<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 20, 1996
-------------------------------------------------
(Date of earliest reported event)
ALCOHOL SENSORS INTERNATIONAL, LTD.
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(Exact name of registrant as specified in its charter)
New York 0-26998 11-3104480
- --------------- ----------- -------------
(State of other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
11 Oval Drive
Islandia, New York 11722
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number including area code (516) 342-1515
<PAGE>
Item 2. Acquisition of Assets
On December 20, 1996, Alcohol Sensors International, Ltd. ("ASI")
entered into and consummated an agreement with American International Insurance
Company, a subsidiary of American International Group, whereby ASI received
$2,500,000 in exchange for the issuance of 833,333 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and 833,333
Warrants, pursuant to a Convertible Stock and Warrant Purchase Agreement, a
copy of which is annexed hereto as exhibit 1.
Other documents which were executed as part of this transaction
include a Registration Rights Agreement, Shareholders Agreement and Warrant
Certificate, copies of which are annexed hereto as exhibits 2, 3 and 4
respectively.
In addition, copies of the Certificate of Amendment to the Certificate
of Incorporation, creating the aforementioned Series of Preferred Stock, is
attached hereto as exhibit 5.
Pursuant to the terms of the Series A Stock and Warrant Purchase
Agreement, American International Insurance Company purchased 833,333 shares of
Series A Convertible Preferred Stock, and 833,333 Common Stock Purchase
Warrants for $2,500,000.
Pursuant to the terms of the documents, the Stated Value of the Shares
of Series A Preferred Stock is $3.00 per share. The Series A Preferred Stock is
convertible at the option of the holder at a conversion price per share equal
to $4.50, subject to adjustment. Upon conversion of the Series A Preferred
Stock in full, 555,556 shares of Common Stock , par value $.001 per share,
would be issued.
In addition, the Series A Preferred Stock contains an automatic
conversion feature, pursuant to which the number of fully paid and
nonassessable shares of Common Stock into which such shares of Series A
Preferred Stock would have been convertible in the event of the heretofore
described optional conversion. This automatic conversion shall occur upon the
twentieth day during any period of thirty consecutive days on which the closing
price is at least $8.00 per share.
ASI shall accrue to holders of the Series A Preferred Stock cash
dividends at the rate of 9% per annum (compounded semi-annually) on such
shares, whether or not declared, that remain unpaid beyond the next succeeding
dividend payment date; provided, however, that ASI, shall, at its option, be
entitled to issue additional shares of Series A Preferred Stock in lieu of cash
in respect of dividends payable on or prior to the first four dividend payment
dates occurring after the initial issuance date. The Dividends shall be payable
semi-annually in arrears when declared by the Board of Directors of the
Corporation, on June 30 and December 31 of each year.
<PAGE>
Pursuant to the terms of the Convertible Preferred Stock and Warrant
Purchase Agreement, ASI issued 833,333 Common Stock Purchase Warrants. Each
Warrant entitles the holder thereof to purchase from ASI, at any time prior to
5:00 p.m., New York City time, on December 20, 1998, one duly authorized,
validly issued, fully paid and non assessable share of the Common Stock, par
value $.001 per share ("Common Stock"), of the Company (ASI), at a purchase
price of $5.50 per share, subject to the terms and conditions contained within
the Warrant Certificate.
Also executed in conjunction with this transaction was a Shareholders
Agreement among ASI, American International Insurance Company and members of
ASI's management. Pursuant to the terms of such Shareholders Agreement, the
holders of the Series A Preferred Stock, voting separately as a class, shall
have the exclusive right to elect one director to the Board of Directors of ASI
as long as at least 250,000 shares of Series A Preferred Stock are outstanding.
This exclusive right to elect one director shall remain in effect if, at any
time, less than 250,000 shares of Series A Preferred Stock are outstanding (as
adjusted for stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences), but American International Insurance
Company then holds in excess of 166,666 shares of Common Stock (as adjusted for
stock splits, stock dividends, stock combinations, recapitalization and like
occurrences.)
Other terms included in the Shareholders Agreement contain a
restricted period, for a term of two years, within which the Existing
Shareholders ( management) agree with the Company (ASI) and American
International Insurance Company, and with each other Shareholder, that they
will not, directly or indirectly, transfer any Capital Stock of the Company,
except for certain exceptions as listed in the Shareholders Agreement.
The Shareholders Agreement also provides to American International
Insurance Company, a right of first refusal to purchase a pro rata share of new
securities that the Company may, from time to time, propose to sell and issue.
Additionally, the Registration Rights Agreement provided American
International Insurance Company, with the right to request ASI to effect the
registration under the Securities Act of Registrable Securities.
In addition, a Certificate of Amendment to the Certificate of
Incorporation of ASI was previously filed authorizing the Company to issue
3,000,000 Convertible Preferred Shares. At the closing of this transaction, a
subsequent Certificate of Amendment was executed and filed, designating 833,333
shares as Series A Preferred Stock.
As previously indicated, copies of all documents executed pursuant to
the aforementioned transaction, have been annexed as exhibits. The foregoing
descriptions of such documents are summaries only and qualified in their
entirety by reference to such documents, each of which has been filed as an
exhibit hereto.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
ALCOHOL SENSORS INTERNATIONAL, LTD.
-----------------------------------
Registrant
/s/ Steven A. Martello
-----------------------------------
Steven A. Martello,
Chief Operating Officer
Dated: December 20, 1996
<PAGE>
Item 7. Financial Statements and Exhibits
(a) N/A
(b) Pro Forma Financial Information
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD.
PROFORMA CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Proforma
September 30, ProForma September 30,
1996 Adjustments 1996
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $244,306 $2,450,000 (A) $2,694,306
Certificate of deposit......................... 500,000 500,000
Accounts receivable............................ 104,607 104,607
Inventory...................................... 515,174 515,174
Prepaid expenses............................... 118,243 118,243
---------- ---------- ----------
Total current assets........................ 1,482,330 2,450,000 3,932,330
Fixed assets-net..................................... 370,487 370,487
Other assets ........................................ 23,084 23,084
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TOTAL................................... $1,875,901 $2,450,000 $4,325,901
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $622,104 $622,104
Deposits....................................... 34,114 34,114
Due to officers/stockholders................... 132,782 132,782
Notes payable.................................. 500,000 500,000
---------- ----------
Total current liabilities................... 1,289,000 1,289,000
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STOCKHOLDERS' EQUITY
Preferred Series A Cumulative
Non-redeemable convertible preferred stock
stock 3,000,000 shares authorized
833,333 issued and outstanding................. $2,500,000 (A) $2,500,000
Common stock $.001 par value, 25,000,000 shares
authorized, 8,576,196 issued and outstanding
September 30, 1996............................. 8,576 8,576
Additional paid-in capital........................... 10,626,883 (50,000)(A) 10,576,883
Accumulated deficit.................................. (10,048,558) -- (10,048,558)
---------- ---------- ----------
Total stockholders' equity.................. 586,901 2,450,000 3,036,901
---------- ---------- ----------
TOTAL................................... $1,875,901 $2,450,000 $4,325,901
========== ========== ==========
</TABLE>
(A) To reflect the issuance of 833,333 shares of Preferred Series A.
<PAGE>
CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT dated as of
December 20, 1996 between Alcohol Sensors International, Ltd., a New York
corporation (the "Company"), and American International Insurance Company, a
New York corporation (the "Purchaser").
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, and unless the
context clearly requires a different meaning, the following terms have the
meanings indicated:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, together with all Annexes and
Schedules hereto, as the same may be amended, supplemented or modified in
accordance with the terms hereof from time to time.
"Balance Sheet" means the consolidated balance sheet of the Company as
of June 30, 1996, which is contained in the Quarterly Report.
"Business Day" means any day other than Saturday and Sunday and any
other day on which banking institutions in the State of New York are required
or authorized by law to close.
"Certificate of Amendment" means the Certificate of Amendment to the
Certificate of Incorporation of the Company, which, among other things, sets
forth the number, designation, relative rights, preferences and limitations of
the Preferred Stock as fixed by the Board of Directors of the Company, and
which is in the form set forth in Annex I hereto.
<PAGE>
"Certificates" means, collectively, the certificates evidencing the
Preferred Shares and the Warrant Certificate.
"Closing" has the meaning provided in Section 2.1(b).
"Closing Date" has the meaning provided in Section 2.1(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act or the
Exchange Act.
"Common Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Shares or the exercise of the Warrants, as the case
may be.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company.
"Confidential Memorandum" means the Confidential Private Placement
Memorandum dated October 22, 1996 relating to the proposed private placement of
certain preferred stock of the Company provided by the Company to the
Purchaser.
"Environmental Law" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement relating to the environment, natural resources, or public or
employee health and safety and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss. 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss.
1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et
seq., the Clean Water Act, 33 U.S.C. Section ss. 1251 et seq., the Clean Air
Act, 33 U.S.C. ss. 2601 et seq., the Toxic Substances Control Act, 15 U.S.C.
ss. 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7
U.S.C. ss. 136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et
seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., as
such laws have been and may from time to time be further amended or
supplemented, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes and any applicable transfer statutes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
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<PAGE>
"Indemnifiable Costs and Expenses", "Indemnifying Party" and
"Indemnified Person" have the meanings provided in Section 7.1.
"Liens" means any and all security interests, liens, claims,
encumbrances, pledges, options, Taxes and charges of any kind or nature.
"Material Adverse Effect" means, with respect to the Company, any
action, event or occurrence which has or is reasonably likely to have a
material adverse effect on the business, assets, condition (financial or
otherwise), results of operations or prospects of the Company and its
Subsidiaries, taken as a whole.
"Person" means any individual, company, corporation, partnership,
limited liability company, trust, division, governmental, quasi-governmental or
regulatory entity or authority or other entity.
"Preferred Shares" means the 833,333 shares of Preferred Stock to be
sold and purchased pursuant to this Agreement.
"Preferred Stock" means the Company's Series A Cumulative
Non-redeemable Convertible Preferred Stock, par value $0.001 per share, with
the terms set forth in the Certificate of Amendment.
"Quarterly Report" means the Company's Quarterly Report on Form 10-Q
filed with the Commission for the quarterly period ended June 30, 1996.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchaser to be executed on the Closing
Date in the form of Annex II hereto.
"SEC Documents" has the meaning provided in Section 3.8.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Shareholders Agreement" means the Shareholders Agreement among the
Purchaser, the Company, Robert B. Whitney, Steven A. Martello, John T. Ruocco,
Michael A. Sylvester and Joseph Lively to be executed on the Closing Date in
the form of Annex III hereto.
"Stock Option Plan" has the meaning provided in Section 3.2.
"Subsidiaries" means Alcohol Sensors Europe, plc, a British company.
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<PAGE>
"Tax Authority" and "Taxes" have the respective meanings provided in
Section 3.12.
"Warrant Certificate" means the Warrant Certificate relating to the
Warrants to be executed and delivered by the Company and accepted by the
Purchaser on the Closing Date in the form of Annex IV hereto.
"Warrants" means the 833,333 warrants of the Company with the terms
set forth in the Warrant Certificate to be sold and purchased pursuant to this
Agreement.
The foregoing definitions shall be equally applicable to both the singular and
plural forms of the defined terms. The use of the word "including" herein shall
be interpreted to mean "including, without limitation," unless the context
clearly requires another interpretation.
ARTICLE II
PURCHASE OF PREFERRED SHARES AND WARRANTS
Section 2.1. Purchase of Preferred Shares and Warrants; the Closing.
(a) Subject to the terms and conditions herein set forth, the Company
agrees that it will sell to the Purchaser, and the Purchaser agrees that it
will purchase from the Company, on the Closing Date the Preferred Shares and
the Warrants for an aggregate purchase price of $2,500,000.
(b) The sale and purchase of the Preferred Shares and Warrants by the
parties hereto will take place at a closing (the "Closing") at the offices of
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York or at
such other location as shall be agreed to by the Company and the Purchaser not
later than three Business Days after the date on which the conditions set forth
in Article VI are satisfied or such other date as the Company and the Purchaser
may mutually agree.
(c) The Company shall notify the Purchaser of the date and time of the
Closing (the "Closing Date"), which notice shall be given no later than three
Business Days prior to the Closing Date. Such notice shall specify the account
of the Company to which the purchase price is to be wire transferred.
(d) Delivery of the Preferred Shares and Warrants to be purchased by
the Purchaser pursuant to this Agreement shall be made at the Closing by the
Company delivering to the Purchaser, against payment of the purchase price
therefor, Certificates for the Preferred Shares and Warrants, in such amounts
and registered in the names (which shall be the Purchaser or such other Person
as shall be an Affiliate of the Purchaser or a nominee of the Purchaser or such
Affiliate holding for the benefit of the Purchaser or Affiliate) as the
Purchaser shall have
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<PAGE>
designated in writing to the Company at least two Business Days prior to the
Closing Date. The Purchaser acknowledges and agrees that each Certificate shall
bear a legend to reflect the applicability of Federal and state securities laws
limitations on the transfer of the Preferred Shares and Warrants as follows (or
a substantively equivalent legend):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
(e) Payment of the purchase price for the Preferred Shares and
Warrants shall be made by the Purchaser at the Closing Date by wire transfer in
immediately available funds to the designated account of the Company.
Section 2.2. Closing Covenant. The parties hereto agree to act in good
faith in taking any and all actions as shall reasonably be necessary to
facilitate the Closing of the purchase and sale of the Preferred Shares and the
Warrants and the other transactions contemplated by this Agreement, including
the satisfaction of the respective closing conditions of the parties set forth
herein.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to, and covenants with, the
Purchaser as of the date of this Agreement and as of the Closing Date that:
Section 3.1. Corporate Organization, etc. Each of the Company and each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
necessary corporate power and authority to conduct its business as currently
conducted and to own or lease the properties and assets it now owns or holds
under lease. Each of the Company and each Subsidiary is duly qualified or
licensed to do business and is in good standing as a foreign corporation in
every jurisdiction in which the conduct of its business or the ownership or
leasing of its properties requires it to be so qualified or licensed, except
where the failure to be so qualified or licensed or in good standing would not
individually, or in the aggregate, have a Material Adverse Effect on the
Company. The Company has heretofore delivered to the Purchaser true, complete
and correct copies of the Certificate of Incorporation and by-laws of the
Company and each Subsidiary, each as currently in effect, and no action has
been taken or authorized to amend or in contemplation
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<PAGE>
of the amendment of such documents (other than in connection with the
Certificate of Amendment) or to liquidate or dissolve the Company or any
Subsidiary.
Section 3.2. Capitalization. As of the date hereof and immediately
prior to the Closing, (i) the authorized capital stock of the Company consists
of 28,000,000 shares of preferred stock, which includes 3,000,000 shares of
Preferred Stock, and 25,000,000 shares of Common Stock; (ii) no shares of
preferred stock (including Preferred Stock) of the Company are outstanding;
(iii) 600,000 shares of Common Stock are reserved for issuance upon the
exercise of options issued pursuant to the Company's 1996 Stock Option Plan
(the "Stock Option Plan") and 3,744,225 shares of Common Stock are reserved for
issuance upon the exercise of warrants and options; (iv) 833,333 shares of
Common Stock are reserved for issuance upon the conversion of the Preferred
Stock and 833,333 shares of Common Stock are reserved for issuance upon the
exercise of the Warrants; (v) 8,708,846 shares of Common Stock are outstanding;
and (vi) 55,672 shares of Common Stock are held in treasury. All of the
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and non-assessable and were issued in compliance with all
applicable Federal and state laws concerning the issuance of securities. The
rights, preferences, privileges and restrictions of the Preferred Stock and the
Warrants are as set forth in the Certificate of Amendment and Warrant
Certificate, respectively. Except for the Stock Option Plan and the
transactions contemplated hereby and except as set forth in Schedule 3.2
hereto, there are no outstanding options, warrants, rights (including
registration, conversion or preemptive rights and rights of first refusal),
proxy or shareholders agreements or other agreements or arrangements of the
Company or any Subsidiary granted to or with any Person to purchase or acquire
or otherwise relating to any securities of the Company or any Subsidiary or any
securities convertible or exchangeable into such securities. Without limiting
the generality of the foregoing and except as provided in the Registration
Rights Agreement, neither the Company nor any Subsidiary has granted or agreed
to grant any registration rights, including piggyback rights, to any Person.
Section 3.3 Subsidiaries. Except as set forth in Schedule 3.3 hereto,
(i) the Company does not have, and is not committed to purchase or acquire, any
equity interest or equivalent interest (direct or indirect) in any Person other
than the Subsidiaries, (ii) all outstanding shares of capital stock of each
such Subsidiary are held solely by the Company and have been duly authorized
and validly issued and are fully paid and non-assessable and (iii) the Company
owns all of the issued and outstanding capital stock of each of the
Subsidiaries and has good and marketable title to all such shares of capital
stock free and clear of any and all Liens.
Section 3.4. Execution and Delivery, etc. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
the Registration Rights Agreement, the Warrant Certificate and the Shareholders
Agreement, to consummate the transactions contemplated hereby and thereby,
including the issuance of the Preferred Shares, the Warrants and, upon
conversion of the Preferred Shares or exercise of the Warrants, the Common
Shares, and to perform its obligations hereunder, thereunder and under the
Certificate of Amendment. The execution and delivery by the Company of this
Agreement, the Registration
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<PAGE>
Rights Agreement, the Warrant Certificate and the Shareholders Agreement and
the performance of its obligations hereunder, thereunder and under the
Certificate of Amendment, including the issuance of the Preferred Shares, the
Warrants and the Common Shares upon conversion of the Preferred Shares or
exercise of the Warrants, have been duly authorized by all necessary corporate
and other action, and no further authorization on the part of the Company is
necessary to authorize such execution, delivery and performance. This Agreement
has been, and the Registration Rights Agreement, the Warrant Certificate and
the Shareholders Agreement when executed and delivered by the Company will be,
duly executed and delivered by the Company. This Agreement constitutes, and the
Registration Rights Agreement, the Warrant Certificate and the Shareholders
Agreement, when so executed and delivered, will constitute, legal, valid and
binding agreements of the Company, enforceable against the Company in
accordance with their respective terms, except as enforceability may be subject
to the application of general equitable principles and to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally.
Section 3.5. Duly Authorized Shares, etc. The Preferred Shares and the
Warrants have been duly authorized and, upon issuance at the Closing, will be
validly issued, fully paid and non-assessable, and free and clear of any and
all Liens, and the issuance of such Preferred Shares and Warrants are not and
will not be subject to any preemptive or similar right of any other stockholder
of the Company. The Common Shares have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares or exercise of the Warrants,
as applicable, and, upon issuance in accordance with the terms of the
Certificate of Amendment or the Warrant Certificate, as applicable, will be
validly issued, fully paid and non-assessable, and free and clear of any and
all Liens, and the issuance of such Common Shares is not and will not be
subject to any preemptive or similar right of any other stockholder of the
Company.
Section 3.6. Consents and Approvals of Governmental Authorities.
Except for (i) the filing of the Certificate of Amendment with the Secretary of
State of New York and (ii) certain required filings under New York State "blue
sky" or securities laws, which filings shall be made on a timely basis by the
Company, no consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required in
connection with the execution and delivery by the Company of this Agreement,
the Registration Rights Agreement, the Warrant Certificate and the Shareholders
Agreement, the consummation of the transactions contemplated hereby or thereby,
including the issuance of the Preferred Shares, the Warrants or the Common
Shares upon the conversion of the Preferred Shares or the exercise of the
Warrants, and the performance by the Company of its obligations hereunder,
thereunder or under the Certificate of Amendment.
Section 3.7. No Violation. The execution and delivery by the Company
of this Agreement, the Registration Rights Agreement, the Warrant Certificate
and the Shareholders Agreement, the consummation of the transactions
contemplated hereby and thereby, including the issuance of the Preferred
Shares, the Warrants and the Common Shares upon the conversion of the Preferred
Shares or the exercise of the Warrants, and the performance by the Company
-7-
<PAGE>
of its obligations hereunder, thereunder and under the Certificate of Amendment
do not and will not (with the giving of notice or the passage of time or both)
(a) conflict with or violate or result in a breach of or constitute a default
under, or result in any right of termination by any other Person or the
creation of any Lien upon any properties or assets of the Company or any
Subsidiary pursuant to: (i) the Certificate of Incorporation or by-laws of the
Company or any Subsidiary or (ii) any material note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, lease, contract, agreement or other
instrument to which the Company or any Subsidiary is a party or by which any of
their properties are bound; (b) violate any applicable law, rule, regulation,
judgment, injunction, order or decree binding upon the Company or any of the
Subsidiaries or to which any of their properties is subject; (c) result in the
loss or impairment of any material approval, license, franchise, permit, legal
privilege or legal right enjoyed or possessed by the Company or any of the
Subsidiaries; or (d) otherwise result in the creation of any Lien.
Section 3.8. SEC Documents; Confidential Memorandum. From November 9,
1995 through the date of this Agreement, the Company filed all forms, reports
and other documents required to be filed by it with the Commission pursuant to
the Exchange Act and the Securities Act, true, correct and complete copies of
which (other than preliminary materials and exhibits) have been provided to the
Purchaser by the Company. The Company shall timely file with the Commission and
promptly provide the Purchaser with a true, correct and complete copy of any
such forms, reports and other documents required to be filed with the
Commission on or prior to the Closing Date. All such forms, reports and
documents filed from November 9, 1995 through the Closing Date are referred to
herein as the "SEC Documents." Each of the SEC Documents (i) was or, as to
documents not yet filed at the date of this Agreement, will be prepared in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, in all material respects and (ii) did not, or as to documents
not yet filed at the date of this Agreement, will not, as of its date, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The Confidential Memorandum did not, as of the date thereof, and,
as of the Closing Date, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
Section 3.9. Financial Statements, Projections, etc. The consolidated
financial statements of the Company and the Subsidiaries (including any notes
thereto) contained in the SEC Documents were prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as indicated in the notes thereto or
as otherwise permitted by the Commission with respect to the omission of
certain note and other disclosures in interim financial statements) and each
fairly presents the consolidated financial position, results of operations and
cash flows of the Company and the Subsidiaries as at the respective dates
indicated therein and for the respective periods indicated therein (subject, in
the case of unaudited statements, to normal and recurring year-end adjustments
which were
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<PAGE>
not and are not expected, individually or in the aggregate, to be material in
amount). Neither the Company nor any Subsidiary has any debts, obligations or
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, probable of assertion or not, that are
required to be disclosed in accordance with generally accepted accounting
principles other than those reflected or disclosed in the Balance Sheet and the
notes thereto and those incurred after the date of the Balance Sheet in the
ordinary course of business. The financial projections in relation to the
Company provided to the Purchaser prior to the date hereof were prepared in
good faith and on the basis of the assumptions set forth therein, which the
Company believes are reasonable.
Section 3.10. Absence of Certain Changes. Since December 31, 1995,
except, as otherwise set forth in (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 and the Company's Quarterly Reports
on Form 10-Q for the respective quarterly periods ended March 31, 1996 and June
30, 1996 or (ii) Schedule 3.10 hereto, in each case as filed with the
Commission, each of the Company and each Subsidiary has conducted its business
in all material respects in the ordinary course consistent with past practices,
and without limiting the generality of the foregoing, there has not been:
(a) Any change, occurrence or circumstance in or affecting the
business, assets, liabilities, financial condition, operations or prospects of
the Company or any Subsidiary that has had or may reasonably be expected to
have a Material Adverse Effect on the Company;
(b) Any resignation or termination of any key officers, employees
or consultants of the Company or any of the Subsidiaries; and the Company, to
the best of its knowledge, does not know of the impending resignation or
termination of employment of any such officer, employee or consultant;
(c) Any material change, except in the ordinary course of business,
in the contingent obligations of the Company or any of the Subsidiaries by way
of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, that has had or may reasonably be expected to have a Material
Adverse Effect on the Company;
(e) Any waiver by the Company or any of the Subsidiaries of a
valuable right or of a material debt owed to any of them;
(f) Any direct or indirect loans or advances made by the Company or
any of the Subsidiaries to any shareholder, employee, consultant, officer,
director or Affiliate of the Company or any of the Subsidiaries, other than
loans or advances made in the ordinary course of business;
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(g) Any material change in any compensation arrangement or
agreement with any employee, consultant, officer, director or shareholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company or any of the Subsidiaries or any
direct or indirect redemption, purchase, retirement or other acquisition of any
shares of its capital stock;
(i) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of the Subsidiaries, except those for
immaterial amounts or for current liabilities incurred in the ordinary course
of business;
(j) Any sale, assignment or transfer of any of the assets or rights
of the Company or any Subsidiary (other than the sale of their respective
inventory in the ordinary course of business), including patents, trademarks,
copyrights, trade secrets or other intangible assets or intellectual property,
or any mortgage or pledge of or Lien imposed upon any of the assets or
properties of the Company or any Subsidiary, except in the ordinary course of
business;
(k) Any change in or default under any material agreement to which
the Company or any of the Subsidiaries is a party or by which any of them is
bound that has had or may reasonably be expected to have a Material Adverse
Effect on the Company;
(l) Any purchase or other acquisition of any operating business or
a material amount of assets or the capital stock of any other Person;
(m) Any agreement or understanding to do or enter into any of the
foregoing; or
(n) Any other event or condition of any character that, either
individually or cumulatively, has had or may reasonably be expected to have a
Material Adverse Effect on the Company.
Section 3.11. Compliance with Laws and Instruments. Each of the
Company and each of the Subsidiaries is, and their business has been operated,
in compliance with their respective organizational documents and all applicable
laws, rules, regulations, decrees, injunctions, judgments, orders, rulings,
awards, settlements and writs, except where the failure to comply therewith
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
Section 3.12. Taxes. "Taxes" shall mean all taxes, charges, fees,
Liens, duties or other assessments, however denominated, including any interest
or penalties that may become payable in respect thereof, imposed by the United
States government, any state, local or foreign government or any agency or
political subdivision of any such government (a "Tax Authority"),
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which taxes shall include, without limiting the generality of the foregoing,
all income taxes, payroll and employee withholding taxes, unemployment
insurance, social security, sales and use taxes, excise taxes, capital taxes,
franchise taxes, gross receipt taxes, occupation taxes, real and personal
property taxes, value added taxes, stamp taxes, transfer taxes, workers'
compensation taxes and other obligations of the same or of a similar nature.
All tax returns or reports required to be filed by or on behalf of the Company
or any Subsidiary have been timely filed or requests for extensions have been
timely filed and, to the best knowledge of the Company, any such extension has
been granted and has not expired, and all such filed returns are complete and
accurate. All Taxes due from the Company or any Subsidiary for periods through
the Closing Date have been paid in full or an adequate provision has been made
for any such Taxes on the financial statements included in the Quarterly Report
(in accordance with generally accepted accounting principles). There is no
audit, examination, deficiency, or refund litigation pending or threatened,
with respect to any Taxes of the Company or any Subsidiary that could result in
a determination that would have a Material Adverse Effect on the Company. All
Taxes, interest, additions and penalties due with respect to completed and
settled examinations or concluded litigation relating to it have been paid in
full or adequate provision has been made for any such Taxes on the financial
statements included in the Quarterly Report (in accordance with generally
accepted accounting principles). The Company has not executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
that is currently in effect. No rulings have been issued by or agreements
entered into with any Tax Authority with respect to the Company or any
Subsidiary.
Section 3.13. ERISA and Employee Benefit Plans. Except as listed in
Schedule 3.13, neither of the Company nor any Subsidiary maintains, sponsors,
is required to make contributions to or otherwise has any liability, direct,
indirect, contingent or otherwise, with respect to any pension, profit sharing,
thrift or other retirement plan, employee stock ownership plan, deferred
compensation, stock ownership, stock purchase, performance share, bonus or
other incentive plan, severance plan, health or group insurance plan, welfare
plan, or other similar plan, agreement, policy, arrangement or understanding,
whether written or oral, whether or not such plan is intended to be qualified
under Section 401(a) of the Code, including any employee benefit plan within
the meaning of Section 3(3) of ERISA, which plan covers any employee or former
employee of the Company or any Subsidiary (collectively, the "Plans"). The
Company has delivered to the Purchaser true, correct and complete copies of (i)
any employment agreements and any procedures and policies (including summaries
of any procedures and policies that are unwritten) relating to the employment
of employees of the Company and each Subsidiary and the use of temporary
employees and independent contractors by the Company and each Subsidiary, (ii)
each Plan and all related trust agreements, insurance and other material
contracts, and summary plan descriptions and summaries of material
modifications relating to each Plan and any related material communications
distributed to participants under the Plans and (iii) the latest reports which
have been filed (or are in fully completed form for filing) with the Internal
Revenue Service and the Department of Labor with respect to each Plan. No Plan
is subject to Title IV of ERISA. With respect to each Plan, to the best
knowledge of the Company, no party in interest or disqualified person (as
defined in Section 3(14) of ERISA
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and Section 4975 of the Code, respectively) has at any time engaged in a
transaction which could subject the Company or any of the Subsidiaries,
directly or indirectly, to a Tax, penalty or liability for prohibited
transactions imposed by ERISA or Section 4975 of the Code. To the best
knowledge of the Company, no fiduciary (as defined in Section 3(21) of ERISA)
with respect to any Plan has breached any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA. Each Plan is and
has been operated in compliance in all material respects with its terms and all
applicable reporting, disclosure and other requirements of ERISA and the Code
as they relate to such Plan, including where applicable the group health plan
continuation coverage requirements set forth in Part 6 of Subtitle B of Title I
of ERISA and Section 4980B of the Code, and by its terms can be terminated at
any time. As of the Closing Date, the Company and each Subsidiary shall have
made all required contributions under each Plan for all periods through and
including the Closing Date or adequate accruals therefor will have been
provided for by the Company or such Subsidiary. No Person will be entitled to
any severance benefits under the terms of any Plan solely by reason of the
transactions contemplated by this Agreement, the Registration Rights Agreement,
the Warrant Certificate or the Shareholders Agreement. There are no actions,
claims, lawsuits or arbitrations pending or, to the best knowledge of the
Company, threatened with respect to any Plan. No Plan provides for the payment
of retiree or post-termination medical, health, disability, life insurance or
other welfare benefits. Neither the Company nor any of the Subsidiaries has or
has ever had any ERISA Affiliate. For purposes of this Agreement, "ERISA
Affiliate" means any Person which would be treated as a single employer with
the Company or any Subsidiary under Section 414(b), (c), (m) or (o) of the Code
and the regulations promulgated thereunder or Title IV of ERISA. Neither the
Company nor any Subsidiary has incurred any liability to the Pension Benefit
Guaranty Corporation. Each Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code (and the exempt trust thereunder), has
been determined by the Internal Revenue Service to satisfy the qualification
requirements of Sections 401(a) and 501(a) of the Code and every Plan (and
related trust) which is intended to comply with the terms and requirements of
applicable statutes does so comply in all material respects. Each of the
Company and each Subsidiary has never contributed to, or withdrawn in a
complete or partial withdrawal from, any multiemployer plan (within the meaning
of Subtitle E of Title IV of ERISA) or incurred contingent liability under
Section 4204 of ERISA. Neither the Company nor any Subsidiary has proposed or
agreed to any increase in benefits under any Plan (or the creation of new
benefits) or change in employee coverage which would increase the expense of
maintaining any such Plan. The consummation of the transactions contemplated by
this Agreement and the Registration Rights Agreement, the Warrant Certificate
and the Shareholders Agreement will not result in an increase in the amount of
compensation or benefits or accelerate the vesting or timing of payment of any
benefits or compensation payable in respect of any employee.
Section 3.14. Contracts, etc. Neither the Company nor any of the
Subsidiaries, nor to the best knowledge of the Company any other party thereto,
is in default or breach (and there is no event which, with notice or lapse of
time or both, would constitute such a default or breach) under any agreement,
arrangement, bond, commitment, contract, franchise, indemnity,
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indenture, instrument, lease, license or understanding, whether or not in
writing, to which it is a party or to which any of its assets are subject, in
each case that has had or may reasonably be expected to have a Material Adverse
Effect on the Company.
Section 3.15. Legal Proceedings, etc. (i) There is no legal,
administrative, arbitral or other investigation, claim, action or proceeding
pending or, to the best knowledge of the Company, threatened against the
Company or any of the Subsidiaries or any of their respective directors,
officers or employees or to which any of their properties are subject or
against any Plan or the trustee of any Plan which challenges the validity of
this Agreement, the Registration Rights Agreement, the Warrant Certificate, the
Shareholders Agreement, the Certificate of Amendment, the Preferred Stock, the
Warrants or any action taken or to be taken pursuant hereto or thereto, which
seeks to impose or confirm any limitation on the ability of the Purchaser
effectively to acquire, hold or exercise full rights of ownership of the
Preferred Shares, the Warrants or the Common Shares, or, except as disclosed on
Schedule 3.15 hereto, which in the aggregate with all other such
investigations, claims, actions and proceedings would have a Material Adverse
Effect on the Company; (ii) neither the Company nor any Subsidiary is a party
or is subject to the provisions of any order, writ, injunction, award,
settlement, judgment or decree of any court, board or other governmental agency
or instrumentality or administrative agency or any arbiter, which would,
individually or in the aggregate, have a Material Adverse Effect on the
Company; and (iii) there is no action, suit, proceeding or investigation by the
Company or any Subsidiary currently pending or which the Company or any
Subsidiary intends to initiate.
Section 3.16. Brokerage. No placement agent, banker, broker or finder
has acted directly or indirectly for the Company in connection with this
Agreement or the transactions contemplated hereby, and no placement agent,
banker, broker or finder is entitled to any commission, brokerage or finder's
fee in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of the Company.
Section 3.17. Agreements; Action. (a) Except as otherwise disclosed in
Schedule 3.17 hereto, there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, injunctions, awards,
settlements, writs or decrees to which the Company or any Subsidiary is a party
or by which it is bound which may involve or contain (i) obligations
(contingent or otherwise) of, or payments to, the Company or any Subsidiary in
excess of $50,000 (other than obligations of, or payments to, the Company or
any Subsidiary arising from purchase or sale agreements entered into in the
ordinary course of business), (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company (other than licenses
arising from the purchase of "off the shelf" or other standard products), (iii)
provisions restricting or affecting the development, manufacture or
distribution of the Company's or any Subsidiary's products or services or (iv)
indemnification by the Company or any Subsidiary with respect to infringements
of proprietary rights (other than indemnification obligations arising from
purchase or sale agreements entered into in the ordinary course of business).
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(b) Since December 31, 1995, neither the Company nor any Subsidiary
has incurred any indebtedness for money borrowed or any other liabilities
(other than with respect to obligations incurred in the ordinary course of
business) individually in excess of $50,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of $250,000 in the
aggregate.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same Person (including Persons the
Company has reason to believe are affiliated therewith) shall be aggregated for
the purpose of meeting the individual minimum dollar amounts of such
subsections.
(d) Neither the Company nor any Subsidiary has engaged in the past
three (3) months in any discussion (i) with any Person or any representative of
such Person regarding the consolidation or merger of the Company or any
Subsidiary with or into any such Person or another Person, (ii) with any Person
regarding the sale, conveyance or disposition of all or substantially all of
the assets of the Company or any Subsidiary, or a transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Company or any Subsidiary is disposed of or (iii) regarding any other
form of acquisition, liquidation, dissolution or winding up of the Company or
any Subsidiary.
Section 3.18. Transactions with Related Persons. (a) Except as
otherwise disclosed in Schedule 3.18 hereto, there are no agreements,
understandings or proposed transactions of the Company or any Subsidiary with,
and no debts, obligations or liabilities of the Company or any Subsidiary owed
to, any of their respective officers, directors, shareholders, employees,
consultants or Affiliates or any Affiliate thereof other than (i) for payment
of salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of the Company or any such Subsidiary and (iii) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company or any such Subsidiary). None of the
officers, directors or shareholders of the Company or any Subsidiary, or any
members of their immediate families or any of their Affiliates, is indebted to,
or has any cause of action or legal claim against, the Company or any
Subsidiary or, to the best knowledge of the Company, has any direct or indirect
ownership interest in any Person with which the Company or any Subsidiary is
affiliated or with which the Company or any Subsidiary has a business
relationship, or any Person which competes with the Company or any Subsidiary,
except that officers, directors and/or shareholders of the Company or any
Subsidiary may own stock in publicly traded companies which may compete with
the Company or any Subsidiary. No officer, director or shareholder of the
Company or any Subsidiary, or any member of their immediate families or any of
their Affiliates, is, directly or indirectly, interested in any material
contract with the Company or any Subsidiary. Except as otherwise disclosed in
Schedule 3.18, neither the Company nor any Subsidiary is a guarantor,
indemnitor or contributor of any indebtedness or liability of any other Person.
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Section 3.19. Title to Properties and Assets; Liens, etc. Each of the
Company and each Subsidiary has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
Lien, other than (i) those identified on the Balance Sheet, (ii) those
resulting from taxes which have not yet become delinquent, (iii) minor Liens
which do not materially detract from the value of the property or materially
impair the operations of the Company or such Subsidiary and (iv) those that
have otherwise arisen in the ordinary course of business. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by the Company and each Subsidiary are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. Schedule 3.19 hereto sets forth a true, complete and correct list
of all of the real property that is leased to the Company and each Subsidiary.
The Company and each Subsidiary enjoys peaceful and undisturbed possession of
all such real property leased to it. Neither the Company nor any Subsidiary has
ever owned or presently owns any real property. The Company has never
manufactured or produced, and does not presently manufacture or produce, any of
its products or goods; except as set forth on Schedule 3.19, such products and
goods have been and are presently manufactured and produced by independent
third Persons.
Section 3.20. Patents and Trademarks. Each of the Company and each
Subsidiary owns or possesses sufficient legal rights to all trademarks, service
marks, trade names, copyrights, trade secrets, patents, information, other
proprietary rights and processes necessary for its business as now conducted
and as proposed to be conducted, without any known infringement of the rights
of others. There are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company or any Subsidiary bound by or a
party to any options, licenses or agreements of any kind with respect to the
trademarks, service marks, trade names, copyrights, trade secrets, patents,
licenses, information and other proprietary rights and processes of any other
Person other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. Each of the Company and each Subsidiary has
not received any communications alleging that the Company or any Subsidiary has
violated or, by conducting its business as proposed, would violate any of the
trademarks, service marks, trade names, copyrights, trade secrets, patents or
other proprietary rights of any other Person. Each of the Company and each
Subsidiary is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree, injunction, award, settlement or
order of any court or administrative agency, that would interfere with his or
her duties to the Company or any Subsidiary or that would conflict with the
Company's or any Subsidiary's business as presently conducted and as proposed
to be conducted.
Section 3.21. Employees. Each of the Company and each Subsidiary has
no collective bargaining agreements with any of its employees. There is no
labor union organizing activity pending or, to the Company's best knowledge,
threatened with respect to the Company or any Subsidiary. To the Company's best
knowledge, no employee of the Company or any Subsidiary, nor any consultant
with whom the Company or any Subsidiary has contracted, is in violation of any
term of any employment contract, proprietary information agreement or any
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other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or such Subsidiary because of the nature of
the business to be conducted by the Company or such Subsidiary; and, to the
Company's best knowledge, the continued employment by the Company and each
Subsidiary of its present employees, and the performance of the Company's and
each Subsidiary's contracts with its independent contractors, will not result
in any such violation. The Company and the Subsidiaries have not received any
notice alleging that any such violation has occurred. Except as set forth in
Schedule 3.21 hereto, no employee or consultant of the Company or of any
Subsidiary has been granted the right to continued employment by the Company or
such Subsidiary or to any material compensation following termination of
employment with or by the Company or such Subsidiary.
Section 3.22. Permits. Each of the Company and each Subsidiary has all
franchises, permits, licenses, consents and approvals and any similar
authority, all of which are in full force and effect, necessary for the conduct
of its business as now being conducted by it, the lack of which would have a
Material Adverse Effect on the Company.
Section 3.23. Environmental Matters. As used herein, "Subject
Premises" means the real property now owned, operated, used or leased or
previously owned, operated, used or leased (but only through the date of
termination of such ownership, operation, use or lease) by, to or for the
Company or the Subsidiaries or any of their Affiliates. (i) To the best
knowledge of the Company, none of the Subject Premises has any condition or
conditions which would require notification or remediation under any
Environmental Law (collectively, "Environmental Defects"); (ii) except as set
forth on Schedule 3.23 hereto, to the best knowledge of the Company, there are
not now and never have been any underground tanks or above-ground tanks located
on the Subject Premises; (iii) neither the Company nor any of the Subsidiaries,
nor, to the Company's best knowledge, any other Person has at any time during
its possession of the Subject Premises disposed of any wastes, Hazardous Waste
(as defined below) or otherwise, other than in accordance with applicable
Environmental Laws and Environmental Permits (as defined below); (iv) neither
the Company nor any of the Subsidiaries has received any letter or other
communication, written or oral, from the Federal Environmental Protection
Agency or any other local, state or Federal regulatory agencies or any other
Person relating to the existence of Environmental Defects at the Subject
Premises; (v) to the best knowledge of the Company, there do not exist any
judgments, orders, directives, decrees or awards of any court, arbitrator or
administrative or governmental agency or entity or any other Person concerning
the Company or any of the Subsidiaries or any of their agents' or contractors'
compliance with any Environmental Law or Environmental Permit (in the case of
agents and contractors, relating to the Company, any of the Subsidiaries or the
Subject Premises); (vi) no claims have been asserted or, to the best knowledge
of the Company, are threatened against the Company or any of the Subsidiaries
relating to any Environmental Defect or condition which with the passage of
time could become an Environmental Defect; (vii) to the best knowledge of the
Company, there do not exist any consent decrees, administrative orders,
settlement agreements or other settlement documents entered into with any
administrative or governmental agency or entity or any other Person concerning
compliance with any Environmental Law or
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Environmental Permit applicable to the Company or any Subsidiary or any of the
Subject Premises; (viii) the Subject Premises and all operations conducted
thereon by the Company or any Subsidiary are and have at all times been
conducted in compliance in all material respects with all Environmental Laws
and Environmental Permits; (ix) the Company and each Subsidiary have obtained
and currently maintain in full force and effect all environmental permits,
approvals, authorizations, licenses, variances, registrations and permissions
(collectively, "Environmental Permits") required for the conduct of their
respective businesses and operations; and (x) to the best knowledge of the
Company, there are no Hazardous Substances or Hazardous Waste on, under or
about the Subject Premises other than those customarily used in or incident to
the business of the Company or any Subsidiary, which in any event are used or
maintained in all material respects in accordance with all applicable
Environmental Laws and Environmental Permits. For purposes hereof, "Hazardous
Substances" or "Hazardous Waste" are defined as any pollutant, contaminant,
chemical or industrial or toxic substance or waste, petroleum products,
asbestos, urea formaldehyde, radon, polychlorinated biphenyls, flammable
explosives, nuclear radioactive fuel or waste or any other substance, waste,
material, substance, pollutant or contaminant that is defined as a hazardous
waste or substance under any applicable Environmental Law or that may cause
damage to human health or the environment, safety or real property and/or any
substance for which the generation, manufacture, storage, treatment or release
is prohibited or regulated under any Environmental Law.
Section 3.24. Offering Valid. Assuming the accuracy of the
representations and warranties of the Purchaser contained in Article IV hereof,
the offer, sale and issuance of the Preferred Shares, the Warrants and the
Common Shares upon conversion of the Preferred Shares or exercise of the
Warrants, as applicable, will be exempt from the registration requirements of
the Securities Act and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the
Preferred Shares or Warrants to any Person or Persons or has taken or will take
any other action so as to bring the sale of such Preferred Shares, Warrants or
the Common Shares by the Company within the registration provisions of the
Securities Act.
Section 3.25. Full Disclosure. This Agreement, the Registration Rights
Agreement, the Warrant Certificate and the Shareholders Agreement and all other
documents delivered by the Company to the Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated
hereby or thereby, do not contain any untrue statement of a material fact nor,
to the Company's best knowledge, omit to state a material fact necessary in
order to make the statements contained herein or therein in light of the
circumstances under which they were made not misleading. To the Company's best
knowledge, there are no facts which (individually or in the aggregate)
materially adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company that have not been set forth
in this Agreement, the Registration Rights Agreement, the Warrant Certificate
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or the Shareholders Agreement or in other documents delivered to the Purchaser
or its attorneys or agents in connection herewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to the Company as of the date of
this Agreement and as of the Closing Date that:
Section 4.1. Organization, Existence and Authority of Purchaser;
Enforceability. The Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. The Purchaser has all necessary corporate power and authority to
execute and deliver this Agreement, the Registration Rights Agreement and the
Shareholders Agreement, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery by the Purchaser of this Agreement, the Registration Rights
Agreement and the Shareholders Agreement, and the performance of its
obligations hereunder and thereunder, have been duly authorized by all
necessary corporate and other action, and no further authorization on the part
of the Purchaser is necessary to authorize such execution, delivery and
performance. This Agreement has been, and the Registration Rights Agreement and
the Shareholders Agreement when executed and delivered by the Purchaser will
be, duly executed and delivered by the Purchaser. This Agreement constitutes,
and the Registration Rights Agreement, the Warrant Certificate and the
Shareholders Agreement, when so executed and delivered, will constitute, legal,
valid and binding agreements of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms, except as enforceability
may be subject to the application of general equitable principles and to
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally.
Section 4.2. No Consent or Violation. No consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with the execution and
delivery by the Purchaser of this Agreement, the Registration Rights Agreement,
the Warrant Certificate and the Shareholders Agreement, the consummation of the
transactions contemplated hereby and thereby and the performance by the
Purchaser of its obligations hereunder and thereunder. The execution and
delivery by the Purchaser of this Agreement, the Registration Rights Agreement,
the Warrant Certificate and the Shareholders Agreement, the consummation of the
transactions contemplated hereby and thereby and the performance by the
Purchaser of its obligations hereunder and thereunder do not and will not (with
the giving of notice or the passage of time or both) (a) conflict with or
violate or result in a breach of or constitute a default under, or result in
any right of termination by any other Person or the creation of any Lien upon
any properties or assets of the Purchaser pursuant to: (i) the organizational
documents of the Purchaser or (ii) any material note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, lease, contract,
agreement or other
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instrument to which the Purchaser is a party or by which any of its properties
are bound or (b) violate any applicable law, rule, regulation, judgment,
injunction, order or decree binding upon the Purchaser or to which any of its
properties is subject.
Section 4.3. Purchase for Own Account. The Preferred Shares and the
Warrants to be acquired by the Purchaser pursuant to this Agreement will be
acquired for its own account for investment purposes and not with a view to the
resale or distribution of any part thereof.
Section 4.4 Restricted Securities. The Purchaser understands that the
Preferred Shares and the Warrants being acquired pursuant hereto are
characterized as "restricted securities" under the Federal and state securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act and
applicable state securities laws only in certain limited circumstances. The
Purchaser is familiar with Rule 144 ("Rule 144") of the Commission, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act and applicable state securities laws, pursuant to which
the Preferred Shares and the Warrants (and the Common Shares issuable upon
conversion of the Preferred Shares or exercise of the Warrants) must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act and applicable state securities laws or is exempt from such
registration.
Section 4.5. Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D, promulgated under
the Securities Act, and was not organized for the specific purpose of acquiring
the Preferred Shares and the Warrants.
Section 4.6. Investor Sophistication. The Purchaser, by reason of its
business and financial experience, has such knowledge, sophistication and
experience in business and financial matters as to be capable of evaluating the
merits and risks of the prospective investment and is able to bear the economic
risk of such investment.
Section 4.7. Brokerage. No placement agent, banker, broker or finder
has acted directly or indirectly for the Purchaser in connection with this
Agreement or the transactions contemplated hereby, and no placement agent,
banker, broker or finder is entitled to any commission, brokerage or finder's
fee in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of the Purchaser.
ARTICLE V
CERTAIN COVENANTS
Section 5.1. Use of Proceeds. The proceeds from the sale of the
Preferred Shares and Warrants will be used by the Company for its working
capital needs.
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Section 5.2. Certain Actions. From the date hereof through the Closing
Date, the Company (i) shall not, and shall cause each Subsidiary not to, take
any action that would cause any of the representations or warranties of the
Company set forth herein to become untrue or misleading and (ii) shall not take
any action which if taken after the Closing Date would require adjustment of
the conversion price of the Preferred Shares, adjustment of the exercise price
of the Warrants or adjustment of the number of Common Shares issuable upon
conversion of the Preferred Shares pursuant to the Certificate of Amendment or
upon exercise of the Warrants pursuant to the Warrant Certificate.
ARTICLE VI
CLOSING CONDITIONS
CONDITIONS PRECEDENT TO CLOSING
Section 6.1. Conditions Precedent to Obligations of the Purchaser. The
obligation of the Purchaser to purchase the Preferred Shares and Warrants
hereunder is subject to the satisfaction of the following conditions on or
before the Closing Date:
(a) The representations and warranties made by the Company herein and
in the Registration Rights Agreement, the Warrant Certificate and the
Shareholders Agreement shall be true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of such date.
(b) The Company shall have performed and complied in all material
respects with all covenants, agreements and conditions set forth or
contemplated herein and in the Registration Rights Agreement, the Warrant
Certificate and the Shareholders Agreement required to be performed or complied
with by it on or prior to the Closing Date.
(c) The Company shall have filed the Certificate of Amendment with the
Secretary of State of New York and the Certificate of Amendment shall be in
full force and effect.
(d) The Company shall have executed and delivered the Registration
Rights Agreement, the Warrant Certificate and the Shareholders Agreement.
(e) The purchase of and payment for the Preferred Shares and Warrants
hereunder shall not (i) be prohibited by any applicable law, rule or
regulation, (ii) subject the Purchaser to any penalty or other onerous
condition pursuant to any applicable law, rule or regulation or (iii) be
prevented, prohibited or materially restricted by any judgment, injunction
(whether temporary or permanent), order or decree at the Closing Date.
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(f) All authorizations, consents, approvals, permits and licenses and
filings with, by or in respect of any federal, state, local or foreign
governmental authority, agency, court or other body required to be taken, given
or obtained that are necessary in connection with the transactions contemplated
herein and in the other documents related hereto, shall have been taken, given
or obtained, be in full force and effect and not be subject to any waiting
periods or any pending proceedings or appeals, administrative, judicial or
otherwise.
(g) Since the date of this Agreement, there shall not have occurred
any change, occurrence or circumstance in or affecting the business, assets,
liabilities, financial condition, operations or prospects of the Company or any
Subsidiary that has had or may reasonably be expected to have a Material
Adverse Effect on the Company.
(h) At least one vacancy shall exist on the Board of Directors of the
Company to be filled on the Closing Date by the Purchaser pursuant to the
Shareholders Agreement.
(i) The Closing Date shall not be later than 5:00 p.m., New York time,
on December 20, 1996, or such later time as the Purchaser may agree to.
(j) On or before the Closing Date, the Purchaser shall have received
all of the following from the Company in form and substance reasonably
satisfactory to the Purchaser:
(i) Certificates representing the Preferred Shares and the Warrant
Certificate issued to the Purchaser in accordance with Section 2.1;
(ii) Certificate of the Secretary of the Company dated as of the
Closing Date certifying as to (A) the Certificate of Incorporation of the
Company, recently certified by the Secretary of State of New York, as duly
filed and currently in full force and effect without further amendment,
other than as amended by the Certificate of Amendment; (B) the by-laws of
the Company as currently in full force and effect; (C) the resolutions, in
form and substance reasonably satisfactory to the Purchaser, of the
shareholders and the Board of Directors of the Company duly authorizing the
execution, delivery and performance of this Agreement, the Registration
Rights Agreement, the Warrant Certificate, the Shareholders Agreement and
any other documents, instruments or agreements executed in connection
herewith or therewith to which it is a party and the absence of other
resolutions relating thereto; (D) the absence of proceedings for the
merger, consolidation, sale of assets, dissolution, liquidation or similar
proceedings with respect to the Company; and (E) the incumbency and
signature of the individuals authorized to execute and deliver documents on
the Company's behalf;
(iii) Certificate of the Secretary of each of the Subsidiaries dated
as of the Closing Date certifying as to (A) the Certificate of
Incorporation of such Person, recently certified by the appropriate
governmental authority of the jurisdiction in which such Person is
organized, as duly filed and currently in full force and effect without
further
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amendment; (B) the by-laws of such Person as currently in full force and
effect; (C) the absence of proceedings for the merger, consolidation, sale
of assets, dissolution, liquidation or similar proceedings with respect to
such Person; and (D) the incumbency and signature of the individuals
authorized to execute and deliver documents on such Person's behalf;
(iv) Certificate executed by an officer of the Company dated as of the
Closing Date, certifying that the representations and warranties of the
Company contained in this Agreement, the Registration Rights Agreement, the
Warrant Certificate and the Shareholders Agreement are true and correct as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date;
(v) An opinion addressed to the Purchaser and dated as of the Closing
Date of Berger & Paul, special counsel to the Company, substantially in the
form of Annex V hereto; and
(vi) Such additional documentation as the Purchaser may reasonably
request.
Section 6.2. Conditions Precedent to Obligations of the Company. The
obligations of the Company to issue and sell the Preferred Shares and Warrants
pursuant to this Agreement are subject to the satisfaction of the following
conditions on or before the Closing Date:
(a) The representations and warranties made by the Purchaser herein
and in the Registration Rights Agreement and the Shareholders Agreement shall
be true and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date.
(b) The Purchaser shall have performed and complied in all material
respects with all covenants, agreements and conditions set forth or
contemplated herein and in the Registration Rights Agreement and the
Shareholders Agreement required to be performed or complied with by it on or
prior to the Closing Date.
(c) The sale of the Preferred Shares and Warrants by the Company
hereunder shall not (i) be prohibited by any applicable law, rule or regulation
or (ii) be prevented, prohibited or materially restricted by any judgment,
injunction (whether temporary or permanent), order or decree at the Closing
Date.
(d) The Purchaser shall have delivered to the Company the funds in
connection with the sale of the Preferred Shares and the Warrants in accordance
with Section 2.1.
(e) The Purchaser shall have executed and delivered the Registration
Rights Agreement, the Warrant Certificate and the Shareholders Agreement.
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(f) All authorizations, consents, approvals, permits and licenses and
filings with, by or in respect of any federal, state, local or foreign
governmental authority, agency, court or other body required to be taken, given
or obtained that are necessary in connection with the transactions contemplated
herein and in the other documents related hereto, shall have been taken, given
or obtained, be in full force and effect and not be subject to any waiting
periods or any pending proceedings or appeals, administrative, judicial or
otherwise.
(g) The Closing Date shall not be later than 5:00 p.m., New York time,
on December 20, 1996 or such later time as the Company may agree to.
ARTICLE VII
INDEMNIFICATION
Section 7.1. General. (a) The Company (the "Indemnifying Party")
agrees and covenants to hold harmless and indemnify the Purchaser and each of
its Affiliates, and their respective managed accounts, shareholders, employees,
directors, officers, principals, equity holders, controlling Persons, advisors
and agents (each of the foregoing Persons being an "Indemnified Person"), from
and against any losses, claims, damages, liabilities and expenses (including
reasonable attorneys' fees and expenses of investigation) incurred by such
Indemnified Person (collectively, "Indemnifiable Costs and Expenses") in
connection with (i) any actual or threatened third-party action, suit,
proceeding or investigation arising out of or based in any manner upon the
Purchaser's negotiation, execution or performance of its obligations hereunder
or under the Registration Rights Agreement, the Warrant Certificate or the
Shareholders Agreement or its ownership of the Preferred Shares, the Warrants
or Common Shares, (ii) arising out of or based upon any breach by the
Indemnifying Party of any its representations, warranties or covenants
contained herein, in the Registration Rights Agreement, the Warrant Certificate
or the Shareholders Agreement or in any agreement, instrument or document
delivered by the Company hereunder or thereunder or (iii) enforcing the rights
of an Indemnified Person under this Agreement or under the Registration Rights
Agreement, the Warrant Certificate or the Shareholders Agreement.
(b) The Indemnifying Party further agrees promptly upon demand by each
Indemnified Person to reimburse each Indemnified Person for any Indemnifiable
Costs and Expenses as they are incurred by it; provided that if the
Indemnifying Party reimburses an Indemnified Person hereunder for any expenses
incurred in connection with a lawsuit, claim, inquiry or other proceeding or
investigation for which indemnification is sought, such Indemnified Person
agrees to refund such reimbursement of expenses to the extent it is finally
judicially determined that the indemnity provided for in this Article VII is
not applicable to such Indemnified Person in accordance with the terms hereof
or otherwise. The Indemnifying Party further agrees that the indemnification,
contribution and reimbursement commitments set forth in this Article VII shall
apply whether or not an Indemnified Person is a formal party to any such
lawsuits, claims or other proceedings. The indemnity, contribution and expense
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reimbursement obligation of the Indemnifying Party under this Article VII shall
be in addition to any liability it may otherwise have.
(c) The obligations of the Indemnifying Party hereunder shall survive
the Closing and any repurchase, conversion, exchange or transfer of the
Preferred Shares or Warrants and the termination of this Agreement and shall
not be extinguished with respect to any Person because any other Person is not
entitled to indemnity or contribution hereunder.
Section 7.2 Procedure. Promptly after receipt by an Indemnified Person
of notice from any third party of the commencement of any lawsuit, inquiry or
other proceeding or investigation thereof, such Indemnified Person will, if a
claim in respect thereof is to be made against the Indemnifying Party
hereunder, notify the Indemnifying Party in writing of the commencement
thereof; but the omission so to notify the Indemnifying Party will not relieve
the Indemnifying Party (x) from any liability which it may have to any
Indemnified Person hereunder unless the Indemnifying Party is actually
prejudiced thereby or (y) from any liability which it may have to any
Indemnified Person otherwise than pursuant to this Article VII. Each
Indemnified Person shall permit the Indemnifying Party to assume the defense of
such claim with counsel reasonably satisfactory to such Indemnified Person;
provided, however, that any Indemnified Person shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (A) the Indemnifying Party has agreed to pay such fees or expenses, (B)
the Indemnifying Party shall have failed to assume the defense of such claim
and employ counsel reasonably satisfactory to such Indemnified Person in a
timely manner or (C) in the reasonable judgment of such Indemnified Person,
based upon advice of its counsel, a conflict of interest may exist between such
Indemnified Person and the Indemnifying Party with respect to such claims (in
which case, if such Indemnified Person notifies the Indemnifying Party in
writing that such Indemnified Person elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such claim on behalf of such Indemnified
Person). The Indemnifying Party will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld or delayed). No Indemnified Person will be required to consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of a release from all liability in respect of such claim or
litigation. An Indemnifying Party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all Indemnified Persons with respect to
such claim, as well as one local counsel in each relevant jurisdiction.
Section 7.3. Contribution. (a) In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in this Article VII is for any reason held to be unenforceable by the
Indemnified Person, the Indemnifying Party, in lieu of indemnifying such
Indemnified Person, shall have an obligation to contribute, and shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses,
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claims, damages, liabilities or expenses in such proportion as is appropriate
to reflect not only the relative benefits received by the Indemnifying Party
and the Indemnified Persons, but also to reflect the relative fault of the
Indemnifying Party and the Indemnified Persons in connection with the statement
or omissions which result in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations; provided,
however, that no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault of the Indemnifying Party and the
Indemnified Persons shall be determined, if applicable, by reference to, among
other things, whether the untrue statement of a material fact or the omission
to state a material fact has been made by, or relates to information supplied
by, the Indemnifying Party or Indemnified Persons and the Persons' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a Person as a result
of the losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include any reasonable legal or other fees or expenses
reasonably incurred by such Person in connection with investigation or
defending any such claim.
(b) The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to the immediately preceding paragraph were
determined by any method of allocation which does not take into account the
equitable considerations referred to in such paragraph.
Section 7.4. Notification. Each party agrees to notify in writing
promptly the other party of the commencement of any litigation or proceeding
against it or any of its shareholders, officers, directors or agents in
connection with the issue of any the Preferred Shares, Warrants or Common
Shares.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Entire Agreement; Survival of Provisions. This Agreement,
together with the other agreements, instruments and documents expressly
referred to herein, constitute the entire agreement of the parties with respect
to the transactions contemplated hereby and supersede all prior agreements and
understandings with respect thereto, whether written or oral. All of the
covenants of the parties made herein shall remain operative and in full force
and effect regardless of acceptance of any of the Preferred Shares or Warrants
and payment therefor. The representations and warranties set forth herein shall
survive the execution and delivery of this Agreement, the issuance of the
Preferred Shares and the Warrants, the Closing and the issuance of the Common
Shares upon conversion of the Preferred Shares or exercise of the Warrants, as
applicable, and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Purchaser or the Company. The
representations, warranties, agreements and covenants made herein and in the
Registration Rights Agreement, the Warrant
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Certificate and the Shareholders Agreement shall be deemed to have been relied
upon by the parties hereto.
Section 8.2. No Waiver; Modifications in Writing. No failure or delay
by a party in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
party at law or in equity or otherwise. No waiver of or consent to any
departure by a party from any provision of this Agreement shall be effective
unless signed in writing by the parties entitled to the benefit thereof. No
amendment, modification or termination of any provision of this Agreement shall
be effective unless signed in writing by all parties. Any amendment, supplement
or modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given.
Section 8.3. Notices. All notices, demands and other communications
provided for hereunder shall be in writing, shall be given by registered or
certified mail, return receipt requested, telegram, telecopy, courier service
or personal delivery, addressed to the Company as follows:
Alcohol Sensors International, Ltd.
11 Oval Drive
Islandia, New York 11722
Attention: Robert B. Whitney, President
Telecopy: (516) 342-1550
with a copy to:
Berger & Paul
630 Third Avenue
New York, New York 10017
Attention: Harold W. Paul
Telecopy: (212) 661-7060
and to the Purchaser as follows:
American International Insurance Company
505 Carr Road
Wilmington, Delaware 19809
Attention: Ernest Hanson
Telecopy: (302) 762-7451
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<PAGE>
with copies to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Florence A. Davis
Telecopy: (212) 785-1584
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman
Telecopy: (212) 715-8000
or to such other address as any party shall designate in writing, and shall be
deemed given when received.
Section 8.4. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same Agreement.
Section 8.5. Binding Effect; Assignment. The rights and obligations of
the parties under this Agreement may not be assigned or otherwise transferred
to any other Person, except with the prior written consent of the other party
hereto, provided that the Purchaser may assign or otherwise transfer any or all
of such rights and/or obligations to any of its Affiliates without obtaining
any such consent. Except as expressly provided in this Agreement, this
Agreement shall not be construed so as to confer any right or benefit upon any
Person other than the parties to this Agreement and their respective successors
and permitted assigns. This Agreement shall be binding upon and shall inure to
the benefit of the Company, the Purchaser and their respective successors and
permitted assigns.
Section 8.6. Governing Law. This Agreement shall be deemed to be a
contract made under and shall be governed by and construed in accordance with
the internal laws of the State of New York without reference to the principles
of conflict of laws.
Section 8.7. Consent to Jurisdiction and Service of Process. Any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement, the Warrant Certificate or the Shareholders
Agreement or the transactions contemplated hereby or thereby may be instituted
in any Federal court situated in the State of New York or any state court of
the State of New York in each case, in the Borough of Manhattan, City of New
York, and each party agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of such
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<PAGE>
court, that the suit, action or proceeding is brought in an inconvenient forum,
that the venue of the suit, action or proceeding is improper or that this
Agreement, the Registration Rights Agreement, the Warrant Certificate or the
Shareholders Agreement or the subject matter hereof or thereof may not be
enforced in or by such court. Each party further irrevocably submits to the
jurisdiction of such court in any such suit, action or proceeding. Any and all
service of process and any other notice in any such suit, action or proceeding
shall be effective against any party if given personally or by registered or
certified mail, return receipt requested, or by any other means of mail that
requires a signed receipt, postage fully prepaid, mailed to such party as
herein provided. Nothing herein contained shall be deemed to affect the right
of any party to serve process in any manner permitted by law or to commence
legal proceedings or otherwise proceed against any other party in any other
jurisdiction.
Section 8.8. Further Assurances. Each of the parties hereto shall
execute and deliver such documents, instruments and agreements and take such
further actions as may be reasonably required or desirable to carry out the
provisions of this Agreement and the Registration Rights Agreements, the
Warrant Certificate and the Shareholders Agreement and the transactions
contemplated hereby and thereby, and each of the parties hereto shall cooperate
with each other in connection with the foregoing.
Section 8.9. Specific Performance. The Company acknowledges that
irreparable damage would occur to the Purchaser in the event that any of the
provisions of this Agreement, the Registration Rights Agreement, the Warrant
Certificate or the Shareholders Agreement were not performed by the Company in
accordance with their specific terms or were otherwise breached by the Company
and that money damages would not provide an adequate remedy to the Purchaser.
It is accordingly agreed that the Purchaser shall be entitled to an injunction
and other equitable remedies to prevent breaches by the Company of this
Agreement, the Registration Rights Agreement, the Warrant Certificate and the
Shareholders Agreement and to enforce specifically the terms and provisions
hereof or thereof in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which the Purchaser
may be entitled at law or in equity.
Section 8.10. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.11. Headings. The Article and Section headings used or
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
Section 8.12. Costs, Expenses and Taxes. The Company shall pay any and
all stamp, transfer and other similar Taxes payable or determined to be payable
in connection with the execution and delivery at the Closing Date of this
Agreement or the original issuance of the
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Preferred Shares or Warrants, and shall save and hold Purchaser harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying, or omission to pay, such Taxes. The Company and the Purchaser shall
pay all costs and expenses that each respectively incurs with respect to the
negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement, the Warrant Certificate and the Shareholders Agreement.
Section 8.13. Waiver of Jury Trial. The parties hereto hereby
irrevocably waive all right to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Agreement, the Registration
Rights Agreement, the Warrant Certificate or the Shareholders Agreement or the
transactions contemplated hereby or thereby.
Section 8.14. Publicity. The parties agree that no public release or
announcement concerning this Agreement, the Registration Rights Agreements, the
Warrant Certificate or the Shareholders Agreement or the transactions
contemplated hereby or thereby shall be made without advance review and
approval by each party hereto, except as otherwise required by applicable law.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers hereunto duly authorized, as of the
date first above written.
ALCOHOL SENSORS INTERNATIONAL, LTD.
By: /s/ Robert B. Whitney
-------------------------
Name: Robert B. Whitney
Title: President & CEO
AMERICAN INTERNATIONAL INSURANCE COMPANY
By: /s/ Edward E. Matthews
-------------------------
Name: Edward E. Matthews
Title: Senior Vice President and Director
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<PAGE>
Annex I: Certificate of Amendment
Annex II: Registration Rights Agreement
Annex III: Shareholders Agreement
Annex IV: Warrant Certificate
Annex V: Opinion of Berger & Paul
Schedule 3.2: Rights and Agreements Relating to Securities of the Company
and the Subsidiaries
Schedule 3.3: Certain Disclosure Relating to Subsidiaries and Other
Matters
Schedule 3.10: Disclosure Relating to Certain Changes
Schedule 3.13: ERISA Plans
Schedule 3.15: Legal Proceedings
Schedule 3.17: Certain Agreements
Schedule 3.18: Transactions with Related Persons and Guarantees
Schedule 3.19: Real Property and Certain Disclosure Relating to
Manufacturing
Schedule 3.21: Certain Agreements with Employees and Consultants
Schedule 3.23: Environmental Matters
<PAGE>
SCHEDULE 3.2 A Warrants, totaling 1,150,000, were issued as
part of the Company's public offering of
November 9, 1995.
B Warrants ("B Warrant"), totaling 575,000, were
issued as part of the Company's public offering of
November 9, 1995.
There are in excess of 20 holders of 505 Warrants
as a result of the July 1995 offering, who have
400,000 warrants.
There are in excess of 50 holders of 504 Warrants
as a result of three offerings of December 1992,
May 1993 and July 1994, who have 519,999 warrants.
The Company issued 150,000 Warrants to Carl
Greenfield.
The Company issued 75,000 options to each Ed
Kirchmeier and Ronald Koppel, engineers of the
Company.
The Company has issued 100,000 options to Michael
Ghazarian; 100,000 options to Ariel Enterprises (a
trust for the benefit of Steven Martello); a total
of 129,500 options to Joseph M. Lively; a total of
13,000 options to David Kahn and 750 options to
Janet DiBenedetto.
The Company issued 100,000 options to William Scott
as a result of the public offering of November 9,
1995.
Each of the above-referenced options and warrants is exercisable for one share
of Common Stock, except for the B Warrants, each of which is exercisable for
one-half share of Common Stock.
<PAGE>
SCHEDULE 3.3 ASE (Alcohol Sensors Europe, Plc.) is the only
subsidiary and is 80% owned by ASI with the
balance, 20%, being owned by Michael Ghazarian.
<PAGE>
SCHEDULE 3.10 Michael Sylvester, John Ruocco and Robert Whitney
each contributed 10,000 of their own shares to the
Company toward the payment of the settlement of a
prior litigation matter, entitled Barry Beyer vs,
ASI and some of its officers.
<PAGE>
SCHEDULE 3.13 Company has a 401(K) plan in place. Company has a
health insurance plan in place.
<PAGE>
SCHEDULE 3.15 The Company and some of its officers have been
named as a defendants in an action filed by Steve
Eplan in the United States District Court for the
Eastern District of the State of New York.
The Company and some of its officers have been
named defendants in an action filed by Henry
Dornhuber in the United States District Court for
the Eastern District of the State of New York.
The Company and some of its officers have been
named defendants in an action filed by Albert Pace
and Jan Polek, in the Supreme Court of the State of
New York County of Orange. This action was
subsequently removed to the United States District
Court for the Southern District of the State of New
York.
The Company has received a letter of inquiry from
NASDAQ with regard to a possible delisting due to
insufficient capital and the avenues the Company is
pursuing in order to comply with NASDAQ's
guidelines.
<PAGE>
SCHEDULE 3.17 (a) Company is party to an agreement with FCI
Environmental, Inc. for the purchase and
application of a polymer, to the microchip which
ASI incorporated in its sensor, that helps provide
ASI's Alcohol Specific Technology. The Agreement
provides ASI with exclusivity to FCI's trade
secrets and proprietary rights to this polymer.
<PAGE>
SCHEDULE 3.18 (a) ASI owns 80% of its subsidiary, ASE, Plc., with
the remaining 20% owned by Michael Ghazarian, who
is director of ASI.
(a) ASI is a party to an agreement with WeatherEye,
Inc., to sell the WeatherEye headlight management
system in North America.
(a) ASE, the subsidiary of ASI, has an agreement with
Scarico, srl., of Caronno, Italy, whereby Scarico
will manufacture, test and supply to ASE the
products of ASI for distribution throughout Europe.
(a) The Company owes a debt of $118,437.00 to Michael
Sylvester, who is an officer, director and
shareholder of ASI.
The Company owes a debt of $55,000.00 to Michael
Sylvester, who is an officer, director and
shareholder of ASI.
The Company owes a debt of $55,000 to Robert
Whitney, who is an officer, director and
shareholder of ASI.
The Company owes a debt of $55,000.00 to John
Ruocco, who is an officer, director and shareholder
of ASI.
The Company owes a debt of $15,000.00 to Steven
Martello, who is an officer, director and
shareholder of ASI.
<PAGE>
SCHEDULE 3.19 The Company does not own any real property.
The Company leases office space at 11 Oval Drive,
Islandia, New York 11722.
The subsidiary, ASE, leases office space at
Beaufort House, 10th floor, 15, St. Botolph Street,
London EC3A 7EE.
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SCHEDULE 3.21 None.
<PAGE>
SCHEDULE 3.23 None. The Company does not perform the
manufacturing of its product.
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of December 20, 1996 between ALCOHOL SENSORS INTERNATIONAL,
LTD., a New York corporation (the "Company"), and AMERICAN INTERNATIONAL
INSURANCE COMPANY, a New York corporation (the "Securityholder").
The Securityholder is the beneficial owner of certain Registrable
Securities (as defined below) issued by the Company pursuant to the Purchase
Agreement (as defined below). The Company and the Securityholder deem it to be
in their respective best interests to set forth, among other things, the rights
of the Securityholder in connection with public offerings and sales of the
Registrable Securities.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, the Company and the Securityholder,
intending legally to be bound, hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Business Day" shall mean any day other than Saturday and Sunday and
any other day on which banking institutions in the State of New York are
required or authorized by law to close.
"Capital Stock" shall mean all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock.
"Common Stock" shall mean the common stock, par value $0.001 per
share, of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Hold-Back Election" shall have the meaning set forth in Section 6(a)
hereof.
<PAGE>
"Holder" shall mean any Person that owns Registrable Securities,
including such successors and assigns as acquire Registrable Securities,
directly or indirectly, from such Person. For purposes of this Agreement, the
Company may deem the registered holder of a Registrable Security as the Holder
thereof.
"Material Development Election" shall have the meaning set forth in
Section 6(b) hereof.
"Other Approved Holders" shall mean holders of Common Stock having
registration rights with respect to the Common Stock, other than under this
Agreement, which registration rights have been consented to in writing by the
Securityholder.
"Person" shall mean an individual, partnership, corporation, limited
liability company, joint venture, trust or unincorporated organization, a
government or agency or political subdivision thereof or any other entity.
"Preferred Stock" shall mean the Company's Series A Cumulative
Non-redeemable Convertible Preferred Stock, par value $0.001 per share.
"Prospectus" shall mean the prospectus (including a preliminary
prospectus) included in any Registration Statement, as amended or supplemented
by a prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement
and by all other amendments and supplements to the prospectus, including
post-effective amendments and all material incorporated by reference in such
prospectus.
"Purchase Agreement" shall mean the Convertible Preferred Stock and
Warrant Purchase Agreement dated as of the date hereof between the Company and
the Securityholder.
"Registrable Securities" shall mean (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock or the exercise of the
Warrants; and (ii) any other Capital Stock or other securities issued or
issuable as a result of or in connection with any stock dividend, stock split
or reverse stock split, combination, recapitalization, reclassification, merger
or consolidation, exchange, distribution or similar transaction in respect of
the Common Stock.
"Registration Expenses" shall have the definition set forth in Section
7 hereof.
"Registration Statement" shall mean any registration statement which
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
"Restricted Security" shall have the meaning set forth in Section 2
hereof.
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<PAGE>
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as amended from time to time, or any similar successor rule thereto that may be
promulgated by the SEC.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as amended from time to time, or any similar successor rule thereto that may be
promulgated by the SEC.
"Rule 415" shall mean Rule 415 promulgated under the Securities Act,
as amended from time to time, or any similar successor rule thereto that may be
promulgated by the SEC.
"Rule 424" shall mean Rule 424 promulgated under the Securities Act,
as amended from time to time, or any similar successor rule thereto that may be
promulgated by the SEC.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended (or
any similar successor federal statute), and the rules and regulations
thereunder, as the same are in effect from time to time.
"Shelf Registration" shall mean the registration of Registrable
Securities for sale on a continuous or delayed basis pursuant to Rule 415.
"Shelf Registration Statement" shall mean a Registration Statement
filed in connection with a Shelf Registration.
"Underwritten Offering" shall mean a registered offering in which
securities of the Company are sold to an underwriter for reoffering to the
public.
"Warrants" shall mean the Warrants of the Company exercisable for
shares of Common Stock purchased by the Securityholder from the Company
pursuant to the Purchase Agreement.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT. The securities
entitled to the benefits of this Agreement are the Registrable Securities but,
with respect to any particular Registrable Security, only so long as such
security continues to be a Restricted Security. A Registrable Security that has
ceased to be a Registrable Security cannot thereafter become a Registrable
Security. As used herein, a "Restricted Security" is a Registrable Security
which has not been effectively registered under the Securities Act and
distributed to any Person in accordance with an effective Registration
Statement and which has not been distributed by a Holder to any Person pursuant
to Rule 144.
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<PAGE>
SECTION 3. DEMAND REGISTRATION.
(a) Demand. Upon the written request of the Securityholder or a Holder
or Holders of a majority of the then outstanding Registrable Securities (on a
Common Stock equivalent basis) requesting that the Company effect the
registration under the Securities Act of Registrable Securities and specifying
the intended method or methods of disposition thereof (which may include a
continuous or delayed offering), the Company will use its best efforts to
effect, as expeditiously as possible, the registration under the Securities Act
of the Registrable Securities which the Company has been so requested to
register by the Securityholder or such Holder or Holders of Registrable
Securities; provided, however, that, except as provided below, the Company
shall not be obligated to (1) effect more than an aggregate of two (2) demand
registrations pursuant to this Section 3; or (2) effect a demand registration
unless either (I) the Registrable Securities for which the demand is made
constitute at least one-half of the then outstanding Registrable Securities (on
a Common Stock equivalent basis) or (II) the demand is made with respect to all
of the Registrable Securities then beneficially owned by the Securityholder or
the demanding Holder or Holders, provided such Registrable Securities
constitute at least 10% of the Registrable Securities initially issued by the
Company (on a Common Stock equivalent basis); and provided further that no
Holder (including the Securityholder) shall deliver a request for a demand
registration for a period of four (4) months following the last date on which a
Registration Statement filed in respect of the previous demand registration, if
any, was declared by the SEC to be effective. The number, percentage or kind of
shares in clause (2) above shall be appropriately adjusted for any stock
dividend, stock split, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation, exchange, distribution or similar
transaction with respect to the shares of Common Stock. Notwithstanding the
foregoing, the Securityholder or a Holder or Holders of a majority of the then
outstanding Registrable Securities (on a Common Stock equivalent basis) shall
be entitled to unlimited additional demand registrations if such additional
demand registrations would be eligible for registration on Form S-3 (after the
Company qualifies for Form S-3, provided that in the case of any individual
such demand registration the aggregate gross proceeds from such S-3 demand
registration would exceed $500,000, if all registered shares thereunder were
sold); provided, however, that there shall be no more than two (2) such
registrations in any twelve (12) month period.
Upon receipt of any request for registration pursuant to this Section
3 from the Securityholder or any Holder or Holders of Registrable Securities,
the Company shall promptly (but in any event within 20 days) give written
notice of such request to all other Holders. The Company shall include in the
requested registration all Registrable Securities requested to be included by
such of the other Holders who shall make such request by written notice to the
Company delivered within 30 days of their receipt of the Company's notice. If
the Company shall receive a request for inclusion in the registration of the
Registrable Securities of additional Holders, it shall promptly so inform in
writing the Person or Persons who made the initial request for registration.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
the proposed public offering advises the Holder or Holders intending to
participate in such proposed public offering in writing that the total amount
or kind of securities which such Holder or Holders intends to include in such
proposed public offering is sufficiently large to materially adversely affect
the success of the proposed public offering, then the amount
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<PAGE>
or kind of securities to be offered for the accounts of all Holders whose
securities are included in such Registration Statement shall be reduced (on a
pro rata basis in the case of more than one such Holder) to the extent
necessary to reduce the total amount or kind of securities to be included in
such proposed public offering to the amount or kind recommended by such
managing underwriter or underwriters. The Company shall not register any
securities other than Registrable Securities in any demand registration
effected pursuant to this Section 3(a), except pursuant to Section 3(c) or with
the prior written consent of the Securityholder (if it is participating in such
offering) or, if the Securityholder is not participating in such offering, the
Holders of a majority of the Registrable Securities (on a Common Stock
equivalent basis) being sold pursuant to such offering.
A Holder (including the Securityholder) or Holders requesting a
registration pursuant to this Section 3 may, at any time prior to the effective
date of the Registration Statement relating to such registration, revoke such
request by providing a written notice to the Company revoking such request. The
Company shall be required to pay all Registration Expenses with respect to the
first demand for registration to be revoked. If a Holder (including the
Securityholder) or Holders thereafter shall revoke any demand for registration,
such Holder (including the Securityholder) or Holders, at their option, shall
either pay all out-of-pocket Registration Expenses with respect to such revoked
demand or count such revoked demand as one of the demands for registration to
which Holders are entitled pursuant to this Section 3.
(b) Effectiveness of Registration Statement. The Company agrees to use
its best efforts to (i) cause the Registration Statement relating to any demand
registration pursuant to this Section 3 to become effective as expeditiously as
possible; (ii) thereafter keep such Registration Statement effective
continuously for the period specified in the next succeeding paragraph and to
permit the sale of such Registrable Securities in accordance with the intended
method or methods of distribution thereof; and (iii) prevent the happening of
any event of the kinds described in clauses (4), (5) and (6) of Section
5(a)(ii).
A demand registration requested pursuant to this Section 3 will not be
deemed to have been effected unless the Registration Statement relating thereto
has become effective under the Securities Act and remained continuously
effective (except as otherwise permitted under this Agreement) for a period
ending on the earlier of (i) the date that is nine (9) months after the
effective date of such Registration Statement (subject to extension as provided
in the final paragraph of Section 5(a), Section 6(a) and Section 6(b)) and (ii)
the date on which all Registrable Securities covered by such Registration
Statement have been sold and the distribution contemplated thereby has been
completed; provided, however, that if, after such Registration Statement has
become effective, the offering of the Registrable Securities pursuant to such
registration is interfered with by any stop order, injunction or similar order
of the SEC or other governmental agency or court (other than by reason of any
untrue statement of a material fact or any omission of a material fact required
to be stated in the Registration Statement or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information or affidavit furnished in
writing by a Holder to the Company specifically for inclusion therein), such
registration will be deemed not to have been effected.
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<PAGE>
(c) Inclusion of Securities of Other Approved Holders. The Company and
any Other Approved Holder may include its securities in any demand registration
effected pursuant to this Section 3 that is not a Shelf Registration; provided,
however, that if the managing underwriter or underwriters of the proposed
public offering advises the Holder or Holders intending to participate in such
proposed public offering in writing that the total amount or kind of securities
which such Holders, the Company and such Other Approved Holders intend to
include in such proposed public offering is sufficiently large to materially
adversely affect the success of the proposed public offering requested by such
Holder or Holders, then the amount or kind of securities to be offered for the
accounts of the Other Approved Holders shall be reduced pro rata among such
Other Approved Holders to the extent necessary to reduce the total amount or
kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters and, if
such reduction results in no securities being offered for the accounts of the
Other Approved Holders in such proposed public offering, then the amount or
kind of securities to be offered for the account of the Company shall be
reduced to the extent necessary to reduce the total amount or kind of
securities to be included in such proposed public offering to the amount or
kind recommended by such managing underwriter or underwriters.
SECTION 4. PIGGYBACK REGISTRATION. If the Company at any time proposes
to file a registration statement with respect to any class of equity
securities, whether for its own account (other than in connection with the
Registration Statement contemplated by Section 3 or a registration statement on
Form S-4 or S-8 (or any successor or substantially similar form), or the
registration of (A) an employee stock option, stock purchase or compensation
plan or of securities issued or issuable pursuant to any such plan or (B) a
dividend reinvestment plan) or for the account of an Other Approved Holder (a
"Requesting Securityholder"), then the Company shall in each case give written
notice of such proposed filing to all Holders of Registrable Securities at
least 20 days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities held by such
Holders included in such registration statement. Each Holder of Registrable
Securities desiring to have its Registrable Securities registered under this
Section 4 shall so advise the Company in writing within 15 days after the date
of receipt of such notice (which request shall set forth the amount of
Registrable Securities for which registration is requested), and the Company
shall include in such Registration Statement all such Registrable Securities so
requested to be included therein on the same terms and conditions as the
securities being registered by the Company. Any Holder's request for such
inclusion may be withdrawn, in whole or in part, at any time prior to the
effective date of such Registration Statement. Notwithstanding the foregoing,
if the managing underwriter or underwriters of any such proposed public
offering advises the Company in writing that the total amount or kind of
securities which the Holders of Registrable Securities, the Company and the
Other Approved Holders intend to be included in such proposed public offering
is sufficiently large to materially adversely affect the success of such
proposed public offering, then the amount or kind of securities to be offered
for the accounts of Holders of Registrable Securities and the Other Approved
Holders shall be reduced pro rata to the extent necessary to reduce the total
amount or kind of securities to be included in such proposed public offering to
the amount or kind recommended by such managing underwriter or underwriters
before the securities offered by the Company or any Requesting Securityholder
are so reduced.
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<PAGE>
SECTION 5. REGISTRATION PROCEDURES.
(a) General. In connection with the Company's registration obligations
pursuant to Sections 3 and 4 hereof, the Company will, as expeditiously as
practicable:
(i) prepare and file with the SEC a new Registration Statement or
such amendments and post-effective amendments to an existing Registration
Statement as may be necessary to keep such Registration Statement
effective for the time periods set forth in Section 3(b), provided that no
Registration Statement shall be required to remain in effect after all
Registrable Securities covered by such Registration Statement have been
sold and distributed as contemplated by such Registration Statement, and
provided, further, that as soon as practicable, but in no event later than
three (3) Business Days before filing such Registration Statement, any
related Prospectus or any amendment or supplement thereto, other than any
amendment or supplement made solely as a result of incorporation by
reference of documents filed with the SEC subsequent to the filing of such
Registration Statement, the Company shall furnish to the Holders of the
Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed,
which documents shall be subject to the review of such Holders and
underwriters; the Company shall not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto (other than
any amendment or supplement made solely as a result of incorporation by
reference of documents filed with the SEC subsequent to the filing of such
Registration Statement) to which the managing underwriters of the
applicable offering, if any, or the Securityholder (if it is participating
in such offering) or the Holders of a majority of the Registrable
Securities (on a Common Stock equivalent basis) covered by such
Registration Statement shall have reasonably objected in writing within
three (3) Business Days after receipt of such documents to the effect that
such Registration Statement or amendment thereto or Prospectus or
supplement thereto does not comply in all material respects with the
requirements of the Securities Act (provided that the foregoing shall not
limit the right of any Holder whose Registrable Securities are covered by
a Registration Statement to reasonably object, within two (2) Business
Days after receipt of such documents, to any particular information that
is to be contained in such Registration Statement, amendment, Prospectus
or supplement that relates specifically to such Holder, including any
information describing the manner in which such Holder acquired such
Registrable Securities and the intended method or methods of distribution
of such Registrable Securities), and if the Company is unable to file any
such document due to the objections of such underwriters, the
Securityholder or such Holders, the Company shall use its best efforts to
cooperate with such underwriters, the Securityholder and Holders to
prepare, as soon as practicable, a document that is responsive in all
material respects to the reasonable objections of such underwriters, the
Securityholder and Holders; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424; and comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution
by the sellers thereof set forth in such Registration Statement,
Prospectus or supplement to the Prospectus (it being understood
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<PAGE>
that the Company shall not be deemed to have used its best efforts to keep
a Registration Statement effective during the applicable period if any
action is taken by the Company that would result in Holders of the
Registrable Securities covered thereby not being able to sell such
Registrable Securities during that period unless such action is required
under applicable law or is contemplated under the last paragraph of
Section 5(a), Section 6(a) or Section 6(b));
(ii) notify the selling Holders of Registrable Securities and the
managing underwriters, if any, promptly (providing confirmation in
writing) (1) when a new Registration Statement, Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to any new Registration Statement or post-effective
amendment, when it has become effective, (2) of any request by the SEC for
amendments or supplements to any Registration Statement or Prospectus or
for additional information, (3) of the issuance by the SEC of any comments
with respect to any filing, (4) of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose, (5) in the case of an Underwritten Offering,
if at any time the representations and warranties of the Company
contemplated by paragraph (xi) below cease to be true and correct as of
any time they are required to be true and correct, (6) of any suspension
of the qualification or registration (or exemption therefrom) of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (7) of the happening of
any event which makes any statement of a material fact made in any
Registration Statement, Prospectus or any document incorporated therein by
reference untrue or which requires the making of any changes in any
Registration Statement, Prospectus or any document incorporated therein by
reference so that it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement, in the light of the circumstances under which they were made)
not misleading; and make every reasonable effort to obtain as soon as
possible the withdrawal of any order or other action suspending the
effectiveness of any Registration Statement or suspending the
qualification or registration (or exemption therefrom) of the Registrable
Securities for sale in any jurisdiction;
(iii) if reasonably requested by the managing underwriter or
underwriters or a Holder of Registrable Securities being sold in
connection with an Underwritten Offering, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters, the Securityholder (if it is participating in such
offering) and the Holders of a majority of the Registrable Securities (on
a Common Stock equivalent basis) being sold in such Underwritten Offering
reasonably agree should be included therein relating to the sale of the
Registrable Securities, including information with respect to the
aggregate number of shares of Registrable Securities being sold to such
underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the Underwritten Offering of the
Registrable Securities to be sold in such offering; and promptly make all
required filings of such Prospectus supplement or post-effective
amendment;
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<PAGE>
(iv) promptly after the filing of any document which is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders of the Registrable
Securities covered thereby and the underwriters, if any;
(v) promptly after the filing of such documents with the SEC,
furnish to each selling Holder of Registrable Securities and each managing
underwriter, if any, without charge, at least one manually signed or
"edgarized" copy (but not to exceed five manually signed copies of any
document to all selling Holders and underwriters in the aggregate), and as
many conformed copies as may reasonably be requested, of the then
effective Registration Statement and any post-effective amendments
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those
previously furnished or incorporated by reference);
(vi) deliver to each selling Holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the then
effective Prospectus (including each prospectus subject to completion) and
any amendments or supplements thereto as such Persons may reasonably
request; subject to the last paragraph of this Section 5(a), the Company
consents to the use of any such Prospectus or any amendment or supplement
thereto by the Holders and the underwriters, if any, in connection with
the offering and sale of the Registrable Securities covered by any such
Prospectus or any amendment or supplement thereto;
(vii) register or qualify (or obtain exemption therefrom) or
cooperate with the selling Holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption therefrom) of such Registrable
Securities for the offer and sale under the securities or blue sky laws of
such jurisdictions as any selling Holder of Registrable Securities or
underwriter, if any, reasonably requests in writing; use its best efforts
to keep each such registration or qualification (or exemption therefrom)
effective during the period during which such registration statement is
required to be kept effective pursuant to this Agreement; and do any and
all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the then effective Registration Statement; provided, however, that the
Company will not be required to qualify to do business in any jurisdiction
where it would not otherwise be required to qualify, but for this
paragraph (vii);
(viii) cooperate with the selling Holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and enable
such Registrable Securities to be in such denominations and registered in
such names as the managing underwriters may request at least two (2)
Business Days prior to any sale of Registrable Securities to the
underwriters;
(ix) upon the occurrence of any event contemplated by clause (7)
of paragraph (ii) above, promptly prepare a supplement or post-effective
amendment to the
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<PAGE>
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; if any event
described in clause (2) of paragraph (ii) above occurs, use its best
efforts to cooperate with the SEC to prepare, as soon as practicable, any
amendment or supplement to such Registration Statement or such related
Prospectus and any other additional information, or to take other action
that may have been requested by the SEC;
(x) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange (or quotation system
operated by a national securities association) on which identical
securities issued by the Company are then listed (or included) if
requested by the Securityholder (if it is participating in such offering)
or the Holders of a majority of the Registrable Securities (on a Common
Stock equivalent basis) covered by such Registration Statement or the
managing underwriters, if any, and enter into customary agreements
including, if necessary, a listing application and indemnification
agreement in customary form, and provide a transfer agent for such
Registrable Securities no later than the effective date of such
Registration Statement;
(xi) enter into customary agreements (including in the case of an
Underwritten Offering, an underwriting agreement in customary form for the
managing underwriters with respect to issuers of similar market
capitalization and reporting and financial histories) and take all such
other actions in connection therewith in order to expedite or facilitate
the disposition of such Registrable Securities included in such
Registration Statement, in each case, in connection with an Underwritten
Offering, as the underwriters determine is reasonable and customary, and
in connection therewith, (1) make such representations and warranties to
the Holders of such Registrable Securities and each of the underwriters in
such form, substance and scope as are customarily made by issuers to
underwriters in secondary underwritten offerings; (2) obtain opinions of
counsel to the Company addressed to each selling Holder of such
Registrable Securities and to each of the underwriters and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the underwriters and the selling Holders of
such Registrable Securities and shall cover the matters customarily
covered in opinions requested in secondary underwritten offerings and such
other matters as may be reasonably requested by such Holders and
underwriters); (3) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company addressed to
each selling Holder of such Registrable Securities and each of the
underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings; (4) the underwriting agreement shall
contain indemnification and contribution provisions and procedures no less
favorable than those set forth in Section 8 hereof with respect to all
parties to be indemnified pursuant to Section 8; and (5) the Company shall
deliver such documents and certificates as may be reasonably requested by
the selling Holders of such Registrable Securities and the managing
underwriters to evidence
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<PAGE>
compliance with clause (1) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company in respect of the relevant offering;
(xii) provide a CUSIP number for the Registrable Securities no
later than the effective date of such registration statement;
(xiii) in the case of any nonunderwritten offering: (1) obtain
opinions of counsel to the Company at the time of effectiveness of such
Registration Statement covering such offering and updates thereof of
customary frequency, addressed to each Holder of any Registrable
Securities participating in such offering and covering matters that are no
more extensive in scope than would be customarily covered in opinions
obtained in secondary underwritten offerings by issuers with similar
market capitalization and reporting and financial histories; (2) obtain
"cold comfort" letters from the independent certified public accountants
of the Company at the time of effectiveness of such Registration Statement
and, upon the request of the Securityholder (if it is participating in
such offering) or the Holders of a majority of the Registrable Securities
(on a Common Stock equivalent basis) covered by such Registration
Statement, updates thereof of customary frequency, in each case addressed
to each Holder of Registrable Securities participating in such offering
and covering matters that are no more extensive in scope than would be
customarily covered in "cold comfort" letters and updates obtained in
secondary underwritten offerings by issuers with similar market
capitalization and reporting and financial histories; and (3) deliver a
certificate of a senior executive officer of the Company at the time of
effectiveness of such Registration Statement and, upon the request of the
Securityholder (if it is participating in such offering) or the Holders of
a majority of the Registrable Securities (on a Common Stock equivalent
basis) covered by such Registration Statement, updates thereof of
customary frequency, such certificates to cover matters no more extensive
in scope than those matters customarily covered in officer's certificates
delivered in connection with underwritten offerings by issuers with
similar market capitalization and reporting and financial histories;
(xiv) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC relating to such registration and the
distribution of the securities being offered and make generally available
to its securities holders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act, no later than 60 days after the end
of any 12-month period (or 120 days, if such period is a fiscal year)
commencing at the end of any fiscal quarter in which the Registrable
Securities are sold to underwriters in a firm commitment or best efforts
underwritten offering, or, if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of such Registration
Statement, which earnings statements shall cover such 12-month periods;
(xv) cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc. and in the
performance of any customary or required due diligence investigation;
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<PAGE>
(xvi) make available for inspection by the Holders of the
Registrable Securities covered by such Registration Statement, any
underwriter participating in any disposition pursuant to such
registration, and any attorney, accountant or other representative
retained by such sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information
reasonably requested by, and to cooperate fully with, any such
representative, underwriter, attorney or accountant in connection with
such registration;
(xvii) subject to the proviso in paragraph (vii) above, cause the
Registrable Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be reasonably necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of such
Registrable Securities; and
(xviii) use its best efforts to take all action necessary or
advisable to effect such registration in the manner contemplated by this
Agreement.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(a)(ii) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities (but,
in the case of an event described in Section 5(a)(ii)(6), in the affected
jurisdiction or jurisdictions only) pursuant to the then current Prospectus
until (1) such Holder is advised in writing by the Company that a new
Registration Statement covering the offer of Registrable Securities has become
effective under the Securities Act or (2) such Holder receives copies of a
supplemented or amended Prospectus contemplated by this Section 5(a), or until
such Holder is advised in writing by the Company that the use of the Prospectus
may be resumed. If the Company shall have given any such notice during a period
when a demand registration is in effect, the Company shall extend the period
during which such registration statement shall be maintained effective pursuant
to this Agreement by the number of days during which any such disposition of
Registrable Securities is discontinued pursuant to this paragraph. The Company
shall use its best efforts to limit the duration of any discontinuance with
respect to the disposition of Registrable Securities pursuant to this
paragraph.
(b) Additional Procedures for Shelf Registration. If the Holders
become entitled, pursuant to an event described in clause (ii) of the
definition of Registrable Securities, to receive any securities in respect of
Registrable Securities that were already included in a Shelf Registration
Statement, subsequent to the date such Shelf Registration Statement is declared
effective, and the Company is unable under the securities laws to add such
securities to the then-effective Shelf Registration Statement, the Company, as
promptly as practicable, shall file, in accordance with the procedures more
particularly set forth in Section 5(a), an additional Shelf
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Registration Statement with respect to any such new Registrable Securities. The
Company shall use its best efforts to have any such additional Registration
Statement declared effective as promptly as practicable after such filing and
to keep such additional Shelf Registration Statement continuously effective
during the period specified in Section 3(b). A request to file an additional
Shelf Registration Statement pursuant to this paragraph shall not constitute a
demand under Section 3(a).
SECTION 6. HOLDBACK AGREEMENTS.
(a) Hold-Back Election. Subject to Section 6(c), in the case of the
registration of any underwritten primary offering initiated by the Company
(other than any registration by the Company on Form S-4 or Form S-8 (or any
successor or substantially similar form), or the registration of (A) an
employee stock option, stock purchase or compensation plan or of securities
issued or issuable pursuant to any such plan or (B) a dividend reinvestment
plan) or any underwritten secondary offering initiated at the request of an
Other Approved Holder, each Holder agrees, if and to the extent requested in
writing by the managing underwriter or underwriters administering such offering
as promptly as reasonably practicable prior to the commencement of the 10-day
period referred to below (a "Hold-Back Election"), not to effect any public
sale or distribution of securities of the Company except as part of such
underwritten registration, during the period beginning 10 days prior to the
effective date of the applicable registration statement relating to such
underwritten offering and ending on the earlier of (i) 90 days after such
effective date and (ii) the date such sale or distribution is permitted by such
managing underwriter or underwriters. In the event such managing underwriter or
underwriters shall exercise a Hold-Back Election during a period when a
Registration Statement filed pursuant to Section 3 is in effect, the time
period specified in Section 3(b) during which such Registration Statement is
required to be kept effective shall be extended by the number of days during
which the Holders are prohibited by such underwriter or underwriters from
publicly selling or distributing their securities. Notwithstanding the
foregoing provisions of this Section 6(a), no Holder shall be obligated to
refrain from making any public sale or distribution of securities of the
Company in the case of any underwritten secondary offering initiated at the
request of any Person who has not agreed in writing to expressly recognize and
give effect to the Holders' rights under this Section 6(a), and to be subject
to provisions that are at least as favorable to the Holders as the provisions
contained in this Section 6(a) are to such holder.
(b) Material Development Election. Subject to Section 6(c), the
Company shall be entitled, for a period of time not to exceed 90 consecutive
days, to postpone the filing of any Registration Statement otherwise required
to be prepared and filed by it pursuant to Section 3 and/or to request that the
Holders refrain from effecting any public sales or distributions of their
Registrable Securities if the board of directors of the Company in good faith
determines in its reasonable business judgment that such registration and/or
such public sales or distributions would interfere in any material respect with
any financing (other than an underwritten secondary offering of any securities
of the Company), acquisition, corporate reorganization or other transaction or
development involving the Company or any subsidiary of the Company that in the
reasonable good faith business judgment of such board is a transaction or
development that is or would be material to the Company (a "Material
Development Election"). The board of directors of the Company shall, as
promptly as practicable, give the Holders written notice of
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<PAGE>
any such Material Development Election. In the event of a determination by the
board of directors to postpone the filing of a Registration Statement required
to be filed under Section 3 hereof, the Company shall be required to file such
Registration Statement as soon as practicable after the board of directors of
the Company shall determine, in its reasonable business judgment, that the
filing of such Registration Statement and the offering thereunder shall not
interfere with the aforesaid material transaction or development, but in any
event no later than the end of such 90-day period. In addition, if the board of
directors of the Company has requested that the Holders refrain from making
public sales or distributions of their Registrable Securities, such board
shall, as promptly as practicable following its determination that the Holders
may recommence such public sales and distributions, notify such Holders in
writing of such determination (but in any event no later than the end of such
90-day period). In the event the Company shall exercise a Material Development
Election during a period when a Registration Statement filed pursuant to
Section 3 is in effect, the time period specified in Section 3(b) during which
such Registration Statement is required to be kept effective shall be extended
by the number of days during which the Holders are prohibited by the Company
from publicly selling or distributing their securities.
(c) Hold-Back Limitation. In no event shall the restrictions under
Section 6(a) or Section 6(b), pursuant to one or more Hold-Back Elections or
Material Development Elections, remain in effect for more than 90 days in the
aggregate in any calendar year.
(d) Company Hold-Back. In the case of each underwritten offering of
Registrable Securities pursuant to Section 3, including under any Shelf
Registration Statement, the Company agrees, if and to the extent requested in
writing by the managing underwriter or underwriters administering such offering
as promptly as reasonably practicable prior to the commencement of the 10-day
period referred to below, not to effect any public sale or distribution (other
than sales pursuant to the same Registration Statement, as permitted under this
Agreement, or any registration by the Company on Form S-4 or S-8 (or any
successor or substantially similar form) or the registration of (A) an employee
stock option, stock purchase or compensation plan or of securities issued or
issuable pursuant to any such plan or (B) a dividend reinvestment plan) of any
securities of the Company during the period beginning 10 days prior to the
effective date of the applicable registration statement relating to such
underwritten offering of Registrable Securities and ending on the earlier of
(i) 90 days after such effective date and (ii) the date such sale or
distribution is permitted by such managing underwriter or underwriters. Any
agreement entered into after the date of this Agreement pursuant to which the
Company issues or agrees to issue any privately placed securities similar to
any issue of the Registrable Securities shall contain a provision under which
holders of such securities agree not to effect any public sale or distribution
of any such securities during the period described in the next preceding
sentence.
SECTION 7. REGISTRATION EXPENSES. All expenses incident to the
Company's performance of or compliance with this Agreement, including all
registration and filing fees, fees and expenses of compliance with securities
or blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications or registrations (or the obtaining of
exemptions therefrom) of the Registrable Securities), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses
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(including all salaries and expenses of its officers and employees performing
legal or accounting duties), fees and disbursements of its counsel and its
independent certified public accountants (including the expenses of any special
audit or "comfort" letters required by or incident to such performance or
compliance), securities acts liability insurance (if the Company elects to
obtain such insurance), fees and expenses of any special experts retained by
the Company in connection with any registration hereunder, fees and expenses of
other Persons retained by the Company, fees and expenses of one counsel for the
Holders, selected by the Securityholder (if it is participating in such
offering) or, if the Securityholder is not participating in such offering, by
the Holders of a majority of the Registrable Securities (on a Common Stock
equivalent basis) being sold pursuant to such registration, incurred in
connection with each registration hereunder, and reasonable out-of-pocket
expenses incurred by the Holders (except as set forth in the proviso hereafter)
(all such expenses being referred to as "Registration Expenses"), shall be
borne by the Company, whether or not any registration statement becomes
effective (subject, however, to the provisions of Section 3(a)); provided that
Registration Expenses shall not include any underwriting discounts, commissions
or fees attributable to the sale of the Registrable Securities.
SECTION 8. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless, to the full extent permitted by law, but without duplication,
each Holder of Registrable Securities, its officers, directors, employees,
partners, principals, equity holders, managed or advised accounts, advisors,
representatives and agents, and each Person who controls such Holder or such
other Persons (within the meaning of the Securities Act) and any investment
advisor thereof or agent therefor, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) arising out of or based upon any untrue or
alleged untrue statement of a material fact in, or any omission or alleged
omission of a material fact required to be stated in, any Registration
Statement or any Prospectus, or necessary to make the statements therein (in
the case of a Prospectus, in light of the circumstances under which they were
made) not misleading, except in each case insofar, but only insofar, as the
same arises out of or is based upon an untrue statement or alleged untrue
statement of a material fact or an omission or alleged omission to state a
material fact in such Registration Statement or Prospectus, as the case may be,
made or omitted, as the case may be, in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use
therein. The Company shall also indemnify underwriters of the Registrable
Securities, selling brokers, dealer managers and similar securities industries
professionals participating in the distribution, and their officers, directors,
employees, partners, principals, equity holders, advisors, representatives and
agents, and each Person who controls such underwriters or other Persons (within
the meaning of the Securities Act), to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities and
other specified Persons. This indemnity is in addition to any liability that
the Company may otherwise have.
(b) Indemnification by Holders of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, each such Holder shall furnish to the Company in
writing such information and affidavits with respect to such Holder as the
Company reasonably requests for use in connection with such Registration
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<PAGE>
Statement or any Prospectus, and shall indemnify and hold harmless, to the full
extent permitted by law, but without duplication, the Company, its officers,
directors, shareholders, employees, advisors, representatives and agents, and
each Person who controls the Company or such other Persons (within the meaning
of the Securities Act) and any investment advisor thereof or agent therefor,
against any losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and reasonable legal fees and expenses)
arising out of or based upon any untrue or alleged untrue statement of a
material fact in, or any omission or alleged omission of a material fact
required to be stated in, the Registration Statement or any Prospectus, or
necessary to make the statements therein (in the case of a Prospectus, in light
of the circumstances under which they were made) not misleading, in each case
to the extent, but only to the extent, that the same arises out of or is based
upon an untrue statement or alleged untrue statement of a material fact or an
omission or alleged omission to state a material fact in such Registration
Statement or Prospectus, as the case may be, made or omitted, as the case may
be, in reliance upon and in conformity with written information furnished to
the Company by such Holder expressly for use therein. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industries professionals participating in the
distribution, to the same extent as provided above with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus or Registration Statement. Notwithstanding any other provision
hereof to the contrary, in no event shall the liability of any selling Holder
of Registrable Securities hereunder be greater in amount than the dollar amount
of the net proceeds actually received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification under this Section 8 will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party; provided,
however, that any Person entitled to indemnification hereunder shall have the
right to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of
such indemnified Person unless (A) the indemnifying party has agreed to pay
such fees or expenses, (B) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to the
indemnified party in a timely manner or (C) in the reasonable judgment of any
such Person, based upon advice of its counsel, a conflict of interest may exist
between such Person and the indemnifying party with respect to such claims (in
which case, if the Person notifies the indemnifying party in writing that such
Person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Person). The indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld or delayed). No indemnified party
will be required to consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, as well as
one local counsel in each relevant jurisdiction.
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<PAGE>
(d) Contribution. If for any reason the indemnification provided for
in Section 8(a) or Section 8(b) is unavailable to an indemnified party, then
the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by the indemnified party as a result
of such loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party and the indemnified party, but also the relative fault of
the indemnifying party and the indemnified party in connection with the actions
that resulted in such loss, claim, damage, liability or expense, as well as any
other relevant equitable considerations, provided that no indemnifying Holder
shall be required to contribute an amount greater than the dollar amount of the
net proceeds actually received by such indemnifying Holder with respect to the
sale of the Registrable Securities giving rise to such contribution obligation.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth herein,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. The parties hereto agree that
it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in this paragraph. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentations.
SECTION 9. RULES 144 AND 144A. The Company shall use its best efforts
to make publicly available and available to the Holders, pursuant to Rule 144,
such information as is necessary to enable the Holders to make sales of
Registrable Securities pursuant to that Rule. The Company shall use its best
efforts to file timely with the SEC all documents and reports required of the
Company under the Exchange Act. The Company shall furnish to any Holder, upon
request, a written statement executed on behalf of the Company as to compliance
with the current public information requirements of Rule 144. In addition, the
Company will provide to any Holder of a Registrable Security, or any potential
purchaser of a Registrable Security, upon any such Person's reasonable request,
the information required by paragraph (d)(4) of Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) If any of the Registrable Securities covered by a demand
registration hereunder are to be sold in an Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Securityholder (if it is
participating in such offering) or, if such Securityholder is not so
participating in such offering, the Holders of a majority of the Registrable
Securities (on a Common Stock equivalent basis) included in such offering;
provided that such investment bankers and managers must be reasonably
satisfactory to the Company, acting in good faith.
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<PAGE>
(b) No Person may participate in any Underwritten Offering hereunder
unless such Person (i) agrees to sell such Person's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements.
Nothing in this Section 10 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
SECTION 11. NO INCONSISTENT AGREEMENTS. The Company (i) except as set
forth on Schedule 11 attached hereto, has not previously entered into any
agreement or understanding that is still in effect on the date hereof pursuant
to which it has granted registration or similar rights to any Person who holds
any of its securities and (ii) shall not enter into any agreement or
understanding (x) with respect to registration or similar rights on any of its
securities with any Person other than an Other Approved Holder or (y) which is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof.
SECTION 12. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this Section 12, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of the
Securityholder (if the Securityholder then holds any Registrable Securities)
and the Holders of a majority of the Registrable Securities (on a Common Stock
equivalent basis) then outstanding. Whenever the consent or approval of Holders
of a specified number of Registrable Securities is required hereunder,
Registrable Securities held by the Company or any of its Affiliates (other than
Holders of Registrable Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required number.
SECTION 13. REMEDIES. Each Holder having rights under any provision of
this Agreement shall be entitled to enforce such rights specifically or to
recover damages or to exercise any other remedy available to it at law or in
equity. The foregoing rights and remedies shall be cumulative and the exercise
of any right or remedy provided herein shall not preclude any Person from
exercising any other right or remedy provided herein. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
SECTION 14. NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier or air-courier guaranteeing overnight delivery:
(a) If to a Holder of Registrable Securities, at the most current
address given by such Holder to the Company, in accordance with the
provisions of this Section 14, which address initially is, with respect to
each Holder, c/o American International Insurance Company, attention:
Ernest Hanson, telecopier no. (302) 762-7451; confirm
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<PAGE>
no. (302) 761-3499, with a copy to American International Group, Inc., 70
Pine Street, New York, New York 10270, attention: Florence A. Davis;
telecopier no. (212) 785- 1584; confirm no. (212) 770-5457, and thereafter
at such other address as may be designated from time to time by notice
given in accordance with the provisions of this Section 14.
(b) If to the Company, initially at 11 Oval Drive, Islandia, New
York 11722, attention: Joseph M. Lively; telecopier no. (516) 342-1550;
confirm no. (516) 342-1515, and thereafter at such other address as may be
designated from time to time by notice given in accordance with the
provisions of this Section 14.
(c) All such notices and other communications shall be deemed to
have been delivered and received (i) in the case of personal delivery,
telecopier or telegram, on the date of such delivery, (ii) in the case of
air courier, on the Business Day after the date when sent and (iii) in the
case of mailing, on the third Business Day following such mailing.
SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto, including and without the need for an express assignment to
subsequent Holders of the Registrable Securities who cannot freely transfer
their shares in the absence of registration under the Securities Act.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 17. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. The use of the word "including" herein shall be interpreted to
mean "including, without limitation," unless the context clearly requires
another interpretation.
SECTION 18. GOVERNING LAW. This Agreement shall be deemed to be a
contract made under and shall be governed by and construed in accordance with
the internal laws of the State of New York without reference to the principles
of conflict of laws.
SECTION 19. JURISDICTION; FORUM. Each party hereto consents and
submits to the jurisdiction of any state court sitting in the County of New
York or federal court sitting in the Southern District of the State of New York
in connection with any dispute arising out of or relating to this Agreement.
Each party hereto waives any objection to the laying of venue in such courts
and any claim that any such action has been brought in an inconvenient forum.
To the extent permitted by law, any judgment in respect of a dispute arising
out of or relating to this Agreement may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a certified copy
of such judgment being conclusive evidence of the fact and amount of such
judgment. Each party hereto agrees that personal service of process may
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<PAGE>
be effected by any of the means specified in Section 14, addressed to such
party. The foregoing shall not limit the rights of any party to serve process
in any other manner permitted by law.
SECTION 20. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
SECTION 21. ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter, whether written or oral.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ALCOHOL SENSORS
INTERNATIONAL, LTD.
By: /s/ Robert B. Whitney
---------------------------
Name: Robert B. Whitney
Title: President & CEO
AMERICAN INTERNATIONAL
INSURANCE COMPANY
By: /s/ Edward E. Matthews
---------------------------
Name: Edward E. Matthews
Title: Senior Vice President & Director
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<PAGE>
Schedule 11: Other Registration Rights Agreements
-------------------------------------------------
None
<PAGE>
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT dated as of December 20, 1996 among:
A. ROBERT B. WHITNEY, STEVEN A. MARTELLO, JOHN T. RUOCCO, MICHAEL A.
SYLVESTER and JOSEPH M. LIVELY (each, an "Existing Shareholder" and,
collectively, the "Existing Shareholders");
B. AMERICAN INTERNATIONAL INSURANCE COMPANY, a New York corporation
(the "Investor"); and
C. ALCOHOL SENSORS INTERNATIONAL, LTD., a New York corporation (the
"Company").
RECITALS:
1. Pursuant to the Purchase Agreement (as defined below), the Investor
has agreed to purchase from the Company, and the Company has agreed to issue
and sell to the Investor, shares of the Company's Series A Cumulative
Non-redeemable Convertible Preferred Stock, par value $0.001 per share (the
"Series A Preferred Stock"), and certain warrants of the Company (the
"Warrants") exercisable into shares of the Company's Common Stock, par value
$0.001 per share (the "Common Stock"), all in accordance with the terms and
conditions of the Purchase Agreement.
2. As of the Effective Date (as defined below), each of the Existing
Shareholders owns the number of shares of Common Stock and the number of
options exercisable for Common Stock, respectively, specified with respect to
such individual on Schedule I attached hereto, and such shares, as of the
Effective Date, represent the percentage ownership of all of the Capital Stock
of the Company on a fully diluted basis (assuming, for this purpose only, that
all Capital Stock of the Company that is convertible or exercisable into or
exchangeable for Common Stock has been so converted, exercised or exchanged in
full) as specified with respect to such individual on Schedule I.
3. It is a condition precedent to the consummation of the transactions
under the Purchase Agreement that the parties hereto enter into this Agreement.
4. The parties hereto desire to set forth their mutual agreements and
understandings with respect to, among other things, certain of their respective
rights, duties and obligations and certain transactions and arrangements in
respect of the Company, the Capital Stock of the Company and related matters.
<PAGE>
NOW, THEREFORE, the parties hereto, intending legally to be bound,
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS AND INTERPRETATION. (a) As used in this Agreement,
the following terms shall have the following meanings:
"Affiliate": of any specified Person means any other Person directly
or indirectly Controlling or Controlled by or under direct or indirect common
Control with such specified Person.
"Agreement": this Shareholders Agreement, together with all Schedules
and Exhibits hereto, as the same may be amended, supplemented or modified in
accordance with the terms hereof from time to time.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all rights, warrants or options to purchase any of the foregoing.
"Confidential Material": confidential records and information,
including, but not limited to, development, marketing, purchasing,
organizational, strategic, financial, managerial, administrative,
manufacturing, production, distribution and sales information, data,
specifications and processes presently owned or at any time hereafter developed
by the Company, any of its Subsidiaries or their respective officers,
employees, agents, consultants or Affiliates or used presently or at any time
hereafter in the course of the business of the Company or any of its
Subsidiaries, that are not otherwise part of the public domain.
"Control": (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Effective Date": the date of this Agreement.
"Exempt Transfer": with respect to each Existing Shareholder, a direct
or indirect Transfer of Common Stock to another Existing Shareholder, provided
that prior to each such Transfer the Company and each Shareholder not a party
to such proposed Transfer shall have received in writing the information
required in a Transfer Notice with respect to such Transfer from the proposed
transferor.
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"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
or any other regulatory authority.
"Investor Holder": the Investor and each Person that has purchased or
otherwise acquired shares of Series A Preferred Stock from the Investor or
another Investor Holder.
"Involuntary Transfer": a Transfer or proposed Transfer by an Existing
Shareholder by reason of (i) death, (ii) long-term disability or (iii)
termination of employment with the Company by the Company.
"Person": any individual, company, corporation, partnership, limited
liability company, trust, division, Governmental Authority or other entity.
"Public Transfer": a public Transfer by an Existing Shareholder of
Capital Stock of the Company pursuant to Rule 144, as amended, under the
Securities Act or an effective registration statement relating to such Capital
Stock.
"Purchase Agreement": the Convertible Preferred Stock and Warrant
Purchase Agreement dated as of December 20, 1996 between the Investor and the
Company.
"Registration Rights Agreement": the Registration Rights Agreement
dated as of the date hereof between the Investor and the Company.
"Related Documents": the Purchase Agreement and any and all
instruments, documents or agreements referred to therein or related thereto,
including, without limitation, the Warrant Certificate (as such term is defined
in the Purchase Agreement) and the Registration Rights Agreement.
"Related Transferee": as to any Existing Shareholder, a Transferee
that (i) has purchased or otherwise acquired shares of Capital Stock of the
Company from such Existing Shareholder and (ii) is a spouse, parent, sibling,
child, stepchild or grandchild of such Existing Shareholder or a trust which is
for the benefit of such a Person or Persons, or is an Affiliate of such
Existing Shareholder.
"Requirement of Law": as to any Person, the articles or certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, statute, treaty, rule or regulation, order or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property, or
to which such Person or any of its property is subject.
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"Securities Act": the Securities Act of 1933, as amended.
"Shareholder": each of the following Persons: each of the Existing
Shareholders, the Investor and each other Person that becomes a party to this
Agreement from time to time pursuant to Section 3.1(b) hereof.
"Stock Option Issuance": the issuance by the Company to employees,
directors or consultants pursuant to the Company's 1996 Stock Option Plan or
another similar plan hereafter approved by the Board of Directors of the
Company, of (A) options to acquire Common Stock not to exceed (x) 300,000
shares of Common Stock in the aggregate in any fiscal year of the Company and
(y) 600,000 shares of Common Stock in the aggregate and (B) Common Stock upon
the exercise of such options. The number of shares of Common Stock specified in
this definition shall be adjusted for stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences.
"Subsidiary": as to any Person, any entity (whether now existing or
hereafter formed or acquired) of which shares of each class of Capital Stock
having ordinary voting power (other than Capital Stock having such power only
by reason of the happening of a contingency) to elect a majority of the board
of directors or other managers of such entity are at the time owned by such
Person or by one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person. The Company's Subsidiaries shall include,
without limitation, Alcohol Sensors Europe, plc, a British Company.
"Transfer": with respect to any Capital Stock, (a) any sale,
assignment or transfer of such Capital Stock or any right or interest therein;
(b) any pledge or hypothecation of such Capital Stock or any interest therein;
(c) any grant, sale or other transfer of securities convertible or exchangeable
into or exercisable for or other options, warrants or rights to acquire such
Capital Stock or any interest therein; and (d) any other direct or indirect
transfer of such Capital Stock or any interest therein.
"Transfer Notice": as defined in Section 3.2(a).
"Transferee": as defined in Section 3.1(b) hereof.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, Section,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(c) The meanings given to terms defined herein shall be equally applicable
to the singular and plural forms of such terms.
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ARTICLE II
VOTING AGREEMENT AND RELATED MATTERS
2.1 DESIGNEE TO THE BOARD OF DIRECTORS. (a) As specified in the
Company's Certificate of Incorporation, as amended from time to time (the
"Certificate of Incorporation"), a copy of which is attached hereto as Exhibit
A, so long as at least 250,000 shares of Series A Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences), the holders of the Series A Preferred
Stock, voting separately as a class, shall have the special and exclusive right
to elect one director to the Board of Directors of the Company in accordance
with the terms and conditions set forth in the Certificate of Incorporation.
The Company agrees that it shall take all actions reasonably requested from
time to time by the holders of record of shares representing at least 51% of
the voting power of the Series A Preferred Stock then outstanding (the
"Majority Holders") in order to give full force and effect to and to carry out
the full intent of this paragraph (a) and Article Fourth, Section 7 of the
Certificate of Incorporation. The Shareholders agree to vote their shares of
Capital Stock of the Company in order to give full force and effect to and to
carry out the full intent of this paragraph (a) and Article Fourth, Section 7
of the Certificate of Incorporation.
(b) If, at any time, less than 250,000 shares of Series A Preferred
Stock are outstanding (as adjusted for stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences), but the Investor then
holds in excess of 166,666 shares of Common Stock (as adjusted for stock
splits, stock dividends, stock combinations, recapitalizations and like
occurrences), then the Investor shall have the special and exclusive right to
designate one director to the Board of Directors of the Company. The director
to be designated pursuant to this paragraph (b) may be removed with or without
cause by the Investor at any time. If the director designated by the Investor
pursuant to this paragraph (b) ceases to or is unable to continue in that
capacity, the Investor shall nominate a replacement director for election to
the Board of Directors of the Company. The Company agrees, for the purposes of
this paragraph (b), that it shall (w) nominate the Investor's designee to the
Board of Directors of the Company at each applicable meeting held to elect
members to the Board of Directors of the Company from time to time, (x) take
all actions to remove such director if requested by the Investor, (y) take all
actions to cause the Investor's nominee as a replacement director, if any, to
be elected from time to time and (z) take all other actions reasonably
requested from time to time by the Investor in order to give full force and
effect to and to carry out the full intent of this paragraph (b). The
Shareholders agree, for the purposes of this paragraph (b), to vote their
shares of Capital Stock of the Company in order to (i) elect the Investor's
designee to the Board of Directors of the Company from time to time, (ii)
oppose any and all attempts to remove such director without the consent of the
Investor, (iii) remove such director if requested by the Investor and (iv)
otherwise give full force and effect to and to carry out the full intent of
this paragraph (b).
2.2 REIMBURSEMENT OF EXPENSES. The Company shall promptly reimburse
the reasonable expenses (including, without limitation, reasonable travel
expenses) of any
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director elected to the Board of Directors of the Company pursuant to Section
2.1 hereof related to (x) attending meetings of (i) the Board of Directors of
the Company or any of its Subsidiaries of which such director is also a
director and (ii) any committee of the Board of Directors of the Company or any
such Subsidiary of which such director is a member and (y) the performance of
his or her duties as a director of the Company or any such Subsidiary or as a
committee member of the Board of Directors of the Company or any such
Subsidiary, to the extent not accounted for in clause (x) above.
2.3 NUMBER OF DIRECTORS. Each of the parties hereto agrees that it
shall not permit any increase in the number of directors on the Board of
Directors of the Company beyond such number of directors at the Effective Date
(after accounting for the director to be designated by the holders of Series A
Preferred Stock on the Effective Date pursuant to Section 2.1 hereof and the
Certificate of Incorporation), unless the prior written consent of the Investor
is obtained prior thereto, which consent shall not be unreasonably withheld or
delayed.
ARTICLE III
AGREEMENTS RELATING TO THE CAPITAL STOCK
OF THE COMPANY AND OTHER MATTERS
3.1 TRANSFER OF CAPITAL STOCK. (a) For the period beginning on the
Effective Date and ending on the date that is two years thereafter (the
"Restricted Period"), the Existing Shareholders severally agree with the
Company, the Investor and with each other Shareholder that they will not,
directly or indirectly, Transfer any Capital Stock of the Company (or any
interest therein), now or hereafter at any time owned by them, except that each
Existing Shareholder may Transfer, upon written notice to the Company, the
Investor and each other Shareholder, in accordance with applicable law: (i) any
Common Stock of the Company pursuant to an Involuntary Transfer; (ii) any
Common Stock of the Company for estate planning purposes to such Existing
Shareholder's spouse, parents, siblings, children, stepchildren or
grandchildren or to a trust which is for the benefit of such Existing
Shareholder or such Existing Shareholder's spouse, parents, siblings, children,
stepchildren or grandchildren; (iii) during the period from (and including) the
Effective Date through (but excluding) the date that is one year thereafter
(the "Initial Period"), any Common Stock which does not exceed five percent
(5%) of all of the Common Stock held by such Existing Shareholder on the
Effective Date; and (iv) during the period from (and including) the last day of
the Initial Period through (and including) the last day of the Restricted
Period, any Common Stock which does not exceed fifteen percent (15%) of all of
the Common Stock held by such Existing Shareholder on the Effective Date;
provided, however, that, in connection with any Transfer permitted under this
Section 3.1(a), prior to such Transfer, such Existing Shareholder shall comply
with Section 3.1(b) hereof.
(b) Any Transfer of Capital Stock of the Company by any Existing
Shareholder during the Restricted Period or at any time thereafter to a Related
Transferee shall not relieve the transferor of its obligations hereunder and
shall only be valid if the Person to whom such Capital Stock is Transferred (a
"Transferee"), prior to the Transfer, agrees in writing to be bound by the
terms of this Agreement as and to the same extent that the transferor
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was bound by this Agreement immediately prior to such Transfer. Any such
Transferee that agrees to be bound by the terms of this Agreement as provided
in this paragraph (b) shall be deemed, upon execution and delivery of such
agreement, to be a Shareholder hereunder. Each such Transferee shall be
entitled to all of the rights under this Agreement to which the transferor was
entitled immediately prior to such Transfer. Any purported Transfer without
obtaining this agreement by the Transferee shall be deemed void and of no
further effect and shall be governed by the provisions of paragraph (c) below.
The provisions of this paragraph (b) shall not apply in connection with a
Public Transfer by an Existing Shareholder.
(c) In the event a Transfer of any Capital Stock of the Company has
taken place or remains in place in violation of the provisions of this Article
III, such Transfer shall be void and of no effect, and no dividend of any kind
whatsoever nor any distribution pursuant to liquidation or otherwise shall be
paid by the Company or the related Shareholder to the Transferee in respect of
such Capital Stock (all such dividends and distributions being deemed waived),
and any voting rights of such Capital Stock on any matter whatsoever shall
remain vested in the transferor.
(d) The provisions of this Section 3.1 shall be in addition to, and
shall not in any way limit the application of, any other provision of this
Agreement.
3.2 TAG-ALONG RIGHTS. (a) If, at any time, any Existing Shareholder
and/or a Related Transferee or Related Transferees of such Existing Shareholder
(a "Section 3.2 Transferor") desires to Transfer any of its Common Stock in an
amount in excess of fifteen percent (15%) of all of the Common Stock held by
such Existing Shareholder on the Effective Date in one transaction or a series
of transactions to any Person or Persons (a "Section 3.2 Transferee"), except
pursuant to an Exempt Transfer or a Public Transfer, prior to any such
Transfer, such Section 3.2 Transferor shall promptly (and in any event at least
20 business days prior to the closing date thereof), provide each Investor
Holder (each, a "Prospective Participating Shareholder") with written notice of
the proposed Transfer (the "Transfer Notice") containing the following:
(i) the name and address of the proposed Section 3.2 Transferee;
(ii) the number of shares of Common Stock to be Transferred by such
Section 3.2 Transferor; and
(iii) the purchase price and other terms and conditions of payment and
the closing date for the proposed Transfer (including, when available, a
copy of any purchase agreement related thereto).
(b) If any of such Prospective Participating Shareholders (each, a
"Participating Shareholder") wishes to participate in such Transfer, each such
Participating Shareholder may notify the Section 3.2 Transferor by written
notice (the "Tag-Along Notice") on or before the expiration of 15 business days
following receipt of the Transfer Notice that such Participating Shareholder
desires to Transfer to the proposed Section 3.2 Transferee a part of its shares
of Capital Stock of the Company (as determined pursuant to the following
sentence)
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on the same terms and conditions set forth in the Transfer Notice. The
Tag-Along Notice shall specify the number of shares of such Capital Stock such
Participating Shareholder desires to Transfer (the "Tag-Along Amount"); for
purposes of making any determination or calculation pursuant to this Section
3.2, but for such purposes only, as of any date of determination or
calculation, all of the Capital Stock of the Company held by an Investor Holder
shall be deemed to have been fully converted, exercised or exchanged, to the
extent applicable, as of such date of determination or calculation. The maximum
number of shares of such Capital Stock that each such Participating Shareholder
separately shall be entitled to Transfer hereunder shall be determined by
multiplying the number of shares of such Capital Stock held by such
Participating Shareholder at the time of the Transfer Notice by a fraction, the
numerator of which is the number of shares of Common Stock proposed to be
Transferred to the Section 3.2 Transferee by the Section 3.2 Transferor and the
denominator of which is the number of shares of Common Stock then owned by the
Section 3.2 Transferor. If no Prospective Participating Shareholder provides
the Section 3.2 Transferor with a Tag-Along Notice within the period specified
above, the Section 3.2 Transferor shall be free to sell all or a portion of
such Common Stock to the Section 3.2 Transferee in the amount and on the same
terms and conditions set forth in the Transfer Notice, subject to paragraph (h)
below. If there is any Participating Shareholder(s), the Section 3.2 Transferor
may not effect such Transfer unless the Section 3.2 Transferee shall have
purchased the Tag-Along Amount or the Reduced Tag-Along Amount (as defined
below) from each such Participating Shareholder on the same terms and
conditions set forth in the Transfer Notice.
(c) If the sum (the "Aggregate Shares Offered") of (i) the number of
shares of Common Stock proposed to be Transferred to the Section 3.2 Transferee
by the Section 3.2 Transferor and (ii) the aggregate Tag-Along Amounts for all
Participating Shareholders exceeds the number of shares of Common Stock that
such Section 3.2 Transferee is willing to purchase, then each such
Participating Shareholder shall be obligated to Transfer a number of shares of
Common Stock or its equivalent (the "Reduced Tag-Along Amount") equal to the
product of the number of shares of Common Stock which the Section 3.2
Transferee is willing to purchase and a fraction, the numerator of which is the
Tag-Along Amount with respect to such Person and the denominator of which is
the Aggregate Shares Offered, and the Section 3.2 Transferor shall be obligated
to Transfer a number of shares of Common Stock equal to the number of shares of
Common Stock which the Section 3.2 Transferee is willing to purchase minus the
Reduced Tag-Along Amount or Reduced Tag-Along Amounts for all Participating
Shareholders.
(d) Any indemnity provided by a Participating Shareholder to the
Section 3.2 Transferee in a purchase agreement relating to such Transfer will
only relate to the shares of Capital Stock Transferred by it. Any indemnity
provided to the Section 3.2 Transferee by the Section 3.2 Transferor will only
relate to the shares of Common Stock Transferred by it.
(e) The Section 3.2 Transferor and the Participating Shareholders
whose shares of Capital Stock are Transferred pursuant to this Section 3.2
shall be required to bear their pro rata share, based on the number of shares
of Capital Stock included in such Transfer, of the expenses of the transaction
including, without limitation, legal, accounting and investment banking fees
and expenses.
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(f) The Company shall, upon request by any Participating Shareholder,
issue to such Participating Shareholder one or more stock certificates
registered in the names and in the denominations (aggregating in a number equal
to the original denomination) requested by such Participating Shareholder, to
facilitate any partial sale of shares of any Capital Stock pursuant to this
Section 3.2.
(g) To the extent that any prospective Section 3.2 Transferee is
unwilling or otherwise refuses to purchase Capital Stock from any Participating
Shareholder, the Section 3.2 Transferor shall not Transfer to such prospective
Section 3.2 Transferee any Common Stock, unless and until, simultaneously with
such Transfer, the Section 3.2 Transferor shall purchase such Capital Stock
from such Participating Shareholder on the same terms and conditions specified
in the Transfer Notice.
(h) Subject to the rights of each Prospective Participating
Shareholder, if it has so elected, to participate in the Transfer of Common
Stock as provided in this Section 3.2, the Section 3.2 Transferor may, not
later than sixty (60) days following delivery to the Prospective Participating
Shareholders of the Transfer Notice, conclude a Transfer of Common Stock
covered by the Transfer Notice on the terms and conditions described in the
Transfer Notice. Any proposed Transfer on terms and conditions more favorable
to the Section 3.2 Transferee than those described in the Transfer Notice, as
well as any proposed Transfer of any Common Stock by the Section 3.2 Transferor
more than sixty (60) days following delivery to the Prospective Participating
Shareholders of the Transfer Notice, shall again be subject to the tag-along
rights of the Prospective Participating Shareholders and shall require
compliance by the prospective Section 3.2 Transferor with the procedures
described in this Section 3.2.
(i) The exercise or non-exercise of the rights of any Prospective
Participating Shareholder under this Section 3.2 to participate in one or more
Transfers of Common Stock shall not adversely affect its right to participate
in subsequent Transfers of Common Stock pursuant to this Section 3.2.
(j) The provisions of this Section 3.2 shall be subject in all
respects to the provisions of Section 3.1 hereof (except as otherwise set forth
herein).
(k) This Section 3.2 shall remain in effect only so long as at least
250,000 shares of Series A Preferred Stock are outstanding (as adjusted for
stock splits, stock dividends, stock combinations, recapitalizations and like
occurrences).
3.3 NO ISSUANCE OF CAPITAL STOCK. For the period beginning on the
Effective Date and ending nine (9) months thereafter, the Company shall not
issue or Transfer any of its Capital Stock without the Investor's prior written
consent, except for the issuance by the Company of shares of Common Stock (or,
in the case of clause (i) below, options to purchase Common Stock) in
connection with (i) the Stock Option Issuance (provided that during such nine
(9)-month period, such issuances shall not exceed options to purchase up to
225,000 shares of Common Stock and the issuance of Common Stock upon the
exercise of such options and provided, further, that no such options or shares
of Common Stock may be issued by the Company prior to January 1, 1997), (ii)
the conversion of the Series A Preferred Stock or the
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exercise of the Warrants or (iii) the exercise of warrants or options that are
outstanding as of the Effective Date and which are specified in Section 3.2 of
the Purchase Agreement.
3.4 PARTICIPATION RIGHT ON NEW SECURITIES. During the Restricted
Period, the Company hereby grants to each of the Investor Holders
(collectively, the "Eligible Holders") the right of first refusal to purchase a
pro rata share of New Securities (as defined below) that the Company may, from
time to time, propose to sell and issue (the "Participation Right"). Each
Eligible Holder's pro rata share, for purposes of this Participation Right, is
the ratio of (X) the number of shares of Common Stock then owned by such
Eligible Holder to (Y) the total number of shares of Common Stock of the
Company outstanding immediately prior to the issuance of the New Securities,
assuming, in each case but for purposes of this Section 3.4 only, full
conversion of all shares of then outstanding Series A Preferred Stock and full
exercise of all then outstanding Warrants and other rights, options and
warrants to purchase or acquire Common Stock. This Participation Right shall be
subject to the following provisions:
(a) "New Securities" shall mean any offering by the Company of any
Capital Stock of the Company, whether now authorized or not; provided, however,
that "New Securities" does not include (i) Common Stock issued pursuant to the
Stock Option Issuance; (ii) Common Stock issuable upon conversion of the Series
A Preferred Stock or upon exercise of the Warrants; (iii) Capital Stock issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or other reorganization, whereby
the Company owns more than 50% of the voting power of such corporation; and
(iv) Common Stock issuable upon the exercise of warrants or options that are
outstanding as of the Effective Date and which are specified in Section 3.2 of
the Purchase Agreement.
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Eligible Holder written notice
of its intention, describing the type of New Securities, the price and the
general terms and conditions upon which the Company proposes to issue the same.
Each Eligible Holder shall have twenty (20) business days from the date of
receipt of any such notice to agree to purchase its pro rata share of such New
Securities for the price and upon the general terms and conditions specified in
the notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased.
(c) In the event that the Eligible Holders fail to exercise in
full the Participation Right within said twenty (20) business day period, the
Company shall have sixty (60) days thereafter to sell the New Securities
respecting which the Eligible Holders' Participation Rights were not exercised
at a price and upon terms and conditions no more favorable to the purchasers
thereof than specified in the Company's notice. In the event the Company has
not sold the New Securities within said sixty (60) day period, the Company
shall not thereafter issue or sell any New Securities without first offering
such securities to the Eligible Holders in the manner provided above.
(d) This Section 3.4 shall not limit in any respect the
obligations of the Company under Section 3.3.
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(e) This Section 3.4 shall remain in effect only so long as at
least 250,000 shares of Series A Preferred Stock are outstanding (as adjusted
for stock splits, stock dividends, stock combinations, recapitalizations and
like occurrences).
3.5 LEGENDS ON STOCK. Each Capital Stock certificate of the Company
held by an Existing Shareholder or any Transferee of an Existing Shareholder
shall bear the following legend on the face thereof:
"THIS CERTIFICATE IS ISSUED SUBJECT TO THE PROVISIONS OF A
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 20, 1996, AND NEITHER THIS
CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE
TRANSFERABLE, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SAID AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
Capital Stock represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder of such Capital Stock (which counsel shall be
reasonably satisfactory to the Company), the Capital Stock represented thereby
is not, at such time, required by law to bear such legend. The Company agrees
that it will not Transfer on its books any certificate for its Capital Stock in
violation of the provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE EXISTING SHAREHOLDERS. Each
of the Existing Shareholders severally represents and warrants to the Investor,
the other Shareholders and the Company that:
(a) Authority. Each Existing Shareholder has all requisite power
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and each of the Related Documents to which it is a party
have been duly executed and delivered by each Existing Shareholder, have been
effectively authorized by all necessary action and constitute the legal, valid
and binding obligation of each such Person, enforceable against each such
Person in accordance with its terms, except as enforceability may be subject to
the
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application of general equitable principles and to bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally.
(b) Agreements Not in Breach of Other Instruments. The execution
and delivery of this Agreement and the Related Documents to which it is a
party, the consummation of the transactions contemplated hereby and thereby and
the fulfillment of the terms hereof and thereof will not result in a breach of
any of the terms or provisions of, or constitute a default under, or conflict
with (x) any agreement, indenture or other instrument to which any Existing
Shareholder is a party or by which it is bound, (y) any judgment, decree, order
or award of any court, governmental body, Governmental Authority or arbitrator
by which any Existing Shareholder is bound or (z) any Requirement of Law
applicable to any Existing Shareholder.
(c) Regulatory Approvals. There are no consents, approvals,
authorizations or other requirements prescribed by any applicable Requirement
of Law that must be obtained or satisfied in connection with the Existing
Shareholder's execution, delivery and performance of this Agreement or any of
the Related Documents to which it is a party.
(d) No Legal Bar. Except as set forth on Schedule 4.1(d) hereto,
there is no suit, action or proceeding pending or, to each Existing
Shareholder's knowledge, threatened against any Existing Shareholder that
questions the validity of this Agreement or any of the Related Documents, any
of the transactions contemplated hereby or thereby or any action which has been
taken by any of the parties in connection herewith or therewith or in
connection with any of the transactions contemplated hereby or thereby or that
seeks to enjoin the consummation thereof.
(e) No Brokerage Fees. No broker or finder has acted for any
Existing Shareholder in connection with this Agreement or any of the Related
Documents or the transactions contemplated hereby or thereby, and no broker or
finder is entitled to any brokerage or finder's fees or other commission in
respect of such transactions based in any way on agreements, arrangements or
understandings made by or on behalf of any Existing Shareholder.
(f) Capitalization of the Company. As of the Effective Date, each
of the Existing Shareholders owns all right, title and interest in and to the
number of shares of Common Stock and the number of options exercisable for
Common Stock, respectively, specified with respect to such individual on
Schedule I attached hereto, free and clear of all liens, claims, charges,
security interests and other encumbrances, and such shares, as of the Effective
Date, represent the percentage ownership of all of the Capital Stock of the
Company on a fully diluted basis (assuming, for this purpose only, that all
Capital Stock of the Company that is convertible or exercisable into or
exchangeable for Common Stock has been so converted, exercised or exchanged in
full) as specified with respect to such individual on Schedule I. As of the
Effective Date, no shares of Capital Stock of the Company are owned by any
Existing Shareholder other than as specified on Schedule I with respect to such
Existing Shareholder.
4.2 REPRESENTATIONS AND WARRANTIES OF OTHER SHAREHOLDERS. Each
Shareholder (other than an Existing Shareholder and the Investor) hereby makes
the representations and warranties of the Existing Shareholders set forth in
Section 4.1(b), (c), (d)
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and (e) and the representation and warranty set forth below, in each case with
respect to itself only, to the Company and each other Shareholder.
(a) Organization and Authority. To the extent the Shareholder is a
Person other than an individual, it is a company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, and is duly
qualified as a foreign company under the laws of each jurisdiction where its
conduct of business or the ownership of its assets requires such qualification.
To the extent the Shareholder is an individual, it has all requisite power to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by such Person, has
been effectively authorized by all necessary action, and constitutes the legal,
valid and binding obligation of such Person, enforceable against such Person in
accordance with its terms, except as enforceability may be subject to the
application of general equitable principles and to bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally.
4.3 CERTAIN ADDITIONAL REPRESENTATIONS OF THE SHAREHOLDERS. Each
Shareholder represents and warrants to the Company and to each other
Shareholder that (i) all Capital Stock of the Company purchased or otherwise
acquired by such Shareholder has been or is being acquired by it for its own
account for investment, without any intention of Transferring or further
distributing the same in violation of the securities laws and (ii) it is fully
aware that in agreeing to Transfer or issue such Capital Stock to it the
Company or a Shareholder, as applicable, is relying upon the truth and accuracy
of this representation and warranty.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 COVENANTS AND AGREEMENTS OF THE COMPANY.
5.1.1 BOOKS AND ACCOUNTS. The Company shall, and shall cause each
of its Subsidiaries to: (a) make and keep books, records and accounts, which,
in reasonable detail, accurately and fairly reflect its transactions and
dispositions of its assets; and (b) devise (if not existing on the Effective
Date) and maintain a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and in accordance with the Company's past practices or any
other criteria applicable to such statements, and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
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5.1.2 REPORTS; BUDGETS.
(a) The Company shall furnish to each Shareholder, as soon as
practicable and in any event within ninety (90) days after the end of each
fiscal year of the Company, a consolidated annual report of the Company and its
Subsidiaries, including a consolidated balance sheet as at the end of such
fiscal year and consolidated statements of income and retained earnings and
changes of cash flows for such fiscal year, together with the related notes
thereto, setting forth in each case in comparative form corresponding figures
for the preceding fiscal year, all of which shall be correct and complete and
shall present fairly the consolidated financial position of the Company and its
Subsidiaries and the consolidated results of their operations and changes in
their consolidated financial position as of the time and for the period then
ended. The consolidated portions of such financial statements shall be
accompanied by an unqualified report, in form and substance reasonably
satisfactory to the Investor, of independent public accountants of recognized
national standing reasonably satisfactory to the Investor, to the effect that
such financial statements have been prepared in accordance with GAAP applied on
a basis consistent with prior years (except as otherwise permitted under GAAP),
and present fairly the consolidated financial position of the Company and its
Subsidiaries and the consolidated results of their operations and changes in
their consolidated financial position as of the time and for the period then
ended. The Company shall, and shall cause each of its Subsidiaries to, conduct
its business so that such report of the independent public accountants shall
not contain any qualifications as to the scope of the audit or with respect to
the Company's or any of its Subsidiaries' compliance with GAAP consistently
applied, except for changes in methods of accounting in which such accountants
concur.
(b) The Company shall furnish to each Shareholder, as soon as
practicable and in any event within forty-five (45) days after the end of each
of the first three fiscal quarters of each fiscal year of the Company, a
quarterly report of the Company and its Subsidiaries consisting of an unaudited
consolidated balance sheet as at the end of such quarter and an unaudited
consolidated statement of income and retained earnings for such quarter and the
portion of the fiscal year then ended, setting forth in each case in
comparative form corresponding figures for the same period in the prior fiscal
year and for the budget for the current fiscal year. All such reports shall be
certified by the chief financial officer of the Company to be correct and
complete, to present fairly the consolidated financial position of the Company
and its Subsidiaries and the consolidated results of their operations and
changes in their consolidated financial position as of the time and for the
period then ended and to have been prepared in accordance with GAAP
consistently applied.
(c) The Company shall furnish to each Shareholder, as soon as
practicable and in any event within thirty (30) days after the end of each
calendar month, commencing with the month of December 1996, a monthly report of
the Company and its Subsidiaries in such form and containing such information
as the Company and the Investor shall mutually agree promptly following the
Effective Date.
(d) The Company shall furnish to each Shareholder, as soon as
practicable and in any event within fifteen (15) days after delivery of such
Shareholder's request, such additional reports as such Shareholder may
reasonably request with respect to such matters
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and in such form and detail as is reasonably satisfactory to such Shareholder.
All such reports shall be certified by the chief financial officer of the
Company, which certification shall be in form and substance satisfactory to
such Shareholder.
(e) The Company shall furnish to each Shareholder, as soon as
practicable and in any event within ninety (90) days after the end of each
fiscal year of the Company, an annual operating budget for the Company and each
of its Subsidiaries for the succeeding fiscal year, containing, among other
things, budgeted statements of profit and loss for each month of such fiscal
year. Promptly upon preparation thereof, the Company shall furnish to each
Shareholder any other budgets that the Company may prepare and any revisions of
such previously furnished budgets. Each budget or material revision thereof
furnished to the Shareholders pursuant to this Section 5.1.2(e) shall have been
previously submitted to and approved by the Board of Directors of the Company.
5.1.3 OTHER REPORTS AND INSPECTION. The Company shall furnish to
each Shareholder (a) as soon as practicable after issuance, copies of any
financial statements or reports prepared by the Company or its Subsidiaries
for, or otherwise furnished to, its shareholders or the Securities and Exchange
Commission and (b) promptly such other documents, reports and financial data as
such Shareholder may reasonably request. In addition, the Company shall, upon
reasonable prior notice, make available during regular business hours to each
Shareholder or its representatives or designees (x) all assets, properties and
business records of the Company and its Subsidiaries for inspection and/or
copying and (y) the directors, officers and employees of the Company and its
Subsidiaries for interviews concerning the business, affairs and finances of
the Company and its Subsidiaries.
5.1.4 MATERIAL CHANGES. The Company shall promptly notify each
Shareholder of any material adverse change in the business, properties, assets,
prospects or condition, financial or otherwise, of the Company or any of its
Subsidiaries, or any other material adverse event or circumstance affecting the
Company or any of its Subsidiaries, and of any material litigation or material
governmental proceeding pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened against the Company or any of its Subsidiaries or
against any director, officer, employee, consultant or Affiliate of the Company
or any of its Subsidiaries.
5.1.5 CORPORATE EXISTENCE, LICENSES AND PERMITS; MAINTENANCE OF
PROPERTIES. The Company shall, and shall cause each of its Subsidiaries to, at
all times conduct its business in the ordinary course and cause to be done all
things necessary to maintain, preserve and renew its existence and shall
preserve and keep in full force and effect, and shall cause each of its
Subsidiaries to preserve and keep in full force and effect, all licenses,
permits and authorizations necessary or advisable to the conduct of its and
their respective businesses. The Company shall maintain and keep, and shall
cause each of its Subsidiaries to maintain and keep, its and their respective
properties in good repair, working order and condition, and from time to time,
to make all needful and proper repairs, renewals and replacements, so that the
business carried on in connection therewith may be properly conducted at all
times.
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<PAGE>
5.1.6 COMPLIANCE WITH OBLIGATIONS AND LAWS. The Company shall, and
shall cause each of its Subsidiaries to, comply with (a) all material
obligations which it or its Subsidiaries are subject to, or become subject to,
pursuant to any contract or agreement, whether oral or written, as such
obligations are required to be observed or performed, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
diligently prosecuted and the Company and its Subsidiaries have set aside on
their books adequate reserves with respect thereto and (b) all applicable laws,
statutes, rules, regulations, orders, demands and requests of all Governmental
Authorities, including, without limitation, all Environmental Laws (as defined
in the Purchase Agreement).
5.1.7 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. None of the Company
and its Subsidiaries will amend its certificate of incorporation or by-laws so
as to adversely affect the rights of the Investor under this Agreement, the
Certificate of Incorporation, the by-laws of the Company or the Related
Documents.
5.1.8 TAXES AND LIENS. The Company shall, and shall cause each of
its Subsidiaries to, file all applicable tax returns in a timely manner. The
Company shall duly pay and discharge, and shall cause each of its Subsidiaries
to duly pay and discharge, when payable, all taxes, assessments and
governmental charges imposed upon or against the Company or its Subsidiaries or
their respective properties, or any part thereof or upon the income or profits
therefrom, in each case before the same become delinquent and before penalties
accrue thereon, as well as all claims for labor, materials or supplies which if
unpaid might by law or statute become a lien, claim, charge or encumbrance upon
any of its property or any property of any of its Subsidiaries, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings diligently prosecuted and the Company and its Subsidiaries have set
aside on their books adequate reserves with respect thereto.
5.1.9 RESTRICTIVE AGREEMENT. From and after the Effective Date,
neither the Company nor any of its Subsidiaries will be a party to any
agreement, instrument or understanding which by its terms would restrict the
Company's performance of its obligations pursuant to this Agreement, the
Certificate of Incorporation or any of the Related Documents.
5.1.10 SERIES A PREFERRED STOCK AND WARRANTS AND RELATED MATTERS.
(a) The Company agrees that all shares of Common Stock that may be
issued upon conversion of the Series A Preferred Stock or upon exercise of the
Warrants will, upon issuance, be duly and validly authorized and issued, fully
paid and nonassessable, and free and clear from all rights, taxes, liens,
claims, charges and encumbrances.
(b) The Company shall pay when due and payable any and all
federal, state, local, transfer, documentary, stamp and other taxes or charges,
if any, attributable to the initial issuance or delivery of any shares of
Common Stock or certificates therefor issuable upon conversion of the Series A
Preferred Stock or upon exercise of the Warrants, other than any taxes measured
or based upon the net income of any Person other than the Company.
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(c) The Company shall at all times have authorized and reserved,
free from preemptive or other rights or claims, a sufficient number of shares
of Common Stock to provide for the conversion of the Series A Preferred Stock
and the exercise of the Warrants. The Company further agrees that if any shares
of its Capital Stock to be reserved for the purpose of the issuance of shares
upon the conversion of the Series A Preferred Stock or upon exercise of the
Warrants require registration with or approval of any Governmental Authority
under any applicable law before such shares may be validly issued or delivered
upon conversion or exercise, then the Company shall in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be.
(d) The Company shall comply in all respects with its Certificate
of Incorporation and by-laws, including, without limitation, Article Fourth,
Section 7(e) of the Certificate of Incorporation.
(e) So long as the Common Stock issuable upon the conversion of
the Series A Preferred Stock may be listed on any national securities exchange
or eligible for trading on NASDAQ (or any other quotation system operated by a
national securities association), the Company covenants and agrees that it
shall take all such action as may be necessary to cause all shares reserved for
such issuance to be listed as expeditiously as reasonably possible on such
exchange or to be made so eligible as expeditiously as possible upon official
notice of issuance upon such exercise.
5.2 COVENANTS AND AGREEMENTS OF THE EXISTING SHAREHOLDERS.
(a) For the period beginning on the Effective Date and ending five
(5) years thereafter (the "Term"), the Existing Shareholders and their
respective Affiliates shall not, directly or indirectly, own, manage, operate,
join or Control or participate (or serve as a consultant or in a similar
position) in the ownership, management, operation or Control of, any business,
entity, firm, partnership, corporation or other Person, whether private,
governmental or quasi-governmental, other than the Company or any of its
Subsidiaries, which is engaged, directly or indirectly, anywhere in North
America and/or Europe, in the business of developing, manufacturing, marketing,
selling and/or distributing breath alcohol ignition interlock devices and
related products.
(b) During the Term, the Existing Shareholders and their
respective Affiliates shall refrain from, directly, indirectly or as an agent
on behalf of or in conjunction with any Person, soliciting (i) or encouraging
any employee of the Company or any of its Subsidiaries who is employed in an
executive, managerial, administrative, technical or professional capacity or
who possesses Confidential Material to leave the employment of the Company or
such Subsidiary or (ii) any customer of the Company or any of its Subsidiaries
on behalf of any Person other than the Company or any such Subsidiary.
(c) Each of the Existing Shareholders has had, and may be expected
in the future to have, access to Confidential Material. All such Confidential
Material is considered secret and has been and/or will be disclosed to each
such Existing Shareholder in confidence, and each Existing Shareholder
acknowledges that, as a consequence of his
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employment and position with the Company, he has had access to and became
acquainted with Confidential Material. Except in the performance of his duties
as a director, officer or consultant of the Company, each Existing Shareholder
shall not, during the Term and at all times thereafter, directly or indirectly
for any reason whatsoever, disclose or use any such Confidential Material. All
records, files, drawings, documents, equipment and other tangible items,
wherever located, relating in any way to or containing Confidential Material,
which any such Existing Shareholder has prepared, used or encountered or shall
in the future prepare, use or encounter, shall be and remain the Company's sole
and exclusive property and shall be included in the Confidential Material.
Whenever requested by the Company, each Existing Shareholder shall promptly
deliver to the Company any and all of the Confidential Material and copies
thereof, not previously delivered to the Company, that may be in the possession
or under the control of such Existing Shareholder. The foregoing restrictions
shall not apply to the use, divulgence, disclosure or grant of access to
Confidential Material to the extent, but only to the extent, (i) such
Confidential Material has been publicly disclosed (not due to a breach by such
Existing Shareholder of his obligations hereunder or by breach of any other
Person of a fiduciary or confidential obligation to the Company) or (ii) such
Existing Shareholder is required to disclose Confidential Material by or to any
court of competent jurisdiction or any governmental or quasi-governmental
agency, authority or instrumentality of competent jurisdiction, provided that
such Existing Shareholder shall, prior to any such disclosure, immediately
notify the Company of such requirement and provided, further, that the Company
shall have the right, at its expense, to object to such disclosures and to seek
confidential treatment of any Confidential Material to be so disclosed on such
terms as it shall determine.
(d) In the case of each registration of any underwritten primary
offering initiated by the Company (other than any registration by the Company
on Form S-4 or Form S-8 (or any successor or substantially similar form), or
the registration of (A) an employee stock option, stock purchase or
compensation plan or of securities issued or issuable pursuant to any such plan
or (B) a dividend reinvestment plan) or any underwritten secondary offering
initiated at the request of any other Person (including, without limitation,
any demand registration initiated by the Investor or an Other Approved Holder
(as defined in the Registration Rights Agreement) under the Registration Rights
Agreement or otherwise, whether or not shares of Capital Stock of the Company
will be included by the Company in any such offering), each Existing
Shareholder severally agrees, if and to the extent requested in writing by the
managing underwriter or underwriters administering such offering as promptly as
reasonably practicable prior to the commencement of the ten (10)-day period
referred to below, not to effect any public Transfer of any Capital Stock of
the Company except as part of such underwritten registration, during the period
beginning ten (10) days prior to the effective date of the applicable
registration statement relating to such underwritten offering and ending on the
earlier of (i) ninety (90) days after such effective date and (ii) the date
such Transfer is permitted by such managing underwriter or underwriters. The
provisions of this paragraph (b) shall (x) be in addition to, and shall not in
any way limit the application of, any other provision of this Agreement and (y)
remain in full force and effect for so long as the Registration Rights
Agreement is in effect, notwithstanding the earlier termination or expiration
of this Agreement.
5.3 TERMINATION OF CURRENT SHAREHOLDERS' AGREEMENTS. Each of the
Existing Shareholders and the Company agree that all existing shareholders'
agreements among
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or between such parties or any of them in relation to the Company and/or its
Capital Stock are hereby terminated and superseded and replaced by this
Agreement.
5.4 WAIVERS BY THE INVESTOR. The parties hereto agree that the
Investor may from time to time in its sole discretion waive any or all of its
rights, privileges or remedies hereunder with respect to any Person or Persons,
subject to Section 7.2 hereof.
ARTICLE VI
EFFECTIVE DATE; TERM; TERMINATION
6.1 EFFECTIVE DATE. This Agreement shall become effective on the
Effective Date.
6.2 TERM. The obligations of each party hereunder shall remain binding
upon such party until such time as:
(a) this Agreement has terminated pursuant to Section 6.3 hereof; or
(b) such party has Transferred all of its Capital Stock in the Company
in accordance with the terms of this Agreement and the by-laws of the Company
and is in compliance with its obligations under this Agreement.
6.3 TERMINATION. Except as otherwise expressly provided herein, this
Agreement shall terminate and all rights and obligations hereunder shall cease,
upon the first to occur of any of the following events:
(i) the date that is ten (10) years after the Effective Date; or
(ii) the voluntary dissolution of the Company; or
(iii) the written agreement of each of the parties hereto to such
termination; or
(iv) (x) there ceases to be at least 250,000 shares of Series A
Preferred Stock outstanding (as adjusted for stock splits, stock dividends,
stock combinations, recapitalizations and like occurrences) and (y) the
Investor ceases to own at least 166,666 shares of Common Stock (assuming,
for this purpose only, that all Capital Stock of the Company owned by the
Investor that is convertible or exercisable into or exchangeable for Common
Stock has been so converted, exercised or exchanged by the Investor in full
and as adjusted for stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences).
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ARTICLE VII
MISCELLANEOUS
7.1 ENTIRE AGREEMENT. This Agreement, together with the other
agreements, instruments and documents expressly referred to herein, constitute
the entire agreement of the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings with
respect thereto, whether written or oral.
7.2 NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay by a
party in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
party at law or in equity or otherwise. No waiver of or consent to any
departure by a party from any provision of this Agreement shall be effective
unless signed in writing by the parties entitled to the benefit thereof. No
amendment, modification or termination of any provision of this Agreement shall
be effective unless signed in writing by all parties. Any amendment, supplement
or modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given.
7.3 NOTICES. All notices, demands and other communications provided
for hereunder shall be in writing, shall be given by registered or certified
mail, return receipt requested, telegram, telecopy, courier service or personal
delivery, addressed
(i) to the Company or any Existing Shareholder as follows:
Alcohol Sensors International, Ltd.
11 Oval Drive
Islandia, New York 11772
Attention: Robert B. Whitney, President
Telecopy: (516) 342-1550
with a copy to:
Berger & Paul
630 Third Avenue
New York, New York 10017
Attention: Harold W. Paul
Telecopy: (212) 661-7060
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<PAGE>
(ii) to the Investor as follows:
American International Insurance Company
505 Carr Road
Wilmington, Delaware 19809
Attention: Ernest Hanson
Telecopy: (302) 762-7451
with copies to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Florence A. Davis
Telecopy: (212) 785-1584
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman
Telecopy: (212) 715-8000
(iii) to any other Shareholder as specified by such Person in
writing to each party hereto,
or to such other address as any party shall designate in writing, and shall be
deemed given when received.
7.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same Agreement.
7.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of the
parties under this Agreement may not be assigned or otherwise transferred to
any other Person, except (i) with the prior written consent of the other
parties hereto and (ii) in connection with a Transfer of Capital Stock of the
Company by a Shareholder made in compliance with all of the provisions of this
Agreement. Except as expressly provided in this Agreement, this Agreement shall
not be construed so as to confer any right or benefit upon any Person other
than the parties to this Agreement and their respective successors, permitted
assigns, heirs and personal representatives. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, permitted assigns, heirs and personal representatives.
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7.6 GOVERNING LAW. This Agreement shall be deemed to be a contract
made under and shall be governed by and construed in accordance with the
internal laws of the State of New York without reference to the principles of
conflict of laws.
7.7 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Any suit, action
or proceeding arising out of or relating to this Agreement, the Related
Documents or the transactions contemplated hereby or thereby may be instituted
in any Federal court situated in the State of New York or any state court of
the State of New York in each case, in the Borough of Manhattan, City of New
York, and each party agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement, the Related Documents
or the subject matter hereof or thereof may not be enforced in or by such
court. Each party further irrevocably submits to the jurisdiction of such court
in any such suit, action or proceeding. Any and all service of process and any
other notice in any such suit, action or proceeding shall be effective against
any party if given personally or by registered or certified mail, return
receipt requested, or by any other means of mail that requires a signed
receipt, postage fully prepaid, mailed to such party as herein provided.
Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or to commence legal proceedings
or otherwise proceed against any other party in any other jurisdiction.
7.8 FURTHER ASSURANCES. Each of the parties hereto shall execute and
deliver such documents, instruments and agreements and take such further
actions as may be reasonably required or desirable to carry out the provisions
of this Agreement, the Related Documents and the transactions contemplated
hereby and thereby, and each of the parties hereto shall cooperate with each
other in connection with the foregoing.
7.9 SPECIFIC PERFORMANCE. The parties acknowledge that irreparable
damage would occur to the Investor in the event that any of the provisions of
this Agreement or any of the Related Documents were not performed by the other
parties hereto in accordance with their specific terms or were otherwise
breached by such other parties and that money damages would not provide an
adequate remedy to the Investor. It is accordingly agreed that the Investor
shall be entitled to an injunction and other equitable remedies to prevent
breaches by the other parties hereto of this Agreement and the Related
Documents, and to enforce specifically the terms and provisions hereof or
thereof in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which the Investor
may be entitled at law or in equity.
7.10 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. If any provision in Section 5.2 hereof is held to be invalid or
unenforceable because of the scope or duration of or the area covered by such
provision, the parties hereto agree that the court making such determination
shall reduce the scope, duration and/or area of such provision (and
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<PAGE>
shall substitute appropriate provisions for any such invalid or unenforceable
provisions) in order to make such provision enforceable to the fullest extent
permitted by law and/or shall delete specific words and phrases, and such
modified provision shall then be enforceable and shall be enforced. The parties
hereto recognize that if, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants contained in Section 5.2 hereof, then
that invalid or unenforceable covenant contained in Section 5.2 hereof shall be
deemed eliminated from this Agreement to the extent necessary to permit the
remaining separate covenants hereof to be enforced. In the event that any court
determines that the time period or the area, or both, are unreasonable and that
any of the covenants in Section 5.2 hereof is to that extent invalid or
unenforceable, the parties hereto agree that such covenants will remain in full
force and effect, first, for the greatest time period, and second, in the
greatest geographical area that would not render them enforceable.
7.11 HEADINGS. The Article and Section headings used or contained in
this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
7.12 COSTS AND EXPENSES. The respective parties hereto shall pay all
costs and expenses that each respectively incurs with respect to the
negotiation, execution and delivery of this Agreement and the Related
Documents.
7.13 WAIVER OF JURY TRIAL. The parties hereto hereby irrevocably waive
all right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Agreement, the Related Documents or the transactions
contemplated hereby or thereby.
7.14 PUBLICITY. The parties agree that no public release or
announcement concerning this Agreement or any of the Related Documents or the
transactions contemplated hereby or thereby shall be made without advance
review and approval by the Company and the Investor, except as otherwise
required by applicable law.
7.15 NATURE OF AGREEMENTS. The covenants and agreements of the parties
in this Agreement are several and not joint covenants and agreements, unless
otherwise expressly specified herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement or caused this Agreement to be duly executed by their respective
officers or representatives thereunto duly authorized as of the day and year
first written above.
/s/ Robert B. Whitney
-----------------------------
ROBERT B. WHITNEY
/s/ Steven A. Martello
-----------------------------
STEVEN A. MARTELLO
/s/ John T. Ruocco
-----------------------------
JOHN T. RUOCCO
/s/ Michael A. Sylvester
-----------------------------
MICHAEL A. SYLVESTER
/s/ Joseph M. Lively
-----------------------------
JOSEPH M. LIVELY
AMERICAN INTERNATIONAL INSURANCE
COMPANY
By: /s/ Edward E. Matthews
--------------------------
Name: Edward E. Matthews
Title: Senior Vice President & Director
ALCOHOL SENSORS INTERNATIONAL, LTD.
By: /s/ Robert B. Whitney
--------------------------
Name: Robert B. Whitney
Title: President & CEO
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SCHEDULE I
SHAREHOLDERS' OWNERSHIP
OF CAPITAL STOCK
Percentage
No. of Shares of Ownership of All
Options of the Company's
No. of Shares Exercisable for Capital Stock
of Common Common Stock (on a Fully
Name of Shareholder Stock Owned Owned Diluted Basis)
- ------------------- ------------- ---------------- ----------------
Robert B. Whitney 646,082 5.31%
Steven A. Martello 150,000 1.23%
John T. Ruocco 646,082 5.31%
Michael A. Sylvester 646,082 5.31%
Joseph M. Lively 0 140,000 1.15%
Ariel Enterprises 180,000 100,000 2.30%
<PAGE>
Exhibit A: Certificate of Incorporation of the Company
Schedule 4.1(d): Certain Legal Matters
<PAGE>
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR ANY
SECURITIES ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
SECURITIES LAWS, AND NEITHER SUCH WARRANTS NOR SUCH SECURITIES MAY BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNDER SAID ACT AND LAWS OR AN EXEMPTION THEREFROM.
EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME ON
DECEMBER 20, 1998
WARRANT CERTIFICATE
833,333 Common Stock Purchase Warrants
No. R-1 New York, New York
December 20, 1996
ALCOHOL SENSORS INTERNATIONAL, LTD.
ALCOHOL SENSORS INTERNATIONAL, LTD., a New York corporation (the
"COMPANY"), for value received, hereby certifies that AMERICAN INTERNATIONAL
INSURANCE COMPANY or registered assigns permitted by the terms of this Warrant
Certificate, is the registered owner of the number of common stock purchase
warrants (the "WARRANTS") set forth above, each of which entitles the owner
thereof to purchase from the Company at any time on or prior to 5:00 P.M., New
York City time, on December 20, 1998 (the "FINAL EXPIRATION DATE") one duly
authorized, validly issued, fully paid and nonassessable share of the Common
Stock, par value $.001 per share ("COMMON STOCK"), of the Company, at a
purchase price of $5.50 per share (the "PURCHASE PRICE"), all subject to the
terms and conditions contained herein. The number of Warrants evidenced by this
Warrant Certificate (and the number and kind of securities which may be
purchased upon exercise hereof) set forth above, and the Purchase Price per
share set forth above, are as of the date hereof.
<PAGE>
As provided herein, the Purchase Price and the number of shares of
Common Stock or other securities which may be purchased upon the exercise of
the Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein)
evidencing all or part of the Warrants evidenced hereby, are sometimes
collectively referred to herein as the "WARRANT CERTIFICATES."
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
SECTION 1. Execution, Delivery and Registration of Warrant
Certificates. Each Warrant Certificate, whenever issued, shall be in registered
form only and substantially in the form of this Warrant Certificate (with such
adjustments as may be necessary to reflect the name of the holder thereof, the
appropriate number of Warrants and Purchase Price), shall be dated the date it
is issued and delivered to the holder thereof and shall have such letters,
numbers, or other marks of identification or designation and such legends or
endorsements stamped, printed, lithographed or engraved thereon as the officers
of the Company executing the same may approve (the execution thereof to be
conclusive evidence of such approval) and as are not inconsistent with the
provisions contained herein, or as may be required to comply with any law, or
with any rule or regulation made pursuant thereto, or with any rule or
regulation of any securities exchange (or any other quotation system operated
by a national securities association) on which the Warrants may be listed. Each
Warrant Certificate shall be manually executed on behalf of the Company by its
Chairman of the Board of Directors, Chief Executive Officer, President or one
of its Vice-Presidents under its corporate seal and attested by its Secretary
or an Assistant Secretary.
Each Warrant Certificate may be signed on behalf of the Company by any
person who, at the actual date of the execution of such Warrant Certificate,
shall be the proper officer of the Company to sign such Warrant Certificate. If
any officer whose signature is on a Warrant Certificate no longer holds that
office after the date of issuance of the Warrant Certificate, such Warrant
Certificate shall be valid nevertheless.
The Company shall maintain books for the registration and transfer of
Warrants. The Company will maintain an office where notices, presentations and
demands in respect of the Warrants may be made upon it and where books for
registration and transfer of the Warrant Certificates will be kept (the
"COMPANY OFFICE"). Such books shall show the names and addresses of the
respective registered holders of the Warrant Certificates, the number of
Warrants evidenced on the face of each of the Warrant Certificates, and the
date of each of the Warrant Certificates. Such books shall also show the names
and addresses of former registered holders of Warrant Certificates who may be
entitled to receive a payment under Section 2(c)(ii) hereof.
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<PAGE>
The Company Office shall be maintained at Alcohol Sensors
International, Ltd., 11 Oval Drive, Islandia, New York 11722, Attention: Joseph
M. Lively, until such time as the Company shall notify the registered holders
of the Warrants of any change of location of the Company Office (which shall
always be located within the 48 contiguous states of the United States of
America).
As provided in Section 3 hereof, the Company shall transfer, from time
to time, any outstanding Warrants upon the books to be maintained by the
Company for such purpose upon surrender thereof for transfer properly endorsed
or accompanied by appropriate instructions for transfer. Warrants may be
exchanged at the option of the registered holder thereof, when surrendered at
the Company Office, for another Warrant or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of shares of Common Stock.
The Warrants evidenced by this Warrant Certificate may not be
transferred except in compliance with the provisions of the Securities Act of
1933, as amended (and any similar successor statute), together with the rules
and regulations promulgated thereunder (the "SECURITIES ACT"), or applicable
state securities laws and in accordance with the provisions of Section 14
hereof.
SECTION 2. Exercise of Warrants; Purchase Price. (a) Subject to the
provisions of Section 6(d) hereof, the registered holder of this Warrant
Certificate, may exercise the Warrants evidenced hereby, in whole or in part,
at any time on or prior to the Final Expiration Date, upon surrender of this
Warrant Certificate, with the Form of Election to Purchase attached hereto duly
executed, to the Company at the Company Office, together with payment of the
Purchase Price for each share of Common Stock as to which such Warrants are
exercised.
(b) The aggregate Purchase Price for the Warrants exercised shall be
payable (i) in cash, (ii) by certified or official bank or bank cashier's check
payable to the order of the Company, (iii) by delivery to the Company of shares
of Common Stock, which shares shall be deemed to have a value equal to the
Closing Price thereof (as such term is defined in Section 11 hereof), or
Warrants, which Warrants shall be deemed to have a value equal to the Closing
Price of the shares of Common Stock for which such Warrants are exercisable, or
(iv) any combination of the foregoing.
(c) Upon receipt of a Warrant Certificate representing exercisable
Warrants, with the Form of Election to Purchase duly executed, accompanied by
payment of the aggregate Purchase Price for the shares of Common Stock to be
purchased and an amount equal to any applicable transfer tax required to be
paid by the registered holder of such Warrant Certificate in accordance with
Section 6 hereof, the Company shall thereupon promptly (i) requisition, from
any transfer agent of the Common Stock, certificates for the number of whole
shares of Common Stock to be purchased, and cause the same to be delivered to
or upon the order of the registered holder of such Warrant Certificate,
registered in such name or names as may be designated by such holder, (ii) when
appropriate, requisition the amount of cash to be paid in lieu of issuance of
fractional shares, or
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<PAGE>
requisition for sale by the Company the whole shares of Common Stock
representing such aggregate fractional shares, in accordance with Section 11
hereof, and deliver such cash, or the net proceeds of the sale of aggregated
fractional shares of Common Stock, to or upon the order of the registered
holder of such Warrant Certificate.
(d) If the registered holder of any Warrant Certificate shall exercise
less than all the Warrants evidenced thereby, a new Warrant Certificate
evidencing Warrants equivalent to the Warrants remaining unexercised shall be
issued by the Company to the registered holder of such Warrant Certificate or
to his duly authorized assigns.
SECTION 3. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates.
Subject to the provisions of Section 14 hereof, at or prior to the Final
Expiration Date, any Warrant Certificate, with or without other Warrant
Certificates, may be transferred, split up, combined or exchanged for another
Warrant Certificate or Warrant Certificates, entitling the registered holder to
purchase a like number of shares of Common Stock as the Warrant Certificate or
Warrant Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any
Warrant Certificate shall make such request in writing delivered to the Company
and shall surrender the Warrant Certificate or Warrant Certificates to be
transferred, split up, combined or exchanged at the Company Office. Thereupon
the Company shall execute and deliver to the person or persons entitled thereto
a Warrant Certificate or Warrant Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split-up, combination or exchange of Warrant Certificates.
Upon receipt by the Company of an affidavit of the registered holder
as to the loss, theft, destruction or mutilation of a Warrant Certificate, such
indemnity as the Company may reasonably require and, in the case of mutilation,
upon surrender and cancellation of the mutilated Warrant Certificate, the
Company will execute and deliver a new Warrant Certificate of like tenor to the
registered holder in lieu of the Warrant Certificate so lost, stolen, destroyed
or mutilated. The Company acknowledges that a written indemnity by the
registered holder shall be satisfactory to it.
SECTION 4. Subsequent Issue of Warrant Certificates. Subsequent to its
original issuance, no Warrant Certificate shall be issued in respect of this
Warrant Certificate except (a) Warrant Certificates issued upon any transfer,
combination, split-up or exchange of Warrants pursuant to Section 3 hereof, (b)
Warrant Certificates issued in replacement of mutilated, destroyed, lost or
stolen Warrant Certificates pursuant to Section 3 hereof, (c) Warrant
Certificates issued pursuant to Section 2(d) hereof upon the partial exercise
of any Warrant Certificate to evidence the unexercised portion of such Warrant
Certificate and (d) Warrant Certificates issued pursuant to Section 15 hereof.
SECTION 5. Cancellation and Destruction of Warrant Certificates. All
Warrant Certificates surrendered to the Company for the purpose of exercise,
exchange, substitution, transfer, split-up or combination shall be cancelled by
it, and no Warrant
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<PAGE>
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions thereof. The Company shall cancel and retire any other
Warrant Certificates purchased or acquired by the Company otherwise than upon
the exercise thereof. The Company shall destroy such cancelled Warrant
Certificates.
SECTION 6. Reservation and Availability of Shares of Common Stock,
etc.
(a) The Company covenants and agrees that it will take all such action
as may be necessary to cause to be reserved and kept available at all times out
of its authorized and unissued shares of Common Stock or its authorized and
issued shares of Common Stock held in its treasury, the number of shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants. The transfer agent for the Common Stock and every
subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any Warrants will be irrevocably authorized and
directed at all times to reserve such number of authorized shares as shall be
required for such purpose. The Company will keep copies of the Warrant
Certificates and the Registration Rights Agreement dated as of even date
herewith, between the Company and American International Insurance Company (as
amended, supplemented or otherwise modified from time to time, the
"REGISTRATION RIGHTS AGREEMENT"), on file with each transfer agent. The Company
will furnish the transfer agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each registered holder of a
Warrant Certificate pursuant to Section 9 hereof.
(b) So long as the Common Stock issuable upon the exercise of Warrants
may be listed on any national securities exchange or eligible for trading on
NASDAQ (or any other quotation system operated by a national securities
association), the Company covenants and agrees that it shall take all such
action as may be necessary to cause all shares reserved for such issuance to be
listed as expeditiously as reasonably possible on such exchange or to be made
so eligible as expeditiously as possible upon official notice of issuance upon
such exercise.
(c) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all shares of Common Stock delivered upon
exercise of Warrants shall, at the time of such issuance (subject to payment of
the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares, free of preemptive rights and free from all taxes,
liens, charges, security interests or other encumbrances with respect to the
issuance thereof, and no personal liability shall attach to the ownership
thereof.
(d) The Company covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the initial issuance or delivery of the Warrant
Certificates pursuant to Section 1 hereof or of the issuance and delivery of
any shares of Common Stock upon the exercise of Warrants, except as set forth
in the immediately following sentence. The Company shall not be required to pay
any tax which may be payable in respect of any transfer or delivery of Warrant
Certificates to a Person other than, or the issuance or delivery of
certificates for Common Stock in a name other than that of, or payment of cash
to a Person other than, the
-5-
<PAGE>
registered holder of the Warrant Certificate evidencing Warrants surrendered
for exercise or to issue or deliver any certificates for shares of Common Stock
or pay any cash upon the exercise of any Warrants until any such tax shall have
been paid (any such tax being payable by the registered holder of such Warrant
Certificate at the time of surrender) or until it has been established to the
Company's reasonable satisfaction that no such tax is due. "PERSON" shall mean
any individual, corporation, partnership, limited liability company, trust,
incorporated or unincorporated association, joint venture, joint stock company
or other entity of any kind, including without limitation, any government or an
agency or political division thereof.
(e) The Company will not, by amendment of its Certificate of
Incorporation or its other organizational documents or through any
consolidation, merger, reorganization, transfer of assets, 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 of the Warrants.
(f) Subject, in the case of any registration under the Securities Act,
to the limitations set forth in Section 14 hereof, the Company covenants and
agrees that it will take all such action as may be necessary to obtain and keep
effective any and all permits, registrations, consents and approvals of
governmental agencies and authorities and to make all securities acts filings
and effect and maintain any registrations of securities under federal and state
laws (including, without limitation, the Securities Act and state "blue sky"
securities laws) which may become requisite in connection with the valid
issuance, sale, transfer or delivery of the Warrant Certificates, the exercise
of the Warrants and the valid issuance, sale, transfer and delivery of any
Common Stock or other securities issued or delivered upon exercise of, or
otherwise in connection with, the Warrants.
SECTION 7. Record Date. Each person in whose name any certificate for
shares of Common Stock is issued upon the exercise of Warrants shall for all
purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, the close of
business on the date upon which the Warrant Certificate evidencing such
Warrants is duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) is made; provided, however, that if the date of such
surrender and payment is a date upon which the Common Stock transfer books of
the Company are closed, such person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the opening of
business on the next succeeding business day on which the Common Stock transfer
books of the Company are open.
SECTION 8. Adjustment of Purchase Price, Number of Shares or Number of
Warrants. The Purchase Price, the number of shares of Common Stock covered by
each Warrant and the number of Warrants outstanding are subject to adjustment
from time to time as provided in this Section 8.
(a) If the Company shall at any time, (i) pay a dividend on its
outstanding Common Stock in shares of Common Stock or effect a
distribution to holders of its outstanding Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock,
(iii) combine the
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<PAGE>
outstanding Common Stock into a smaller number of shares of Common
Stock, or (iv) issue any securities of the Company in a
reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), the number
and kind of securities issuable in respect of each Warrant, commencing
on the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification, shall be
proportionately adjusted so that the registered holder of any Warrant
exercised after such time shall be entitled to receive upon exercise
of such Warrant the aggregate number and kind of securities which, if
such Warrant had been exercised immediately prior to such date and at
a time when the Common Stock transfer books of the Company were open,
it would have owned upon such exercise and been entitled to receive by
virtue of such dividend, distribution, subdivision, combination or
reclassification. Such adjustments shall be made successively whenever
any event listed above shall occur.
(b) If the Company shall fix a record date for the making of a
distribution to holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation other
than a consolidation or merger in respect of which an adjustment is
made pursuant to Section 10 hereof) of evidences of indebtedness or
assets (including cash) or rights, options, warrants or other
securities entitling them to subscribe for, purchase, convert to,
exchange for or otherwise acquire Common Stock, the Purchase Price in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Purchase Price on such
record date, less the fair market value (as determined in good faith
by the Board of Directors of the Company) of the portion of the
assets, evidences of indebtedness or such rights, options, warrants or
other securities so to be distributed or paid applicable to one share
of Common Stock and the denominator of which shall be such Purchase
Price. No such distribution shall be made on treasury shares. Such
adjustments shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such
distribution.
(c) If the Company shall at any time or from time to time after
the date hereof issue (x) shares of Common Stock, (y) rights, options,
warrants or other securities entitling the holder thereof to subscribe
for, purchase, convert to, exchange for or otherwise acquire Common
Stock or (z) rights, options, warrants or other securities entitling
the holder thereof to subscribe for, purchase, convert to, exchange
for or otherwise acquire such convertible or exchangeable securities
(in each case other than Excluded Securities (as defined herein) and
other than issuances that result in an adjustment under Section 8(a)
or 8(b) hereof), without consideration or for a consideration per
share of Common Stock less than the Purchase Price in
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<PAGE>
effect immediately prior to the issuance of such Common Stock or such
rights, options, warrants or other securities, the Purchase Price in
effect immediately prior to each such issuance shall forthwith be
adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(I) the total number of shares of Common Stock outstanding
immediately prior to such issuance (including any shares of Common
Stock deemed to have been issued pursuant to subsections (A) and (B)
of Section 8(c)(2) (it being understood that the shares of Common
Stock issuable upon exercise of the Warrants immediately prior to such
issuance shall be deemed to be outstanding for all purposes of the
computation required in this clause (A))) multiplied by the Purchase
Price in effect immediately prior to such issuance, plus
(II) the consideration received by the Company upon such
issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
pursuant to subdivisions (A) and (B) of Section 8(c)(2) (it being
understood that the shares of Common Stock issuable upon exercise of
the Warrants immediately prior to such issuance shall be deemed to be
outstanding for all purposes of the computation required in this
clause (B))) immediately after the issuance of such Common Stock.
For the purposes of any adjustment of the Purchase Price pursuant to
this Section 8(c), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors of the Company, irrespective of any
accounting treatment.
(2) In the case of (x) the issuance of rights, options or
warrants entitling the holder thereof to subscribe for, purchase or
otherwise acquire Common Stock, (y) securities convertible into or
exchangeable for Common Stock or (z) rights, options, warrants or other
securities convertible into or exchangeable for such convertible or
exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such rights, options or warrants
entitling the holder thereof to subscribe for, purchase or otherwise
acquire Common Stock shall be deemed to have been issued at the time
such rights, options or warrants were issued and for a consideration
equal to the consideration
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<PAGE>
(determined in the manner provided in subdivision (1) above), if any,
received by the Company upon the issuance of such rights, options or
warrants plus the minimum purchase price provided in such rights,
options or warrants for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of rights, options or
warrants to subscribe for, purchase or otherwise acquire such
convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
rights, options, warrants or securities were issued and for a
consideration equal to the consideration received by the Company for
any such rights, options, warrants and securities (excluding any cash
received on account of accrued interest or accrued dividends), plus
the consideration, if any, to be received by the Company upon the
conversion or exchange of such securities or the exercise of any
related rights, options or warrants (the consideration in each case to
be determined in the manner provided in subdivision (1) above);
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such rights, options or warrants or
conversions of or exchanges for such convertible or exchangeable
securities or any change in the consideration to be received by the
Company upon the exercise of any such rights, options or warrants or
conversions of or exchanges for such convertible or exchangeable
securities, other than a change resulting from the anti-dilution
provisions thereof, the Purchase Price shall forthwith be readjusted
to such Purchase Price as would have obtained had the adjustment made
upon the issuance of such rights, options, warrants or securities not
converted prior to such change been made upon the basis of such
change; and
(D) on the expiration of any such rights, options or
warrants, the termination of any such rights to convert or exchange or
the expiration of any rights, options or warrants related to such
convertible or exchangeable securities, the Purchase Price shall
forthwith be readjusted to such Purchase Price as would have obtained
had the adjustment made upon the issuance of such rights, options,
warrants or securities or rights, options or warrants related to such
securities been made upon the basis of the issuance of only the number
of shares of Common Stock actually issued upon exercise of such
rights, options or warrants, upon the conversion or exchange of such
securities or upon the exercise of the rights, options or warrants
related to such securities and subsequent conversion or exchange
thereof.
(4) "EXCLUDED SECURITIES"" means (A) shares of the Series A Cumulative
Non-redeemable Convertible Preferred Stock issued on the date hereof and
shares of Common Stock issued upon the conversion thereof; and (B) Common
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<PAGE>
Stock issued (I) to employees or directors of, or consultants to, the
Company, pursuant to any agreement, plan or arrangement approved by the
Board of Directors of the Company, or options to purchase or rights to
subscribe for such Common Stock, or securities by their terms convertible
into or exchangeable for such Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities, in
each case as approved by the Board of Directors of the Company, but only to
the extent that the maximum aggregate number of shares of Common Stock so
issued or issuable pursuant to all such agreements, plans and arrangements
does not exceed (x) 300,000 shares of Common Stock in the aggregate in any
fiscal year of the Company or (y) 600,000 shares of Common Stock in the
aggregate (in each case subject to adjustment to reflect stock splits,
stock dividends, stock combinations, recapitalizations and like
occurrences) and (II) upon the exercise of the warrants and options
exercisable for Common Stock outstanding on the date hereof as specified on
Schedule A attached hereto.
(d) If at any time, as a result of an adjustment made pursuant to
Section 8(a) hereof, the registered holder of any Warrant thereafter
exercised shall become entitled to receive any securities of the
Company other than shares of Common Stock, thereafter the number of
such other securities so receivable upon exercise of any Warrant shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
shares of Common Stock contained in this Section 8 and the provisions
of this Warrant Certificate with respect to the shares of Common Stock
shall apply on like terms to any such other securities.
(e) Upon each adjustment of the Purchase Price as a result of the
calculations made in Section 8(b) or 8(c) hereof, each Warrant
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase
Price, that number of shares of Common Stock (calculated to the
nearest hundredth) obtained by (i) multiplying (x) the number of
shares covered by a Warrant immediately prior to this adjustment of
the number of shares by (y) the Purchase Price in effect immediately
prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after
such adjustment of the Purchase Price.
(f) Upon each adjustment of the number of shares of Common Stock
for which the Warrants are exercisable as provided in Section 8(a)
hereof, the Purchase Price payable upon exercise of a Warrant shall be
adjusted by multiplying such Purchase Price immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the
number of shares of Common Stock for which a Warrant was exercisable
prior to such adjustment and (ii) the denominator of which shall be
the number of shares of Common Stock for which a Warrant is
exercisable immediately thereafter.
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<PAGE>
(g) Irrespective of any adjustment or change in the Purchase
Price or the number or kind of securities issuable upon the exercise
of each Warrant, the Warrant Certificates theretofore or thereafter
issued may continue to express the Purchase Price per share and the
number and kind of shares which were stated in the initial Warrant
Certificate or any Warrant Certificate(s) subsequently issued in lieu
thereof (but the actual kind and number of securities purchasable upon
the exercise of Warrants represented by any Warrant Certificate and
the Purchase Price thereof shall in all cases be as determined in
accordance with the provisions contained therein).
(h) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of such Common Stock
at such adjusted Purchase Price.
(i) The Company may, at its option and in its sole discretion, at
any time or from time to time during the term of the Warrants, reduce
the then current Purchase Price to an amount deemed appropriate by the
Board of Directors of the Company (but in no event shall the Purchase
Price be less than the par value of a share of Common Stock);
provided, however, that if the Company elects to so reduce the then
current Purchase Price, (i) such reduction shall remain in effect for
at least a 30-day period, after which time the Company may, at its
option, reinstate the Purchase Price in effect prior to such reduction
(subject to adjustment by virtue of or in connection with the
provisions of Sections 8 and 10 hereof, and (ii) the Company shall
deliver to the registered holders of Warrants an unqualified opinion
of counsel prior to such reduction, to the effect that such reduction
will not result in any federal or New York State or New York local
taxable income (other than increased gains or reduced losses on the
sale of shares of Common Stock) to such holders as a result of such
reduction. Whenever the Purchase Price is so reduced, the Company
shall give notice to the registered holders of Warrants of the
reduction at least 15 days prior to the date on which the reduced
Purchase Price takes effect stating the reduced Purchase Price and the
period it will be in effect.
SECTION 9. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 8 hereof, the Company
shall forthwith file, at the office of the Company and any transfer agent
designated by the Company for the Warrants, a certificate of its chief
financial officer, showing in detail the facts requiring such adjustment and
the Purchase Price then in effect, and mail a copy of such certificate by
first-class certified mail, return receipt requested, postage prepaid, to each
registered holder of a Warrant Certificate in accordance with Section 16
hereof.
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SECTION 10. Consolidation, Merger or Sale of Assets, etc. (a) In case
the Company after the date hereof (i) shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation of such
consolidation or merger, or (ii) shall permit any other Person to consolidate
with or merge into the Company and the Company shall be the continuing or
surviving Person but, in connection with such consolidation or merger, the
Common Stock shall be changed into or exchanged for stock or other securities
of any other Person or cash or any other property, or there shall be no such
change or exchange but the holders of Common Stock shall hold 50% or less of
the aggregate voting power of the continuing or surviving Person, or (iii)
shall transfer all or substantially all of its properties or assets to any
other Person, or (iv) shall effect a capital reorganization or reclassification
of Common Stock (other than a capital reorganization or reclassification for
which adjustment in the Purchase Price is provided for in Section 8 hereof),
then, and in the case of each such transaction, proper provision shall be made
so that, upon the basis and the terms and in the manner provided herein, the
registered holders of Warrants upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive (at the
aggregate Purchase Price in effect at the time of such consummation for all
Common Stock issuable upon such exercise immediately prior to such
consummation), in lieu of shares of the Common Stock issuable upon such
exercise prior to such consummation, the stock and other securities, cash and
property to which such holders would have been entitled upon such consummation
if such holder had exercised the rights represented by the Warrants immediately
prior thereto, subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in this Section
10 and in Section 8.
(b) Notwithstanding anything contained herein to the contrary, the
Company will not effect any of the transactions described in subdivisions (i)
through (iv) of Section 10(a) unless, prior to the consummation thereof, each
Person (other than the Company) that may be required to deliver any stock,
securities, cash or property upon the exercise of Warrants as provided herein
shall assume, by written instrument delivered to, and reasonably satisfactory
to, the registered holders of the Warrants, (i) the obligations of the Company
under the Warrants (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under the Warrants),
(ii) the obligations of the Company under the Registration Rights Agreement,
and (iii) the obligation to deliver to the registered holders of the Warrants
such shares of stock, securities, cash or property as, in accordance with the
provisions of this Section 10, such holders may be entitled to receive. The
Warrants shall thereafter continue in full force and effect and the terms
thereof (including, without limitation, all of the provisions of this Section
10) shall be applicable to the stock, securities, cash or property which such
Person may be required to deliver upon any exercise of the Warrants or the
exercise of any rights pursuant hereto.
(c) If any event shall occur as to which the provisions of Sections 8
and 10(a)-(b) are not strictly applicable but as to which the failure to make
any adjustment would adversely affect the purchase rights represented by this
Warrant in accordance with the essential intent and principles of such sections
(which are to place the registered holders of Warrants in a position as nearly
equal as possible to the position such holders would have
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<PAGE>
occupied had such holders purchased shares of Common Stock on the date hereof),
then, in each such case, the Board of Directors of the Company, in its good
faith, shall cause the Company to make such adjustments, on a basis consistent
with the essential intent and principles established in Sections 8 and
10(a)-(b), necessary to preserve, without dilution, the purchase rights
represented by the Warrants.
(d) The provisions of this Section 10 shall similarly apply to
successive mergers or consolidations or sales or other transfers or
transactions.
SECTION 11. Fractional Shares. (a) The Company shall not be required
to issue fractions of shares of Common Stock upon exercise of the Warrants or
to distribute certificates which evidence fractional shares. Subject to Section
11(b) hereof, in lieu of such fractional shares of Common Stock, there shall be
paid to each registered holder of a Warrant Certificate with regard to which a
fractional share would otherwise be issuable at the time such Warrant
Certificate is exercised as herein provided an amount in cash equal to, at the
election of the Company, (i) the same fraction of the current market value of a
share of Common Stock or (ii) such holder's respective pro rata share of the
net proceeds of the sale by the Company of the aggregate fractional shares of
Common Stock to which such holder would otherwise have been entitled. If the
Company shall elect to pay the holders their pro rata share of the net proceeds
of the sale of the aggregate fractional shares of Common Stock, the Company
shall, within ten (10) Business Days following the date of the exercise of
Warrants with regard to which such fractional shares would otherwise be
issuable, aggregate and sell all fractional shares at then prevailing prices
and shall deliver the net proceeds of such sales pro rata to each of the
registered holders entitled thereto. For purposes of this Section 11(a), the
current market value of a share of Common Stock shall be the average Closing
Price (as determined pursuant to Section 11(c) hereof) for the ten (10) Trading
Days immediately preceding the date of such exercise.
(b) If the Company is unable to pay any amounts of cash in respect of
fractional shares of Common Stock in accordance with Section 11(a) hereof by
reason of the provisions of the Company's then outstanding debt obligations or
otherwise, and insufficient shares of Common Stock are available to permit the
Company to aggregate and sell such fractional shares as provided therein, the
Company shall deliver to such holders an additional share of Common Stock in
lieu of such fractional shares.
(c) For the purpose of any computation required in accordance with
this Section 11, the "CLOSING PRICE" with respect to the Common Stock on any
day (other than a day on which securities are generally not traded on the
applicable securities exchange or in the applicable securities market) shall
mean the average of the reported closing bid and asked prices on the Nasdaq
National Market or, if the Common Stock is not listed or admitted to trading on
the Nasdaq National Market, the last reported sales price regular way on the
New York Stock Exchange or the American Stock Exchange or, if the Common Stock
is not listed or admitted to trading on the Nasdaq National Market, the New
York Stock Exchange or the American Stock Exchange, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to time by the Company for
that purpose. If the Security is not so listed, traded or
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<PAGE>
quoted, the Closing Price for any day shall mean the fair value of the security
as determined in good faith by the Board of Directors of the Company. The term
"TRADING DAY" shall mean a day on which the principal national securities
exchange on which the security is listed or admitted to trading is open for the
transaction of business or, if the security is not listed or admitted to
trading on any national securities exchange, a Business Day. The term "BUSINESS
DAY" shall mean any day other than a Saturday, a Sunday, or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
SECTION 12. Right of Action; Entitlement to Vote or Receive Dividends.
(a) All rights of action in respect of the Warrants are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the registered holder
of any other Warrant Certificate, may, on its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, its right to
exercise the Warrants evidenced by such Warrant Certificate in the manner
provided in such Warrant Certificate.
(b) Prior to the exercise of the Warrants evidenced thereby and the
date of the certificate representing the shares of Common Stock issuable upon
exercise of such Warrants pursuant to Section 7 hereof, the registered holder
of a Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company with respect to, or be deemed for any purpose the
holder of, shares for which the Warrants shall be exercisable, including,
without limitation, the right to vote or to receive dividends, or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as specifically provided herein.
SECTION 13. Agreement of Warrant Certificate Holders. Every registered
holder of a Warrant Certificate, by accepting the same, consents and agrees
with the Company and with every other registered holder of a Warrant
Certificate that (a) the Warrant Certificates are transferable only on the
registry books of the Company if surrendered at the Company Office, duly
endorsed or accompanied by a proper instrument of transfer, and (b) the Company
may deem and treat the Person in whose name the Warrant Certificate is
registered as the absolute owner thereof and of the Warrants evidenced thereby
(notwithstanding any notations of ownership or writing on the Warrant
Certificates) for all purposes whatsoever, and the Company shall not be
affected by any notice to the contrary.
SECTION 14. Registration Rights Agreement; Legends; Restrictions on
Transfer.
(a) The registered holders of the shares of Common Stock or other
securities issuable upon the exercise of the Warrants evidenced hereby (the
"WARRANT SHARES") shall have the rights with respect to the registration of
such Warrant Shares as set forth in the Registration Rights Agreement. The
Company shall keep on file at the Company
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<PAGE>
Office a copy of the Registration Rights Agreement, including any amendments
thereto, and shall furnish copies thereof, without charge, to any registered
holder upon request.
(b) The registered holder of this Warrant Certificate, each transferee
hereof and any holder or transferee of any Warrant Shares, by acceptance
thereof, each agrees that (i) no public distribution of Warrant Shares will be
made in violation of the Securities Act and (ii) during such period as the
delivery of a prospectus with respect to the Warrant Shares may be required by
the Securities Act, no public distribution of Warrant Shares will be made in a
manner or on terms different from those set forth in, or without delivery of, a
prospectus then meeting the requirements of the Securities Act, and in
compliance with applicable state securities laws; provided that any holder or
transferee of any Warrant Shares may sell such Warrant Shares in one or more
transactions not requiring registration under the Securities Act.
(c) Until such time as (i) the resale of the Warrants evidenced by the
Warrant Certificate have been registered under an effective registration
statement under the Securities Act, (ii) a restrictive legend is not required
in order to ensure compliance with the Securities Act or (iii) applicable state
securities laws or any restrictions on transfer have ceased or are permitted to
terminate under the Securities Act and applicable state securities law
(including, without limitation, pursuant to Rule 144 of the Securities Act),
this Warrant Certificate shall bear a legend in substantially the following
form by which the holder hereof shall be bound (and any transferee hereof shall
agree in writing to be bound):
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR ANY
SECURITIES ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
SECURITIES LAWS, AND NEITHER SUCH WARRANTS NOR SUCH SECURITIES MAY BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNDER SAID ACT AND LAWS OR AN EXEMPTION THEREFROM.
(d) Until such time as (i) the resale of the Warrant Shares have been
registered under an effective registration statement under the Securities Act,
(ii) a restrictive legend is not required in order to ensure compliance with
the Securities Act or (iii) applicable state securities laws or any
restrictions on transfer have ceased or are permitted to terminate under the
Securities Act and applicable state securities laws, the certificate or
certificates evidencing the Warrant Shares shall bear a legend in substantially
the following form by which the holder thereof shall be bound (and any
transferee thereof shall agree in writing to be bound):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
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<PAGE>
SECURITIES LAWS, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNDER SAID ACT AND LAWS OR AN EXEMPTION THEREFROM.
(e) Upon satisfaction of the conditions set forth in Section 14(c) or
14(d) hereof, as the case may be, the Company shall, upon the request of any
registered holder thereof, execute and deliver (without expense to such holder
or its designee) a Warrant Certificate(s) or certificate(s) evidencing Warrant
Shares, as the case may be, to the holder thereof or its designee, of like
tenor, not bearing the applicable legend otherwise required by this Section 14,
provided that, in connection with the conditions set forth in Sections
14(c)(ii) and (iii) and 14(d)(ii) and (iii), such holder shall deliver to the
Company an opinion of counsel for such holder, in form and substance reasonably
satisfactory to the Company, to the effect that such legend is no longer
required under applicable law.
(f) With a view to making available to holders of the Warrant Shares
the benefits of certain rules and regulations of the Securities and Exchange
Commission (including without limitation Rules 144 and 144A under the
Securities Act) that may permit the sale of Warrants and Warrant Shares to the
public without registration, the Company agrees to take any and all such
actions as may be reasonably required of it to make available to such holders
such benefits, including without limitation, to: (i) make and keep public
information available, as those terms are understood and defined in Rule 144
under the Securities Act, and (ii) file with the Securities and Exchange
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Securities Exchange Act of 1934.
SECTION 15. Issuance of New Warrant Certificates. Notwithstanding any
of the provisions contained in the Warrant Certificates to the contrary, the
Company may, at its option, issue new Warrant Certificates evidencing Warrants
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price per share and the number or kind or
class of shares of stock or other securities or property purchasable under the
Warrant Certificates made in accordance with the provisions thereof.
SECTION 16. Notice of Proposed Actions. In the event (a) that the
Company shall propose to pay any dividend to the holders of its Common Stock or
to make any other distribution to the holders of its Common Stock, (b) that the
Company shall propose to offer to the holders of its Common Stock rights,
warrants or options to subscribe for or to purchase any additional shares of
Common Stock or shares of stock of any class or any other securities, rights or
options, (c) that the Company or any of its stockholders shall propose a public
offering of any shares of Common Stock or other securities for which the
Warrants shall be exercisable, (d) of any capital reorganization the Company,
or any recapitalization or reclassification of its Capital Stock or other
transaction described in Section 10 hereof, (e) of any consolidation, merger,
sale, transfer or other disposition of all or substantially all of the
property, assets or business of the Company, (f) of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company, (g) of the
effectuation
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<PAGE>
by the Company of a transaction or series of related transactions in which 50%
or more of the voting power of the Company is disposed of, or (h) of any other
action that would require an adjustment in the Purchase Price or in the shares
of Common Stock or other securities or assets to which any registered holder of
Warrants is entitled pursuant to Section 8 or Section 10 hereof; then, in each
such case, the Company shall give to each registered holder of a Warrant
Certificate notice of such proposed action specifying (i) the record date for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
sale, transfer, dissolution, liquidation, winding-up, payment, distribution or
offering is to take place, (iii) the time, if any such time is to be fixed, as
of which the holders of record of Common Stock shall be entitled to exchange
their shares of Common Stock for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up, and (iv) in the
case of a public offering, any additional information reasonably necessary to
permit the registered holder to determine whether to exercise this Warrant.
Such notice shall be given at least 20 days prior to the earliest date therein
specified.
SECTION 17. Notices. Notices, demands or other communications given or
made in connection with the Warrants (collectively, "NOTICES") shall be in
writing. Notices shall be sufficiently given or made when delivered in person,
when dispatched by telegram or (upon written confirmation of receipt) by
electronic facsimile transmission or (upon written confirmation of receipt)
when dispatched by a nationally recognized overnight courier service, or five
(5) Business Days after being deposited in the mail, postage prepaid, if
mailed. All Notices shall be delivered as follows:
(a) if to the Company, at:
ALCOHOL SENSORS INTERNATIONAL, LTD.
11 Oval Drive
Islandia, New York 11722
Attention: Joseph M. Lively
Telephone Number: 516-342-1515
Fax Number: 516-342-1550
or at such other address as the Company may have furnished to the registered
holders of Warrants in writing, and
(b) if to the holder of any Warrant, at the address of such holder as
shown on the registry books of the Company or at such other address as such
holder may have furnished to the Company in writing.
SECTION 18. Supplements and Amendments. This Warrant Certificate and
the Warrants evidenced hereby may not be amended, supplemented or otherwise
modified, except with the prior written consent of the Company and the
registered holders of a majority of the then outstanding Warrants; provided,
that without the consent of each holder affected
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<PAGE>
thereby, no such amendment, supplement or other modification shall (a) change
the Final Expiration Date, change the Purchase Price or the number of shares of
Common Stock or other securities for which the Warrants are exercisable or
modify or amend the provisions of Section 8 or 10 hereof, or (b) amend the
provisions to reduce the percentage of holders of Warrants whose consent is
required in order to take action or to make any consent.
SECTION 19. Successors. All the covenants and provisions contained
herein by or for the benefit of the Company shall bind and inure to the benefit
of its successors and assigns hereunder; provided that the Company may not
assign or otherwise transfer any of its rights or obligations under this
Warrant Certificate without the prior written consent of each of the registered
holders of this Warrant Certificate.
SECTION 20. Benefits of this Warrant Certificate. Nothing in this
Warrant Certificate shall be construed to give to any Person other than the
Company and the registered holder of this Warrant Certificate any legal or
equitable right, remedy or claim under this Warrant Certificate; but this
Warrant Certificate shall be for the sole and exclusive benefit of the Company
and the registered holder and registered assigns of this Warrant Certificate.
SECTION 21. Specific Performance. The registered holders of the
Warrants shall have the right to specific performance by the Company of the
terms and provisions of this Warrant Certificate. The Company irrevocably
waives, to the extent that it may do so under applicable law, any defense based
on the adequacy of a remedy at law which may be asserted as a bar to the remedy
of specific performance in any action brought against the Company for specific
performance of the terms and provisions of this Warrant Certificate by the
holders of the Warrants.
SECTION 22. Governing Law; Jurisdiction. (a) This Warrant Certificate
shall be governed by and construed in accordance with the internal laws of the
State of New York without reference to the principles of conflict of laws.
(b) With respect to any suit, action or proceeding initiated by the
Company or the registered holder of this Warrant Certificate arising out of,
under or in connection with this Warrant Certificate, the Company hereby
submits to the non-exclusive jurisdiction of any state or Federal court sitting
in New York City and irrevocably waives, to the fullest extent permitted by
law, any objection that it may now have or hereafter obtain to the
establishment of venue in any such court in any such suit, action or
proceeding.
(c) THE COMPANY HEREBY AGREES (AND AGREES ON BEHALF OF ITS SUCCESSORS
AND ASSIGNS) TO WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY COURT AND IN ANY
ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE COMPANY OR ANY OF ITS RESPECTIVE
SUCCESSORS OR ASSIGNS IS A PARTY, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY
OR INDIRECTLY OUT OF THIS WARRANT CERTIFICATE.
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<PAGE>
SECTION 23. Severability. If one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect, for any reason, the validity, legality
and enforceability of the remaining provisions contained herein shall not be in
any way affected or impaired thereby, and the provision held to be invalid,
illegal or unenforceable shall be reformed to the minimum extent necessary, and
in a manner as consistent with the purposes thereof as is practicable, so as to
render it valid, legal and enforceable, it being intended that all of the
rights and privileges of the holder hereof shall be enforceable to the fullest
extent permitted by law.
SECTION 24. Descriptive Headings. Descriptive headings of the several
Sections hereof are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company caused this Warrant Certificate to be
duly executed and its corporate seal to be hereunto affixed and attested, all
as of the day and year first above written.
ALCOHOL SENSORS INTERNATIONAL, LTD.
By:
---------------------------
Name:
Title:
ATTEST:
- -----------------------------
Secretary
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED hereby sells, assigns
-------------------------------
and transfers unto
-------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Date: , 19
-------------- --
-------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States.
A-1
<PAGE>
FORM OF ELECTION TO PURCHASE COMMON STOCK
(To be executed if holder desires to exercise the
Warrants evidenced by the Warrant Certificate.)
To: ALCOHOL SENSORS INTERNATIONAL, LTD.
The undersigned hereby irrevocably elects to exercise _____________
Warrants represented by this Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercise of such Warrants and requests that
certificates for such shares of Common Stock be issued in the name of:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of
such Warrants shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Date: , 19
------------- --
--------------------
Signature
A-2
<PAGE>
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States.
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement or any change whatsoever.
A-3
<PAGE>
SCHEDULE A
Certain Excluded Securities
A-4
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ALCOHOL SENSORS INTERNATIONAL, LTD.
(PURSUANT TO SECTION 805 OF
THE BUSINESS CORPORATION LAW
OF THE STATE OF NEW YORK)
Alcohol Sensors International, Ltd., a corporation organized and
existing under the laws of the State of New York (the "Corporation" or the
"Company"), does hereby certify as follows:
1. The name of the Corporation is Alcohol Sensors International, Ltd.
2. The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of New York on February 14, 1992. A
Certificate of Amendment amending the Certificate of Incorporation was filed
with the Secretary of State on December 20, 1996.
3. The amendment of the Certificate of Incorporation of the
Corporation effected by this certificate of amendment is as follows:
To add provisions stating the number, designation, relative rights,
preferences, and limitations of the shares of the Series A
Cumulative Non-redeemable Convertible Preferred Stock, as fixed by
the Board of Directors of the Company.
4. To accomplish the foregoing amendment, Paragraph 4 of the
Certificate of Incorporation of the Company, relating to the aggregate number
of shares which the Company is authorized to issue and classes thereof, is
hereby amended by adding the following at the end of such Article Fourth:
"Of the 3,000,000 authorized shares of Convertible Preferred Stock of
the Company, 833,333 shares are hereby designated Series A Cumulative
Non-redeemable Convertible Preferred Stock, par value $.001 per share, and
shall possess the rights and preferences set forth below:
SECTION 1. Number of Shares and Designation. The shares of such series
shall have a par value of $.001 per share and shall be designated as Series A
Cumulative Non-redeemable Convertible Preferred Stock (hereinafter called the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 833,333.
SECTION 2. Definitions. As used herein, the following terms shall have
the following meanings:
<PAGE>
(a) The term "Board of Directors" shall mean the board of directors of
the Corporation and any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series A Preferred
Stock.
(b) The term "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(c) The term "Closing Price" with respect to the Common Stock on any
day (other than a day on which securities are generally not traded on the
applicable securities exchange or in the applicable securities market) shall
mean the average of the reported closing bid and asked prices on the Nasdaq
National Market or, if the Common Stock is not listed or admitted to trading on
the Nasdaq National Market, the last reported sales price regular way on the
New York Stock Exchange or the American Stock Exchange or, if the Common Stock
is not listed or admitted to trading on the Nasdaq National Market, the New
York Stock Exchange or the American Stock Exchange, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to time by the Corporation
for that purpose.
(d) The term "Common Stock" shall mean the common stock, par value
$.001 per share, of the Corporation or, subject to the provisions of Section 5,
such other security resulting from any reclassification or reclassifications
thereof; provided, however, that if at any time there shall be more than one
such resulting class, the shares of each such class then issuable upon
conversion of the Series A Preferred Stock shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting form all such reclassifications.
(e) The term "Conversion Date" shall have the meaning set forth in
Section 5(b).
(f) The term "Conversion Price" shall have the meaning set forth in
Section 5(a).
(g) The term "Dividend Payment Date" shall have the meaning set forth
in Section 3(b).
(h) The term "Dividend Period" shall mean the period from and
including the Initial Issue Date to but not including the first Dividend
Payment Date and thereafter, each semi-annual period from and including each
Dividend Payment Date to but not including the next Dividend Payment Date.
(i) The term "Event of Conversion" shall mean the twentieth day during
any period of thirty consecutive days on which the Closing Price is at least
$8.00 per share.
(j) The term "Excluded Securities" shall mean:
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<PAGE>
(x) Common Stock issued to employees or directors of, or consultants
to, the Corporation, pursuant to any agreement, plan or arrangement
approved by the Board of Directors, or options to purchase or rights to
subscribe for such Common Stock, or securities by their terms convertible
into or exchangeable for such Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities, in
each case as approved by the Board of Directors, but only to the extent
that the maximum aggregate number of shares of Common Stock so issued or
issuable subsequent to the Initial Issue Date pursuant to all such
agreements, plans and arrangements do not exceed (x) 300,000 shares of
Common Stock in the aggregate in any fiscal year of the Corporation or (y)
600,000 shares of Common Stock in the aggregate (in each case subject to
adjustment to reflect stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences); and
(y) the Warrants and shares of Common Stock issued upon the exercise
thereof; and
(z) Common Stock issued upon the exercise of warrants or options
outstanding on December 20, 1996.
(k) The term "Initial Issue Date" shall mean the date that shares of
Series A Preferred Stock are first issued by the Corporation.
(l) The term "Junior Stock" shall mean the Common Stock and any other
class or series of capital stock of the Corporation other than the Series A
Preferred Stock.
(m) The term "Liquidation Preference" shall mean the Stated Value per
share plus dividends (whether or not declared) accrued and unpaid thereon to
the date of liquidation, dissolution or other winding up, or the date of the
sale of all or substantially all of the assets of the Corporation or the merger
or consolidation of the Corporation with or into any Person in a transaction in
which the Corporation is not the surviving entity.
(n) The term "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company or other entity of any kind,
and shall include any successor (by merger or otherwise) thereof.
(o) The term "Record Date" shall mean the date designated by the Board
of Directors of the Corporation at the time a dividend is declared; provided,
however, that such Record Date shall not be more than 30 days nor less than 10
days prior to the respective Dividend Payment Date or such other date
designated by the Board of Directors for the payment of dividends.
(p) The term "Stated Value" shall mean $3.00 (subject to equitable
adjustment to reflect stock splits, stock dividends, stock combinations,
recapitalization and like occurrences and dividends and other distributions to
holders of Common Stock of indebtedness or assets of the Corporation).
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(q) The term "Warrants" shall mean warrants to purchase 833,333 shares
of Common Stock (subject to adjustment as provided in the certificates
evidencing such warrants) being issued on the Initial Issue Date to the initial
holder of the Series A Preferred Stock.
SECTION 3. Dividends; Other Distributions. (a) The holders of shares
of Series A Preferred Stock shall be entitled to receive cash dividends out of
funds legally available for payment of dividends. Dividends shall be payable in
cash at the rate of 9.0% of the Stated Value per share per annum and 9.0% per
annum (compounded semi-annually) on any accrued dividends on such shares,
whether or not declared, that remain unpaid beyond the next succeeding Dividend
Payment Date; provided, however, that the Corporation shall, at its option, be
entitled to issue additional shares of Series A Preferred Stock in lieu of cash
in respect of dividends payable on or prior to the first four Dividend Payment
Dates occurring after the Initial Issue Date.
(b) Dividends on shares of Series A Preferred Stock shall accrue and
be cumulative from the date of issuance of such shares. Dividends shall be
payable semi-annually in arrears, when and as declared by the Board of
Directors of the Corporation, on June 30 and December 31 of each year (each, a
"Dividend Payment Date"), commencing on June 30, 1997. If any Dividend Payment
Date occurs on a day that is not a Business Day, any dividends otherwise
payable on such Dividend Payment Date shall be paid on the next Business Day.
Dividends shall be paid to the holders of record of the Series A Preferred
Stock as their names shall appear on the share register of the Corporation on
the Record Date for such dividend. Dividends payable in any Dividend Period
that is less than a full Dividend Period in length shall be computed on the
basis of a 180 day-period and actual days lapsed in such Dividend Period.
Dividends on account of arrears or any past Dividend Periods may be declared
and paid at any time to holders of record on the Record Date therefor.
(c) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for payment on
any Junior Stock any dividends whatsoever, whether in cash, property or
otherwise (other than dividends payable in shares of the class or series upon
which such dividends are declared or paid, or payable in shares of Common Stock
with respect to Junior Stock other than Common Stock, together with cash in
lieu of fractional shares), nor shall the Corporation make any distribution on
any Junior Stock, nor shall any Junior Stock be purchased, redeemed or
otherwise acquired by the Corporation or any of its Subsidiaries, nor shall any
monies be paid or made available for a sinking fund for the purchase or
redemption of any Junior Stock, in each case unless (i) all dividends to which
the holders of shares of Series A Preferred Stock shall have been entitled for
all previous Dividend Periods shall have been paid in full and (ii) all such
dividends for the immediately preceding two Dividend Periods shall have been
paid exclusively in cash.
(d) Without limiting any of the foregoing, in the event that full
dividends are not paid or made available to the holders of all outstanding
shares of Series A Preferred Stock and funds available for the payment of
dividends shall be insufficient to permit payment in full to holders of all
such stock of the full preferential amounts to which they are then entitled,
then the entire amount available for payment of dividends shall be distributed
ratably among all such holders of Series A Preferred Stock in proportion to the
full amount to which they would otherwise be respectively entitled.
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SECTION 4. Rights on Liquidation, Dissolution or Winding-Up. In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Corporation, the sale of all or substantially all of the assets of the
Corporation, the merger or consolidation of the Company with or into any Person
in a transaction in which the Company is not the surviving entity or the
effectuation by the Corporation of a transaction or series of related
transactions in which 50% or more of the voting power of the Corporation is
disposed of, the holders of Series A Preferred Stock shall then be entitled to
receive immediately, prior and in preference to any distribution to the holders
of any class or series of capital stock of the Corporation, whether now
existing or hereafter created, the Liquidation Preference per share of Series A
Preferred Stock (subject to equitable adjustment to reflect stock splits, stock
dividends, stock combinations, recapitalization and like occurrences and
dividends and other distributions to holders of Common Stock of indebtedness or
assets of the Corporation). If the assets of the Corporation available for
distribution to the holders of Series A Preferred Stock shall be insufficient
to permit the payment in full of the Liquidation Preference per share, the
assets of the Corporation shall be ratably distributed among the holders of the
Series A Preferred Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all such amounts thereon were paid in
full.
SECTION 5. Optional Conversion. (a) Each holder of any shares of
Series A Preferred Stock shall have the right, at such holder's option, at any
time or from time to time, to convert any of such shares into such whole number
of fully paid and non-assessable shares of Common Stock as is equal to the
quotient obtained by dividing (A) the Liquidation Preference of such share(s)
of Series A Preferred Stock being converted by (B) the Conversion Price, as
last adjusted and then in effect, for the share(s) of such Series A Preferred
Stock being converted, by surrender of the certificates representing the
share(s) of Series A Preferred Stock so to be converted in the manner provided
in Section 5(b) hereof. The conversion price per share at which shares of
Common Stock shall be issuable upon conversion of shares of Series A Preferred
Stock shall initially be $4.50; provided, however, that such conversion price
shall be subject to adjustment as set forth in Section 5(d) hereof (such price,
as so adjusted from time to time, the "Conversion Price").
(b) The holder of any shares of Series A Preferred Stock may exercise
the conversion right pursuant to Section 5(a) hereof as to any portion thereof
by delivering to the Corporation during regular business hours, at the office
of the Corporation or any transfer agent of the Corporation for the Series A
Preferred Stock as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice
stating that the holder elects to convert such shares or portion thereof and
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued. Conversion shall
be deemed to have been effected immediately prior to the close of business on
the date upon which the aforesaid delivery is made (the "Conversion Date"). As
promptly as practicable thereafter the Corporation shall issue and deliver to
or upon the written order of such holder, to the place designated by such
holder, a certificate to which such holder is entitled and a check or cash in
respect of any fractional interest in a share of Common Stock as provided in
Section 5(c) hereof. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a Common Stock
holder of record immediately prior to the close of business on the applicable
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Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a Common Stock holder of
record immediately prior to the close of business on the next succeeding date
on which the transfer books are open, but the Conversion Price shall be that in
effect on the Conversion Date. Upon conversion of only a portion of the number
of shares covered by a certificate representing shares of Series A Preferred
Stock surrendered for conversion, the Corporation shall issue and deliver to or
upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of the Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered, which new certificate shall entitle
the holder thereof to dividends on the shares of Series A Preferred Stock
represented thereby to the same extent as if the portion of the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.
(c) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series A Preferred Stock. If more than one share of
Series A Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of such Series A Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount equal to
the Closing Price on the relevant Conversion Date multiplied by such fractional
interest. Fractional interests shall not be entitled to dividends, and the
holders of fractional interests shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional interest.
(d) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) If the Corporation shall at any time, (1) pay a dividend on its
outstanding Common Stock in shares of Common Stock or effect a distribution
to holders of its outstanding Common Stock payable in shares of Common
Stock, (2) subdivide the outstanding Common Stock, (3) combine the
outstanding Common Stock into a smaller number of shares of Common Stock,
or (4) issue any securities of the Company in a reclassification of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), the Conversion Price in effect immediately prior thereto
shall be adjusted so that the registered holder of any share of Series A
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number and kind of shares of Common Stock and other securities
which such holder would have owned or have been entitled to receive after
the happening of any of the events described above had such share been
converted immediately prior to the happening of such event. An adjustment
made pursuant to this subparagraph (i) shall become effective immediately
after the Record Date in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(ii) If the Corporation shall at any time or from time to time after
the Initial Issue Date, issue (x) shares of Common Stock, (y) rights,
options, warrants or other
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securities entitling the holder thereof to subscribe for, purchase, convert
to, exchange for or otherwise acquire Common Stock (excluding any such
issuance that results in an adjustment under Section 5(d)(i) or 5(d)(iii)
hereof) or (z) rights, options, warrants or other securities entitling the
holder thereof to subscribe for, purchase, convert to, exchange for or
otherwise acquire such convertible or exchangeable securities (in each case
other than Excluded Securities and other than issuances that result in an
adjustment under Section 5(d)(i) or 5(d)(iv) hereof), without consideration
or for a consideration per share of Common Stock less than the Conversion
Price in effect immediately prior to the issuance of such Common Stock or
such rights, options, warrants or other securities, the Conversion Price in
effect immediately prior to each such issuance shall forthwith be adjusted
to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(I) the total number of shares of Common Stock outstanding
immediately prior to such issuance (including any shares of Common Stock
deemed to have been issued pursuant to subdivisions (A) and (B) of
Section 5(d)(ii)(3) (it being understood that the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock immediately
prior to such issuance shall be deemed to be outstanding for all
purposes of the computation required in this clause (A))) multiplied by
the Conversion Price in effect immediately prior to such issuance, plus
(II) the consideration received by the Corporation upon such
issuance, by
(B) the total number of shares of Common Stock outstanding (including
any shares of Common Stock deemed to have been issued pursuant to
subdivisions (A) and (B) of Section 5(d)(ii)(3) (it being understood
that the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock immediately prior to such issuance shall be deemed to be
outstanding for all purposes of the computation required in this clause
(A))) immediately after the issuance of such Common Stock.
For the purposes of any adjustment of the Conversion Price pursuant to this
Section 5(d)(ii), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor after
deducting therefrom any discounts, commissions or other expenses allowed,
paid or incurred by the Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall
be deemed
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to be the fair market value thereof as determined in good faith by the
Board of Directors, irrespective of any accounting treatment.
(3) In the case of (x) the issuance of rights, options or warrants
entitling the holder thereof to subscribe for, purchase or otherwise
acquire Common Stock, (y) securities convertible into or exchangeable for
Common Stock or (z) rights, options, warrants or other securities
convertible into or exchangeable for such convertible or exchangeable
securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such rights, options or warrants entitling
the holder thereof to subscribe for, purchase or otherwise acquire
Common Stock shall be deemed to have been issued at the time such
rights, options or warrants were issued and for a consideration equal to
the consideration (determined in the manner provided in subdivisions (1)
and (2) above), if any, received by the Corporation upon the issuance of
such rights, options or warrants plus the minimum purchase price
provided in such rights, options or warrants for the Common Stock
covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of rights, options or
warrants to subscribe for, purchase or otherwise acquire such
convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
rights, options, warrants or securities were issued and for a
consideration equal to the consideration received by the Corporation for
any such rights, options, warrants and securities (excluding any cash
received on account of accrued interest or accrued dividends), plus the
consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related
rights, options or warrants (the consideration in each case to be
determined in the manner provided in subdivisions (1) and (2) above);
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such rights, options or warrants or
conversions of or exchanges for such convertible or exchangeable
securities or any change in the consideration to be received by the
Corporation upon the exercise of any such rights, options or warrants or
conversions of or exchanges for such convertible or exchangeable
securities, other than a change resulting from the anti-dilution
provisions thereof, the Conversion Price shall forthwith be readjusted
to such Conversion Price as would have obtained had the adjustment made
upon the issuance of such rights, options, warrants or securities not
converted prior to such change been made upon the basis of such change;
and
(D) on the expiration of any such rights, options or warrants, the
termination of any such rights to convert or exchange or the expiration
of any rights, options or warrants related to such convertible or
exchangeable
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securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made upon the
issuance of such rights, options, warrants or securities or rights,
options or warrants related to such securities been made upon the basis
of the issuance of only the number of shares of Common Stock actually
issued upon exercise of such rights, options or warrants, upon the
conversion or exchange of such securities or upon the exercise of the
rights, options or warrants related to such securities and subsequent
conversion or exchange thereof.
(iii) In case the Corporation shall distribute to all holders of its
Common Stock any shares of capital stock of the Corporation (other than
Common Stock) or evidences of its indebtedness or assets (including cash)
or rights, options, warrants or other securities entitling them to
subscribe for, purchase, convert to, exchange for or otherwise acquire
Common Stock any of its securities (excluding those referred to in Section
5(d)(i), 5(d)(ii) or 5(d)(iv)), then in each such case, the Conversion
Price shall be adjusted so that the same shall equal the price determined
by multiplying (I) the Conversion Price in effect immediately prior to the
date of such distribution by (II) a fraction, the numerator of which shall
be such Conversion Price less the fair market value (as determined by the
Board of Directors, whose determination shall, if made in good faith, be
conclusive) of the portion of the capital stock, assets, evidences of
indebtedness or rights, options, warrants or other securities so
distributed applicable to one share of Common Stock, and the denominator of
which shall be such Conversion Price. Such adjustment shall become
effective immediately after the Record Date for the determination of
shareholders entitled to receive such distribution.
(iv) In case of any capital reorganization or any reclassification of
the stock of the Corporation (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
stock dividend or subdivision, split-up or combination of shares) or the
consolidation or merger of the Corporation with or into another Person
(other than a consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any change in the
Common Stock) or of the sale or other disposition of all or substantially
all the properties and assets of the Corporation as an entirety to any
other Person, or the effectuation by the Corporation of a transaction or
series of related transactions in which 50% or more of the voting power of
the Corporation is disposed of, each share of Series A Preferred Stock
shall after such reorganization, reclassification, consolidation, merger,
sale or other disposition be convertible into the kind and number of shares
of stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold or otherwise
disposed to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation, merger, sale or other disposition) upon
conversion of such shares would have been entitled upon such
reorganization, reclassification, consolidation, merger, sale or other
disposition. The provisions of this Section 5 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers,
sales or other dispositions.
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(e) Whenever the Conversion Price shall be adjusted as provided in
Section 5(d) the Corporation shall forthwith file, at the office of the
Corporation or any transfer agent designated by the Corporation for the Series
A Preferred Stock, a statement, signed by its chief financial officer, showing
in detail the facts requiring such adjustment and the Conversion Price then in
effect. The Corporation shall also cause a copy of such statement to be sent by
first-class certified mail, return receipt requested, postage prepaid, to each
holder of shares of Series A Preferred Stock at his or its address appearing on
the Corporation's records. Where appropriate, such copy may be given in advance
and may be included as part of a notice required to be mailed under the
provisions of Section 5(f).
(f) In the event the Corporation shall propose to take any action of
the types described in Section 5(d), the Corporation shall give notice to each
holder of shares of Series A Preferred Stock, in the manner set forth in
Section 5(e), which notice shall specify the record date, if any, with respect
to such action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be at the date of such notice) on the Conversion Price and the number, kind or
class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion
of shares of Series A Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 20
days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 30 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(g) The Corporation shall pay all documentary, stamp and other
transactional taxes attributable to the issuance of shares of capital stock of
the Corporation upon conversion of any shares of Series A Preferred Stock if
issued in the name of the record holder; otherwise, such amounts shall be paid
by the holder of such shares of Series A Preferred Stock.
(h) The Corporation shall reserve, free from preemptive rights, out of
its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock sufficient
shares to provide for the conversion from time to time of all outstanding
shares of Series A Preferred Stock.
(i) All shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon delivery by the
Corporation, be duly and validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and free from all taxes,
liens or charges with respect thereto and not subject to any preemptive rights.
SECTION 6. Automatic Conversion. Upon the occurrence of an Event of
Conversion, all shares of Series A Preferred Stock then outstanding shall, by
virtue of and simultaneously with the occurrence of the Event of Conversion and
without any action on the part of the holders thereof, be deemed automatically
converted into that number of fully paid and nonassessable shares of Common
Stock into which such shares would have been convertible in the event of
optional conversion at such time pursuant to Section 5 hereof.
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SECTION 7. Voting. (a) In addition to the rights hereinafter specified
in this Section 7 and any other rights provided by law or the By-laws of the
Corporation, each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of shares
of Common Stock (rounded to the nearest whole number) into which such share of
Series A Preferred Stock is then convertible as provided in Section 5 hereof,
entitled to vote on all matters as to which holders of Common Stock shall be
entitled to vote, in the same manner and with the same effect as such holders
of Common Stock, voting together on all matters with the holders of Common
Stock as one class.
(b) In addition to the rights specified in Section 7(a) hereof, the
holders of at least 51% in voting power of the Series A Preferred Stock, voting
separately as one class, shall have the special and exclusive right to elect
one director to the Board of Directors of the Corporation for so long as at
least 250,000 shares of Series A Preferred Stock are outstanding (as adjusted
for stock splits, stock dividends, stock combinations, recapitalizations and
like occurrences). In any election of directors pursuant to this Section 7 (b),
each holder of shares of Series A Preferred Stock shall be entitled to one vote
for each share of Series A Preferred Stock held by such holder. The special and
exclusive voting right of the holders of the Series A Preferred Stock, voting
separately as one class, contained in this paragraph (b) may be exercised
either at a special meeting of the holders of Series A Preferred Stock called
as provided below, or at any annual or special meeting of the stockholders of
the Corporation, or by written consent of such holders in lieu of a meeting.
The director to be elected pursuant to this Section 7(b) shall serve for a term
extending from the date of his election and qualification until the time of the
next succeeding annual meeting of stockholders or until his successor has been
elected and qualified, whichever is sooner. The director to be elected pursuant
to this Section 7(b) may be removed, with or without cause, only by the holders
of at least 51% in voting power of the Series A Preferred Stock.
(c) If at any time the directorship to be filled by the holders of
Series A Preferred Stock pursuant to Section 7(b) hereof has been vacant for a
period of ten or more days, the Secretary of the Corporation shall deliver a
notice of such vacancy to such holders of Series A Preferred Stock and, upon
the written request of the holders of record of shares representing at least
ten percent of the voting power of the Series A Preferred Stock then
outstanding, call a special meeting of the holders of Series A Preferred Stock
for the purpose of electing a director to fill such vacancy. Such meeting shall
be held at the earliest practicable date at such place as is specified in or
determined in accordance with the By-laws of the Corporation. If such meeting
shall not be called by the Secretary of the Corporation within ten days after
receipt of said written request, then the holders of record of shares
representing at least ten percent of the voting power of the Series A Preferred
Stock then outstanding may designate in writing one holder to call such meeting
at the expense of the Corporation, and such meeting may be called by such
person so designated upon the notice required for annual meetings of
stockholders and shall be held at such specified place. Any holder of Series A
Preferred Stock so designated shall have access to the stock books of the
Corporation relating to the Series A Preferred Stock for the purpose of calling
a meeting of the stockholders pursuant to these provisions.
(d) At any meeting held for the purpose of electing a director as
provided in Section 7(b) hereof, the presence, in person or by proxy, of the
holders of record of shares
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representing at least 51% of the voting power of the Series A Preferred Stock
then outstanding shall constitute a quorum of the Series A Preferred Stock for
such election. At any such meeting or adjournment thereof, the absence of a
quorum of the Series A Preferred Stock shall not prevent the election of
directors other than the director to be elected by holders of Series A
Preferred Stock pursuant to Section 7(b) hereof, and the absence of a quorum
for the election of such other directors shall not prevent the election of the
director to be elected by the holders of Series A Preferred Stock pursuant to
Section 7(b) hereof, and in the absence of either or both of such quorums, the
holders of record of shares representing at least 51% of the voting power
present in person or by proxy of the class of stock which lacks a quorum shall
have power to adjourn the meeting for the election of directors which they are
entitled to elect from time to time without notice other than announcement at
the meeting. A vacancy in the directorship to be elected by the holders of the
Series A Preferred Stock pursuant to Section 7(b) hereof may be filled only by
vote or written consent in lieu of a meeting of the holders of at least 51% of
the voting power of the Series A Preferred Stock.
(e) The Corporation shall not, without the affirmative consent or
approval of the holders of shares representing at least 51%, by voting power,
of the Series A Preferred Stock then outstanding, voting separately as one
class, given by written consent in lieu of a meeting or by vote at a meeting
called for such purpose for which notice shall have been given to the holders
of the Series A Preferred Stock in the manner provided in the By-laws of the
Corporation:
(i) designate or issue any additional shares of Series A Preferred
Stock or in any manner authorize, create, designate, issue or sell any
class or series of capital stock (including any shares of treasury stock)
or rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock (other than Excluded
Securities) or any debt security which by its terms is convertible into or
exchangeable for any equity security or has any other equity feature or any
security that is a combination of debt and equity, which, in each case, as
to the payment of dividends, distribution of assets or redemptions,
including, without limitation, distributions to be made upon the
liquidation, dissolution or winding up of the Corporation or a merger,
consolidation or sale of the assets thereof, is senior to or on a parity
with the Series A Preferred Stock or which in any manner adversely affects
in any material respect the rights of the holders of the Series A Preferred
Stock in their capacity as such;
(ii) in any manner alter or change the terms, designations, powers,
preferences or relative, participating, optional or other special rights,
or the qualifications, limitations or restrictions, of the Series A
Preferred Stock;
(iii) reclassify the shares of any class or series of Junior Stock
into shares of any class or series of capital stock (A) ranking, either as
to payment of dividends, distributions of assets or redemptions, including,
without limitation, distributions to be made upon the liquidation,
dissolution or winding up of the Corporation or a merger, consolidation or
sale of the assets thereof, senior to or on a parity with the Series A
Preferred Stock or (B) which in any manner adversely affects in any
material respect the rights of the holders of Series A Preferred Stock in
their capacity as such;
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<PAGE>
(iv) sell, abandon, transfer, lease or otherwise dispose of all or
substantially all of its properties or assets or merge or consolidate with
or into, or permit any subsidiary to merge with or into any other
corporation, corporations, entity or entities;
(v) take any action to voluntarily dissolve, liquidate or wind up or
carry out any partial liquidation or distribution or transaction in the
nature of a partial liquidation or dissolution; or
(vi) take any action to cause any amendment, alteration or repeal of
any of the provisions of (i) the Certificate of Incorporation or (ii) the
By-laws, if such amendment, alteration or repeal could adversely affect in
any material respect the rights of the holders of the Series A Preferred
Stock in their capacity as such or the director elected by the holders of
the Series A Preferred Stock.
SECTION 8. Ranking. Any and all classes of capital stock of the
Corporation, whether now existing or hereafter created, shall be deemed to rank
junior to the Series A Preferred Stock as to dividends and as to the
distribution of assets upon liquidation, dissolution or winding up.
SECTION 9. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable under any circumstances whatsoever, except (i) as provided in
Section 4 hereof or (ii) to the extent otherwise agreed to in writing by the
Corporation and the holders of any such shares.
SECTION 10. Notices. Unless otherwise specified in the Certificate of
Incorporation or the By-laws, all notices or communications given hereunder
shall be in writing and, if to the Corporation, shall be delivered to it at its
principal executive offices, and if to any holder of Series A Preferred Stock,
shall be delivered to it at its address as it appears on the stock books of the
Corporation.
5. The foregoing amendment to the Certificate of Incorporation was
authorized by the Board of Directors of the Corporation at a meeting of the
Board, pursuant to the authority expressly vested in it in the Corporation's
Certificate of Incorporation.
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IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate
of Incorporation has been executed this 20th day of December, 1996, by the
undersigned, who affirms that the statements made herein are true under
penalties of perjury.
--------------------------------
Name: Robert B. Whitney
Title: President, Chief Executive Officer
Attest:
- -----------------------------
Name: John Ruocco
Title: Secretary
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