued, fully
paid and non-assessable.
We hereby consent to the inclusion of this opinion as an
exhibit to the Registration Statement and to the reference to our
firm under the caption "Legal Matters" in the prospectus
constituting a part of the Registration Statement.
Very truly yours,
MURTHA, CULLINA, RICHTER AND PINNEY, LLP
By /s/ Willard F. Pinney, Jr.
Willard F. Pinney, Jr.
A Partner
