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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 2000
T-NETIX, INC.
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(Exact name of registrant as specified in charter)
COLORADO 0-25016 84-1037352
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
67 INVERNESS DRIVE EAST, SUITE 100 ENGLEWOOD, CO 80112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 790-9111
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ITEM 5. OTHER EVENTS.
In a press release dated April 19, 2000, T-NETIX, Inc. (the "Company")
announced that it has raised $7.5 million of private financing, through the
issuance of $3.75 million of its Series A Preferred Stock and $3.75 million of
subordinated notes.
The convertible preferred stock was issued to a fund managed by Rose Glen
Capital Management, L.P. The preferred stock has a yield of 8% per annum and is
convertible into common stock at a conversion price based on the market price of
the common stock during a pricing period preceding conversion, up to a
conversion price of $6.05 (the "Fixed Conversion Price"). The Fixed Conversion
Price is subject to adjustment if the market price four months from issuance is
below $6.05. With limited exceptions, during the six month period following
issuance, the preferred stock is not convertible unless the market price equals
or exceeds the Fixed Conversion Price. Thereafter, the company has the right to
issue cash instead of common stock upon conversion of the preferred stock if the
closing price of the common stock is less than the Fixed Conversion Price. The
purchaser of the preferred stock also received five-year warrants to purchase
340,909 shares of common stock at an exercise price of $6.60.
The subordinated notes, which bear interest at prime rate plus one percent, were
issued to Daniel M. Carney, chairman of the board of T-NETIX The purchaser of
the note also receive five-year warrants to purchase 25,000 shares of common
stock at an exercise price of $6.05.
The Company intends to use the proceeds from these transactions to reduce the
outstanding balance on its bank credit facility. By completing these agreements
the Company has met the terms of its lenders for revision of existing covenants.
The foregoing information is a summary only and is qualified in its entirety by
the information contained in the documents filed as Exhibits to this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Amendment to the Articles of Incorporation of T-NETIX, Inc.,
defining the rights, preferences and limitations of the Series
A Convertible Preferred Stock.
4.2 Stock Purchase Warrant for the purchase of 340,909 shares of
T-NETIX, Inc. common stock.
4.3 Stock Purchase Warrant for the purchase of 25,000 shares of
T-NETIX, Inc. common stock.
99.1 T-NETIX, Inc.'s press release dated April 19, 2000.
99.2 Securities Purchase Agreement dated April 17, 2000, between
T-NETIX, Inc. and RGC International Investors, LDC.
99.3 Registration Rights Agreement dated April 17, 2000, between
T-NETIX, Inc. and RGC International Investors, LDC.
99.4 Subordinated Loan Agreement dated April 14, 2000, between
T-NETIX, Inc. and Daniel M. Carney.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
T-NETIX, Inc.
Dated: April 19, 2000 BY: /s/ Alvyn A. Schopp
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Alvyn A. Schopp, Chief Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
4.1 Amendment to the Articles of Incorporation of T-NETIX, Inc.,
defining the rights, preferences and limitations of the Series
A Convertible Preferred Stock.
4.2 Stock Purchase Warrant for the purchase of 340,909 shares of
T-NETIX, Inc. common stock.
4.3 Stock Purchase Warrant for the purchase of 25,000 shares of
T-NETIX, Inc. common stock.
99.1 T-NETIX, Inc.'s press release dated April 19, 2000.
99.2 Securities Purchase Agreement dated April 17, 2000, between
T-NETIX, Inc. and RGC International Investors, LDC.
99.3 Registration Rights Agreement dated April 17, 2000, between
T-NETIX, Inc. and RGC International Investors, LDC.
99.4 Subordinated Loan Agreement dated April 14, 2000, between
T-NETIX, Inc. and Daniel M. Carney.
</TABLE>
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EXHIBIT 4.1
AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
T-NETIX, INC.
(Pursuant to Section 7-106-102 of the
Colorado Business Corporation Act)
T-Netix, Inc., a corporation organized and existing under the
Colorado Business Corporation Act (the "CORPORATION"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
on April 14, 2000 pursuant to authority of the Board of Directors as required by
Section 7-106-102 of the Colorado Business Corporation Act (the "CBCA"):
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the
"BOARD") in accordance with the provisions of its Articles of Incorporation, the
Board of Directors hereby amends the Articles of Incorporation by adding a new
paragraph (d) to Section A of Article V of such Articles of Incorporation,
pursuant to which the Corporation authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $0.01 per share (the "PREFERRED
STOCK"), to read in its entirety as follows:
(d) The designation, number of shares, relative rights,
preferences, privileges, powers and limitations of such series of the Series A
Convertible Preferred Stock shall be as follows:
Series A Convertible Preferred Stock:
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I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 3,750 shares
of Preferred Stock, is Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "STATED VALUE").
II. RANK
The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $0.01 per share (the "COMMON STOCK"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Section IX of Article V.A(d) of the Articles of
Incorporation, such class or series of capital stock specifically, by its terms,
ranks senior to or pari passu with the Series A Preferred Stock) (collectively,
with the Common Stock, "JUNIOR SECURITIES"); (iii) pari passu with any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series A Preferred Stock obtained in accordance with Section
IX of Article V.A(d) of the Articles of Incorporation) specifically ranking, by
its terms, on parity with the Series A Preferred Stock ("PARI PASSU
SECURITIES"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Section IX of Article V.A(d) of the
Articles of Incorporation) specifically ranking, by its terms, senior to the
Series A Preferred Stock ("SENIOR SECURITIES"), in each case as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
III. DIVIDENDS
The Series A Preferred Stock shall not bear any dividends. In
no event, so long as any Series A Preferred Stock shall remain outstanding,
shall any dividend whatsoever be declared or paid upon, nor shall any
distribution be made upon, any Junior Securities, nor shall any shares of Junior
Securities be purchased or redeemed by the Corporation nor shall any moneys be
paid to or made available for a sinking fund for the purchase or redemption of
any Junior Securities (other than a distribution of Junior Securities), without,
in each such case, the written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock, voting together as a class.
IV. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Corporation shall commence a
voluntary case under the Federal bankruptcy laws or any other applicable Federal
or State bankruptcy, insolvency or similar law, or consent to the entry of an
order for relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its
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property, or make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or if a
decree or order for relief in respect of the Corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of thirty (30) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (each such event being considered a "LIQUIDATION EVENT"), no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation, dissolution or
winding up unless prior thereto, the holders of shares of Series A Preferred
Stock, subject to Section VI, shall have received the Liquidation Preference (as
defined in Section IV.C of Article V.A(d) of the Articles of Incorporation) with
respect to each share. If upon the occurrence of a Liquidation Event, the assets
and funds available for distribution among the holders of the Series A Preferred
Stock and holders of Pari Passu Securities (including any dividends or
distribution paid on any Pari Passu Securities after the Issue Date (as defined
in Section IV.C) of Article V.A(d) of the Articles of Incorporation) shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Corporation legally
available for distribution to the Series A Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate liquidation preference payable on all such shares. Any prior dividends
or distribution made after the Issue Date (as defined in Section IV.C of Article
V.A(d) of the Articles of Incorporation) shall offset, dollar for dollar, the
amount payable to the class or series to which such distribution was made.
B. CERTAIN ACTS DEEMED LIQUIDATION EVENT. Subject to Section
V.E of Article V.A(d) of the Articles of Incorporation, at the option of any
holder of Series A Preferred Stock, the sale, conveyance or disposition of all
or substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor (each, a "MAJOR TRANSACTION") shall either: (i) be deemed to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute upon consummation of and as a
condition to such transaction an amount equal to 120% of the Liquidation
Preference with respect to each outstanding share of Series A Preferred Stock or
(ii) be treated pursuant to Section VI.C(b) of Article V.A(d) of the Articles of
Incorporation. "PERSON" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
C. LIQUIDATION PREFERENCE. For purposes hereof, the
"LIQUIDATION PREFERENCE" with respect to a share of the Series A Preferred Stock
shall mean an amount equal to the sum of (i) the Stated Value thereof plus (ii)
an amount equal to eight percent (8%) per
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annum of such Stated Value for the period beginning on the date of issuance of
the Series A Preferred Stock (the "ISSUE DATE") and ending on the date of final
distribution to the holder thereof (prorated for any portion of such period)
plus (iii) all Conversion Default Payments (as defined in Section VI.E of
Article V.A(d) of the Articles of Incorporation), Delivery Default Payments (as
defined in Section VI.D of Article V.A(d) of the Articles of Incorporation) and
any other amounts owed to such holder pursuant to Section 2(c) of the
Registration Rights Agreement. The liquidation preference with respect to any
Pari Passu Securities shall be as set forth in the Amendment to the Articles of
Incorporation filed in respect thereof.
V. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each,
a "MANDATORY REDEMPTION EVENT") shall occur:
(i) The Corporation (a) fails to issue shares of Common
Stock to the holders of Series A Preferred Stock upon exercise by the holders of
their conversion rights in accordance with the terms of this Article V.A(d) of
the Articles of Incorporation (for a period of at least sixty (60) days if such
failure is solely as a result of the circumstances governed by the second
paragraph of Section VI.E of Article V.A(d) of the Articles of Incorporation and
the Corporation is using its best efforts to authorize a sufficient number of
shares of Common Stock as soon as practicable), (b) fails to transfer or to
cause its transfer agent to transfer (electronically or in certificated form)
any certificate for shares of Common Stock issued to the holders upon conversion
of the Series A Preferred Stock as and when required by this Article V.A(d) of
the Articles of Incorporation or by the Registration Rights Agreement, dated as
of April 17, 2000, by and among the Corporation and the other signatories
thereto (the "REGISTRATION RIGHTS AGREEMENT"), (c) fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate or any shares of Common Stock issued to the holders
of Series A Preferred Stock upon conversion of the Series A Preferred Stock as
and when required by this Article V.A(d) of the Articles of Incorporation or by
the Securities Purchase Agreement, dated as of April 17, 2000, by and between
the Corporation and the other signatories thereto (the "PURCHASE AGREEMENT") or
the Registration Rights Agreement, or (d) fails to fulfill its obligations
pursuant to Sections 4(c), 4(d), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase
Agreement (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for ten (10) days after
the Corporation shall have been notified thereof in writing by any holder of
Series A Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC"), prior to August 17, 2000, of the
Registration Statement (as defined in the Registration Rights Agreement, the
"REGISTRATION STATEMENT") required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within sixty (60) days after the
Registration Trigger
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Date (as defined in the Registration Rights Agreement), or any such Registration
Statement, after its initial effectiveness and during the Registration Period
(as defined in the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement, the "REGISTRABLE SECURITIES") otherwise cannot be made thereunder
(whether by reason of the Corporation's failure to amend or supplement the
prospectus included therein in accordance with the Registration Rights
Agreement, the Corporation's failure to file and obtain effectiveness with the
SEC of an additional Registration Statement required to be filed pursuant to
Section 3(b) of the Registration Rights Agreement or otherwise) for more than
twenty (20) consecutive days or more than forty-five (45) days in any twelve
(12) month period after such Registration Statement becomes effective;
(iii) The Corporation or any subsidiary of the Corporation
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for all or substantially
all of its property or business; or such a receiver or trustee shall otherwise
be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation; or
(v) The Corporation shall fail to maintain the listing of
the Common Stock on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX"),
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), at the option of
the holders of at least 50% of the then outstanding shares of Series A Preferred
Stock exercisable by delivery of written notice (the "MANDATORY REDEMPTION
NOTICE") to the Corporation of such Mandatory Redemption Event, or upon the
occurrence of any Mandatory Redemption Event specified in subparagraphs (iii) or
(iv), the then outstanding shares of Series A Preferred Stock shall become
immediately redeemable and the Corporation shall purchase each holder's
outstanding shares of Series A Preferred Stock for an amount per share equal to
the greater of (1) 120% multiplied by the sum of (a) the Stated Value of the
shares to be redeemed plus (b) an amount equal to eight percent (8%) per annum
of such Stated Value for the period beginning on the Issue Date and ending on
the date of payment of the Mandatory Redemption Amount (the "MANDATORY
REDEMPTION DATE") plus (c) all Conversion Default Payments (as defined in
Section VI.E of Article V.A(d) of the Articles of Incorporation), Delivery
Default Payments (as defined in Section VI.D of Article V.A(d) of the Articles
of Incorporation) and any other amounts owed to such holder pursuant to Section
2(c) of the Registration Rights Agreement, and (2) the "PARITY VALUE" of the
shares to be redeemed, where parity value for purposes of this Section V.A of
Article V.A(d) of the Articles of Incorporation means the product of (a) the
highest number of shares of Common Stock issuable upon conversion of such shares
of Series A Preferred Stock in accordance with Section VI of Article V.A(d) of
the Articles of Incorporation (without giving any effect to any limitations on
conversions of shares contained herein, and treating the Trading Day (as defined
in Section VI.B
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of Article V.A(d) of the Articles of Incorporation) immediately preceding the
Mandatory Redemption Date as the "CONVERSION DATE" (as defined in Section
VI.D(d) of Article V.A(d) of the Articles of Incorporation) for purposes of
determining the lowest applicable Conversion Price, unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion
Date), multiplied by (b) the highest Closing Price (as defined below) for the
Common Stock during the period beginning on the date of first occurrence of the
Mandatory Redemption Event and ending one day prior to the Mandatory Redemption
Date (the greater of such amounts being referred to as the "MANDATORY REDEMPTION
AMOUNT"). "CLOSING PRICE," as of any date, means the last sale price of the
Common Stock on the NNM as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of Series A
Preferred Stock and the Corporation ("BLOOMBERG") or, if NNM is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last sale price of such security is available in the over-the-counter market on
the electronic bulletin board for such security or in any of the foregoing
manners, the average of the bid prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in interest
of shares of Series A Preferred Stock for which the calculation of the Closing
Price is required.
B. TRADING MARKET REDEMPTION. If the Series A Preferred Stock
ceases to be convertible by any holder as a result of the limitations described
in Section VI.A(c) of Article V.A(d) of the Articles of Incorporation (a
"TRADING MARKET REDEMPTION EVENT"), and the Corporation has not, prior to, or
within thirty (30) days of, the date that such Trading Market Redemption Event
arises, (i) obtained the Stockholder Approval (as defined in Section VI.A(c) of
Article V.A(d) of the Articles of Incorporation) or (ii) eliminated any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities on the
Corporation's ability to issue shares of Common Stock in excess of the Maximum
Share Amount (as defined in Section VI.A(c) of Article V.A(d) of the Articles of
Incorporation), then the Corporation shall be obligated to redeem immediately
all of the then outstanding Series A Preferred Stock in accordance with this
Section V.B of Article V.A(d) of the Articles of Incorporation. An irrevocable
redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered
promptly to the holders of Series A Preferred Stock at their registered address
appearing on the records of the Corporation and shall state (i) that the Maximum
Share Amount (as defined in Section VI.A of Article V.A(d) of the Articles of
Incorporation) has been issued upon exercise of the Series A Preferred Stock,
(ii) that the Corporation is obligated to redeem all of the outstanding Series A
Preferred Stock and (iii) the Mandatory Redemption Date, which shall be a date
within five (5) business days of the earlier of (a) the date of the Trading
Market Redemption Notice or (b) the date on which the holders of the Series A
Preferred Stock notify
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the Corporation of the occurrence of a Trading Market Redemption Event. On the
Mandatory Redemption Date, the Corporation shall make payment of the Mandatory
Redemption Amount (as defined in Section V.A of Article V.A(d) of the Articles
of Incorporation) in cash.
C. OPTIONAL REDEMPTION. So long as for at all times during the
period beginning thirty (30) Trading Days prior to the date of the Optional
Redemption Notice (as defined below) and ending on the Optional Redemption Date
(as defined below) (i) all of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock are then (x) authorized and reserved
for issuance, (y) registered for resale under the 1933 Act by the holders of the
Series A Preferred Stock and sales of such shares may be made thereunder (or
such shares may otherwise be resold publicly without restriction) and (z)
eligible to be traded on the NNM, the Nasdaq SmallCap, the NYSE or the AMEX and
(ii) no Mandatory Redemption Event or Trading Market Redemption Event shall have
occurred and be continuing, then at any time after the Issue Date, on any day on
which, and for a period of ten (10) consecutive Trading Days prior thereto, the
Closing Price (as defined in Section V.A of Article V.A(d) of the Articles of
Incorporation) is less than or equal to $4.00 (subject to adjustment from time
to time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issue Date),
the Corporation shall have the right to deliver written notice to the holders of
Series A Preferred Stock of its intention to redeem all of the outstanding
shares of Series A Preferred Stock in accordance with this Section V.C of
Article V.A(d) of the Articles of Incorporation. Any notice (the "OPTIONAL
REDEMPTION NOTICE") of redemption hereunder (an "OPTIONAL REDEMPTION") shall be
delivered to the holders of the Series A Preferred Stock at their registered
addresses appearing on the books and records of the Corporation and shall state
(1) that the Corporation is exercising its right to redeem all of the
outstanding shares of Series A Preferred Stock and (2) the date of redemption
(the "OPTIONAL REDEMPTION DATE"), which date shall be ten (10) Trading Days
after the date of delivery of the Optional Redemption Notice. No such Optional
Redemption Notice may be sent to the holders of Series A Preferred Stock (a)
until the Corporation is permitted to redeem the Series A Preferred Stock
pursuant to this Section V.C of Article V.A(d) of the Articles of Incorporation
and (b) during any period of time in which the Corporation is in possession of
any nonpublic information, the disclosure of which would reasonably be expected
to cause a material increase in the trading price of the Corporation's Common
Stock. On the Optional Redemption Date, the Corporation shall purchase each
holder's outstanding shares of Series A Preferred Stock for an amount per share
equal to the greater of (1) 120% multiplied by the sum of (a) the Stated Value
of the shares to be redeemed, plus (b) an amount equal to eight percent (8%) per
annum of such Stated Value for the period beginning on the Issue Date and ending
on the Optional Redemption Date, plus (c) all Conversion Default Payments (as
defined in Section VI.E of Article V.A(d) of the Articles of Incorporation),
Delivery Default Payments (as defined in Section VI.D of Article V.A(d) of the
Articles of Incorporation) and any other amounts owed to such holder pursuant to
Section 2(c) of the Registration Rights Agreement, and (2) the "PARITY VALUE" of
the shares to be redeemed, where parity value for purposes of this Section V.C
of Article V.A(d) of the Articles of Incorporation means the product of (a) the
number of shares of Common Stock issuable upon conversion of such shares of
Series A Preferred Stock in accordance with Section VI of Article V.A(d) of the
Articles of Incorporation (without giving effect to any limitations on
conversions of shares contained herein, and treating the Trading Day (as defined
in Section VI.B of Article
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V.A(d) of the Articles of Incorporation) immediately preceding the date of
delivery of the Optional Redemption Notice as the "CONVERSION DATE" (as defined
in Section VI.D(d) of Article V.A(d) of the Articles of Incorporation) for
purposes of determining the applicable Conversion Price), multiplied by (b) the
highest Closing Price for the Common Stock during the period beginning on the
date of delivery of the Optional Redemption Notice and ending one day prior to
the Optional Redemption Date (the greater of such amounts being referred to as
the "OPTIONAL REDEMPTION AMOUNT"). Notwithstanding notice of an Optional
Redemption, the holders shall at all times prior to the Optional Redemption Date
maintain the right to convert all or any shares of Series A Preferred Stock at
the Conversion Price then in effect in accordance with Section VI of Article
V.A(d) of the Articles of Incorporation, and any shares of Series A Preferred
Stock so converted after receipt of an Optional Redemption Notice and prior to
the Optional Redemption Date set forth in such notice and payment of the
aggregate Optional Redemption Amount shall be deducted from the shares of Series
A Preferred Stock which are otherwise subject to redemption pursuant to such
notice. If the Corporation delivers an Optional Redemption Notice and fails to
pay the Optional Redemption Amount due to the holders of Series A Preferred
Stock within two (2) business days following the Optional Redemption Date, the
Corporation shall forever forfeit its right to redeem the Series A Preferred
Stock pursuant to this Section V.C of Article V.A(d) of the Articles of
Incorporation.
D. REDEMPTION IN LIEU OF CONVERSION. Notwithstanding anything
to the contrary contained in this Section V of Article V.A(d) of the Articles of
Incorporation and subject to the terms of this Section V.D of Article V.A(d) of
the Articles of Incorporation, if, on or after October 14, 2000, the Closing
Price (as defined in Section V.A of Article V.A(d) of the Articles of
Incorporation) of the Common Stock is less than the Fixed Conversion Price on
any day a Notice of Conversion (as defined in Section VI of Article V.A(d) of
the Articles of Incorporation) is given, the Corporation shall have the option,
in lieu of issuing shares of Common Stock to the holders upon conversion in
accordance with the terms of Section VI of Article V.A(d) of the Articles of
Incorporation, to redeem all or any portion of the shares of Series A Preferred
Stock submitted for conversion for an amount in cash equal to the number of
shares of Common Stock that would have otherwise been issued upon conversion of
the Series A Preferred Stock at the applicable Conversion Price (as defined in
Section VI of Article V.A(d) of the Articles of Incorporation) multiplied by the
Redemption Market Price (as defined herein) (the "REDEMPTION IN LIEU OF
CONVERSION AMOUNT"). "REDEMPTION MARKET PRICE" shall be equal to the Closing
Price of the Common Stock on the Conversion Date. On or before the first day of
each calendar month, the Corporation shall notify the holders of the Series A
Preferred Stock, in writing, as to whether the Corporation will issue shares of
Common Stock, deliver cash in redemption or any combination thereof in respect
of the shares of Series A Preferred Stock submitted for conversion pursuant to
Section VI of Article V.A(d) of the Articles of Incorporation. The Corporation
will be bound by such notice for the proceeding calendar month (the "TERM"), at
the end of which the Corporation may elect to renew such notice. A failure to
issue or renew within one (1) business day after the expiration of the Term
shall be deemed to be an election to issue Common Stock upon conversion of the
Series A Preferred Stock during the subsequent Term. Any redemption amounts
payable hereunder shall be paid to the converting holder within two (2) Trading
Days of the Conversion Date.
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<PAGE> 9
E. MAJOR TRANSACTION REDEMPTION. Notwithstanding anything to
the contrary contained in this Article V.A(d) of the Articles of Incorporation
and subject to the terms of this Section V.E of Article V.A(d) of the Articles
of Incorporation, so long as for at all times during the period beginning thirty
(30) Trading Days prior to the date of the Major Transaction Redemption Notice
(as defined below) and ending on the Major Transaction Redemption Date (as
defined below) (i) all of the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock are then (x) authorized and reserved for issuance,
(y) registered for resale under the 1933 Act by the holders of the Series A
Preferred Stock and sales of such shares may be made thereunder (or such shares
may otherwise be resold publicly without restriction) and (z) eligible to be
traded on the NNM, the Nasdaq SmallCap, the NYSE or the AMEX and (ii) no
Mandatory Redemption Event or Trading Market Redemption Event shall have
occurred and be continuing, then, in the event the Corporation publicly
announces its intention to consummate a Major Transaction, the Corporation shall
have the right to deliver written notice to the holders of Series A Preferred
Stock of its intention to redeem all of the outstanding shares of Series A
Preferred Stock in accordance with this Section V.E of Article V.A(d) of the
Articles of Incorporation. Any notice (the "MAJOR TRANSACTION REDEMPTION
NOTICE") of redemption hereunder (an "MAJOR TRANSACTION REDEMPTION") shall be
delivered to the holders of the Series A Preferred Stock at their registered
addresses appearing on the books and records of the Corporation within one (1)
business day following the public announcement of such Major Transaction and
shall state (1) that the Corporation is exercising its right to redeem all of
the outstanding shares of Series A Preferred Stock and (2) if known, the date of
redemption (the "MAJOR TRANSACTION REDEMPTION DATE"), which date shall be (A) at
least twenty (20) Trading Days after the date of delivery of the Major
Transaction Redemption Notice and (B) the date of consummation of the Major
Transaction. In the event that the Major Transaction Notice is delivered to the
holders of the Series A Preferred Stock but the Major Transaction is not
consummated, the Major Transaction Notice shall be deemed to be withdrawn. On
the Major Transaction Redemption Date, the Corporation shall make payment of the
Major Transaction Redemption Amount (as defined below) to or upon the order of
the holders as specified by the holders in writing to the Corporation at least
one (1) business day prior to the Major Transaction Redemption Date. If the
Corporation exercises its right to redeem the Series A Preferred Stock pursuant
to this Section V.E of Article V.A(d) of the Articles of Incorporation, the
Corporation shall make payment to the holders of an amount in cash (the "MAJOR
TRANSACTION REDEMPTION AMOUNT") equal to the greater of (x) the Major
Transaction Percentage (as defined below), multiplied by the sum of (a) the
Stated Value of the shares of Series A Preferred Stock to be redeemed, plus (b)
an amount equal to eight percent (8%) per annum of such Stated Value for the
period beginning on the Issue Date and ending on the Major Transaction
Redemption Date, plus (c) all Conversion Default Payments (as defined in Section
VI.E of Article V.A(d) of the Articles of Incorporation), Delivery Default
Payments (as defined in Section VI.D of Article V.A(d) of the Articles of
Incorporation) and any other amounts owed to such holder pursuant to Section
2(c) of the Registration Rights Agreement, and (y) the "EQUIVALENT VALUE" of the
shares to be redeemed, where equivalent value means the product of (a) the
number of shares of Common Stock issuable upon conversion of such shares of
Series A Preferred Stock in accordance with Section VI of Article V.A(d) of the
Articles of Incorporation (without giving effect to any limitations on
conversions of shares contained herein, and treating the Trading Day (as defined
in Section VI.B of Article V.A(d) of the Articles of Incorporation) immediately
preceding the
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<PAGE> 10
date of public announcement of such Major Transaction as the Conversion Date (as
defined in Section VI.D(d) of Article V.A(d) of the Articles of Incorporation)
for purposes of determining the applicable Conversion Price (provided that, if
the per share consideration to be paid to the stockholders of the Corporation in
such Major Transaction as calculated pursuant to clause (b) below exceeds the
product of the Major Transaction Percentage multiplied by the Fixed Conversion
Price, then the Conversion Price for purposes of this clause (a) shall equal the
Fixed Conversion Price)), multiplied by (b) the price per share of Common Stock
paid to stockholders of the Corporation in such Major Transaction (with the
value of any non-cash consideration being equal to the Market Value (as defined
in Section VI.C(f)(ii) of Article V.A(d) of the Articles of Incorporation) of
such consideration on the date of consummation of such Major Transaction). The
"MAJOR TRANSACTION PERCENTAGE" shall be (A) 165%, in the case of a Major
Transaction which is consummated on or prior to the date which is twelve (12)
months following the Issue Date and (B) 200%, in the case of a Major Transaction
which is consummated after the date which is twelve (12) months following the
Issue Date. Notwithstanding notice of a Major Transaction Redemption, the
holders shall at all times prior to the Major Transaction Redemption Date
maintain the right to convert all or any shares of Series A Preferred Stock at
the Conversion Price then in effect (including any adjustments pursuant to
Section VI.B(b) of Article V.A(d) of the Articles of Incorporation and Section
VI.C of Article V.A(d) of the Articles of Incorporation) in accordance with
Section VI of Article V.A(d) of the Articles of Incorporation, and any shares of
Series A Preferred Stock so converted after receipt of a Major Transaction
Redemption Notice and prior to the Major Transaction Redemption Date set forth
in such notice and payment of the aggregate Major Transaction Redemption Amount
shall be deducted from the shares of Series A Preferred Stock which are
otherwise subject to redemption pursuant to such notice. If the Corporation
delivers a Major Transaction Redemption Notice and fails to pay the Major
Transaction Redemption Amount due to the holders of Series A Preferred Stock on
the Major Transaction Redemption Date, the Corporation (and any Successor Entity
(as defined in Section VI.C(b) of Article V.A(d) of the Articles of
Incorporation) shall forever forfeit its right to redeem the Series A Preferred
Stock pursuant to this Section V.D of Article V.A(d) of the Articles of
Incorporation and such Successor Entity shall assume the obligations of the
Corporation under this Article V.A(d) of the Articles of Incorporation in
accordance with Section VI.C(b) of Article V.A(d) of the Articles of
Incorporation.
F. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a
Mandatory Redemption Event or the delivery of an Optional Redemption Notice,
Redemption In Lieu of Conversion Notice or Major Transaction Redemption Notice,
if the Corporation fails to pay the Mandatory Redemption Amount, the Optional
Redemption Amount, the Redemption In Lieu of Conversion Amount or the Major
Transaction Redemption Amount, as applicable, within five (5) business days of
written notice that such amount is due and payable, then (assuming there are
sufficient authorized shares) in addition to all other available remedies, each
holder of Series A Preferred Stock shall have the right at any time and from
time to time after the failure to timely pay the Mandatory Redemption Amount,
the Optional Redemption Amount, the Redemption In Lieu of Conversion Amount or
the Major Transaction Redemption Amount, as applicable, to require the
Corporation, upon written notice, to immediately issue (in accordance with and
subject to the terms of Section VI of Article V.A(d) of the Articles of
Incorporation), in lieu of the portion of the Mandatory Redemption Amount, the
Optional Redemption Amount, the
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<PAGE> 11
Redemption In Lieu of Conversion Amount or the Major Transaction Redemption
Amount, as applicable, with respect to which such election is made, the number
of shares of Common Stock of the Corporation equal to such applicable redemption
amount divided by any Conversion Price (as defined below), as chosen in the sole
discretion of the holder of Series A Preferred Stock, in effect from the date of
the Mandatory Redemption Event (or the date of delivery of an Optional
Redemption Notice, Redemption In Lieu of Conversion Notice or Major Transaction
Redemption Notice) until the date such holder elects to exercise its rights
pursuant to this Section V.F of Article V.A(d) of the Articles of Incorporation.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. OPTIONAL CONVERSION
(a) CONVERSION AMOUNT. Subject to the restrictions set
forth in Section V1.A(b) of Article V.A(d) of the Articles of Incorporation,
each holder of shares of Series A Preferred Stock may, at its option at any time
and from time to time on or prior to 5:00 p.m., Eastern Standard Time, on the
Maturity Date (as defined in Section VII of Article V.A(d) of the Articles of
Incorporation), upon surrender of the certificates therefor, convert any or all
of its shares of Series A Preferred Stock into Common Stock as set forth below
(an "OPTIONAL CONVERSION"). Each share of Series A Preferred Stock shall be
convertible into such number of fully paid and nonassessable shares of Common
Stock as such Common Stock exists on the Issue Date, or any other shares of
capital stock or other securities of the Corporation into which such Common
Stock is thereafter changed or reclassified, as is determined by dividing (1)
the sum of (a) the Stated Value thereof plus (b) the Premium Amount (as defined
below), by (2) the then effective Conversion Price (as defined below); provided,
however, that in no event shall a holder of shares of Series A Preferred Stock
be entitled to convert any such shares in excess of that number of shares upon
conversion of which the sum of (x) the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series A Preferred Stock or the unexercised
or unconverted portion of any other securities of the Corporation (including,
without limitation, the warrants issued by the Corporation pursuant to the
Securities Purchase Agreement (the "WARRANTS")) subject to a limitation on
conversion or exercise analogous to the limitations contained herein) and (y)
the number of shares of Common Stock issuable upon the conversion of the shares
of Series A Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by a holder and such
holder's affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (x) of such proviso. The "PREMIUM AMOUNT" means the
product of the Stated Value, multiplied by .08, multiplied by (N/365), where "N"
equals the number of days elapsed from the Issue Date to and including the
Conversion Date (as defined in Section VI.B of Article V.A(d) of the Articles of
Incorporation).
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<PAGE> 12
(b) CONVERSION RESTRICTIONS. No conversions may occur prior
to October 17, 2000; provided, however, that the restrictions on conversion set
forth above shall not apply to conversions taking place on any Conversion Date
(i) on which the Trade Price (as defined below) of the Common Stock is greater
than or equal to either the Fixed Conversion Price (as defined below) or 115% of
the Variable Conversion Price (as defined below) or (ii) occurring on or after
the date the Corporation makes a public announcement that it intends to merge or
consolidate with any other corporation or sell or transfer substantially all of
the assets of the Corporation or (iii) occurring on or after the date any
person, group or entity (including the Corporation) publicly announces a tender
offer to purchase 50% or more of the Corporation's Common Stock (or any other
takeover scheme) or (iv) occurring on or after there is a material adverse
change in the business, operations, assets, financial condition or prospects of
the Corporation or its subsidiaries, taken as a whole, or (v) following the
occurrence of any Mandatory Redemption Event. "TRADE PRICE" means, for any
security as of any date, the highest sale price of the Common Stock on the NNM
as reported by Bloomberg or, if the NNM is not the principal trading market for
such security, the highest sale price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or, if the foregoing do not apply, the highest sale price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no highest sale price of such
security is available in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the highest bid
price of any market maker for such security that is listed in the "pink sheet"
by the National Quotation Bureau, Inc. If the Trade Price cannot be calculated
for such security on such date in the manner provided above, the Trade Price
shall be the fair market value as mutually determined by the Corporation and the
holders of a majority in interest of shares of Series A Preferred Stock being
redeemed in lieu of conversion for which the calculation of the Trade Price is
required in order to determine the Redemption Market Price of such Series A
Preferred Stock.
(c) TRADING MARKET LIMITATION. Unless the Corporation
either (i) is permitted by the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded or (ii) has
obtained approval of the issuance of the Common Stock upon conversion of or
otherwise pursuant to the Series A Preferred Stock in accordance with applicable
law and the rules and regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Corporation or any of its securities (the "STOCKHOLDER APPROVAL"), in no event
shall the total number of shares of Common Stock issued upon conversion of or
otherwise pursuant to the Series A Preferred Stock (including any shares of
capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued or
issuable upon conversion of or otherwise pursuant to the Series A Preferred
Stock for purposes of any such rule or regulation) exceed the maximum number of
shares of Common Stock that the Corporation can so issue pursuant to any rule of
the principal United States securities market on which the Common Stock trades
(including Rule 4460 of the NNM or any successor rule)(the "MAXIMUM SHARE
AMOUNT") which, as of the Issue Date, shall be 2,545,043 (19.99% of the total
shares of Common Stock outstanding on the Issue Date), subject to equitable
adjustments from time to
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<PAGE> 13
time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issue Date.
With respect to each holder of Series A Preferred Stock, the Maximum Share
Amount shall refer to such holder's pro rata share thereof determined in
accordance with Section X of Article V.A(d) of the Articles of Incorporation. In
the event that the sum of (x) the aggregate number of shares of Common Stock
actually issued upon conversion of or otherwise pursuant to the Series A
Preferred Stock plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of or otherwise pursuant to the outstanding
Series A Preferred Stock at the then effective Conversion Price, represents at
least one hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING
EVENT"), the Corporation will use its best efforts to seek and obtain
Stockholder Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event.
B. CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. Subject to
subparagraph (b) below, the "CONVERSION PRICE" shall be the lesser of the
Variable Conversion Price (as defined herein) and the Fixed Conversion Price (as
defined herein), subject to adjustments pursuant to the provisions of Section
VI.C of Article V.A(d) of the Articles of Incorporation. The "VARIABLE
CONVERSION PRICE" shall mean 100% of the Market Price (as defined below).
"MARKET PRICE" shall mean the average of the lowest Closing Bid Prices for any
five (5) consecutive Trading Days (the "MARKET PRICE DAYS") during the
twenty-two (22) consecutive Trading Day period ending one (1) Trading Day prior
to the date the Notice of Conversion (as defined in Section VI.E of Article
V.A(d) of the Articles of Incorporation) is sent by a holder to the Corporation
via facsimile (the "PRICING PERIOD"). The Market Price Days shall be designated
by the converting holder (from among the days comprising the Pricing Period) in
the Notice of Conversion. "FIXED CONVERSION PRICE" shall initially mean $6.05
(the "INITIAL FIXED CONVERSION PRICE"), provided, that, in the event that the
"ADJUSTED FIXED CONVERSION PRICE" (as defined below) is less than the Initial
Fixed Conversion Price, then the Fixed Conversion Price shall equal the Adjusted
Fixed Conversion Price. The Fixed Conversion Price shall be subject to
adjustment from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the Issue Date. "ADJUSTED FIXED CONVERSION PRICE " shall equal
110% of the average of the Closing Bid Prices of the Common Stock for the ten
(10) consecutive Trading Days ending on August 17, 2000 (subject to extension by
one (1) Trading Day for each Trading Day after the Registration Deadline (as
defined in the Registration Rights Agreement) that the Registration Statement
(as defined in the Registration Rights Agreement) required to be filed pursuant
to Section 2(a) of the Registration Rights Agreement is first declared
effective). "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price on the NNM as reported by Bloomberg or, if the NNM is not the
principal trading market for such security, the closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the closing bid price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price of such security is available in the over-the-counter
market on the electronic bulletin board for such security or in any of the
foregoing manners, the average of the
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<PAGE> 14
bid prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series A
Preferred Stock being converted for which the calculation of the Closing Bid
Price is required in order to determine the Conversion Price of such Series A
Preferred Stock. "TRADING DAY" shall mean any day on which the Common Stock is
traded for any period on the NNM, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (a) of this Paragraph B to
the contrary, in the event the Corporation (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock (or any other takeover scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the
"ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal, for each such date, to the lower
of (x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Section VI.B of Article V.A(d) of the Articles of
Incorporation. For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE"
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph (b) has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph (b) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT,
STOCK DIVIDEND, ETC. If at any time when Series A Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, combination, reclassification,
rights offering below the Trading Price (as defined below) to all holders of
Common Stock or other similar event, which event shall have taken place during
the reference period for determination of the Conversion Price for any Optional
Conversion of the Series A Preferred Stock, then the Conversion Price shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event. In such event, the
Corporation shall notify the Transfer Agent of such change on or
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<PAGE> 15
before the effective date thereof. "TRADING PRICE," which shall be measured as
of the record date in respect of the rights offering, means (i) the average of
the last reported sale prices for the shares of Common Stock on the NNM as
reported by Bloomberg, as applicable, for the five (5) Trading Days immediately
preceding such date, or (ii) if the NNM is not the principal trading market for
the shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Trading Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or (b) at the option of a majority-in-interest of the holders of the
outstanding Series A Preferred Stock, by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at
any time when Series A Preferred Stock is issued and outstanding and prior to
the conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another class
or classes of stock or securities of the Corporation or another entity, or in
case of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation (each, a "CHANGE OF CONTROL TRANSACTION"), then the holders of
Series A Preferred Stock shall thereafter have the right to receive upon
conversion of the Series A Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the holders of Series A Preferred Stock would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted in
full immediately prior to such transaction (without regard to any limitations on
conversion contained herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the holders of Series A
Preferred Stock to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number
of shares of Common Stock issuable upon conversion of the Series A Preferred
Stock) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion
of Series A Preferred Stock. The Corporation shall not effect any transaction
described in this subsection (b) unless (a) it first gives, to the extent
practical, thirty (30) days' prior written notice (but in any event at least
fifteen (15) business days prior written notice) of the record date of the
special meeting of stockholders to approve, or if there is no such record date,
the consummation of, such Change of Control Transaction (during which time the
holders of Series A Preferred Stock shall be entitled to convert the Series A
Preferred Stock) and (b) the resulting successor or acquiring entity (if not the
Corporation) and, if an entity different from the successor or acquiring entity,
the entity whose capital stock or assets the holders of the Common Stock are
entitled to receive as a result of such Change of Control Transaction (each, a
"SUCCESSOR ENTITY"), assumes by written instrument the obligations under this
Article V.A(d) of the Articles of Incorporation (including this subsection (b)).
The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
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<PAGE> 16
(c) ADJUSTMENT DUE TO DISTRIBUTION. Subject to Section III,
if the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a
"DISTRIBUTION"), then the holders of Series A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion had such
holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(d) PURCHASE RIGHTS. Subject to Section III, if at any time
when any Series A Preferred Stock is issued and outstanding, the Corporation
issues any convertible securities or rights to purchase stock, warrants,
securities or other property (the "PURCHASE RIGHTS") pro rata to the record
holders of any class of Common Stock, then the holders of Series A Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series A Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(e) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that
(i) the Corporation fails to obtain effectiveness with the SEC of any
Registration Statement required to be filed pursuant to the Registration Rights
Agreement on or prior to the date on which such Registration Statement is
required to become effective pursuant to the terms of the Registration Rights
Agreement, or (ii) any such Registration Statement after its initial
effectiveness and during the Registration Period (as defined in the Registration
Rights Agreement) lapses in effect, or sales of all the Registrable Securities
otherwise cannot be made thereunder, whether by reason of the Corporation's
failure or inability to amend or supplement the prospectus (the "PROSPECTUS")
included therein in accordance with the Registration Rights Agreement or
otherwise, after such Registration Statement becomes effective (including,
without limitation, during an Allowed Delay (as defined in Section 3(f) of the
Registration Rights Agreement)) (each of such events described in clauses (i)
and (ii) being referred to as an "EXTENDED LOOKBACK EVENT"), then, at the
election of each holder of Series A Preferred Stock exercisable with respect to
any Optional Conversion occurring within twenty-two (22) Trading Days after the
end of the Extended Pricing Period (as defined below), the Pricing Period shall
be comprised of, (x) in the case of an event described in clause (i), the
twenty-two (22) Trading Days preceding the date on which such Registration
Statement is required to become effective pursuant to the terms of the
Registration Rights Agreement, plus all Trading Days through and including the
fifth (5th) Trading Day following the date of actual effectiveness of such
Registration Statement; and (y) in the case of an event described in clause
(ii), the twenty-two
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<PAGE> 17
(22) Trading Days preceding the date on which the holder of the Series A
Preferred Stock is first notified that sales may not be made under the
Prospectus, plus all Trading Days through and including the fifth (5th) Trading
Day following the date on which the Holder is first notified that such sales may
again be made under the Prospectus (each of such periods referred to in (x) and
(y) being defined as an "EXTENDED PRICING PERIOD"). If a holder of Series A
Preferred Stock determines that sales may not be made pursuant to the Prospectus
(whether by reason of the Corporation's failure or inability to amend or
supplement the Prospectus or otherwise) it shall so notify the Corporation in
writing and, unless the Corporation provides such holder with a written opinion
of the Corporation's counsel to the contrary, such determination shall be
binding for purposes of this paragraph. In the event that an Extended Lookback
Event occurs during the Extended Pricing Period with respect to any other
Extended Lookback Event, the Extended Pricing Periods shall be cumulative.
(f) ADJUSTMENT OF FIXED CONVERSION PRICE. If, during the
twelve (12) month period following the Issue Date (or, if later, until the
effective date of the Registration Statement required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement), the Corporation issues or
sells, or in accordance with Section VI.C(f)(i) of Article V.A(d) of the
Articles of Incorporation is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or allowances in
connection therewith) less than the Fixed Conversion Price in effect on the date
of such issuance (or deemed issuance) of such shares of Common Stock (a
"DILUTIVE ISSUANCE"), then immediately upon the Dilutive Issuance, the Fixed
Conversion Price will be reduced to the amount of the consideration per share
received by the Corporation in such Dilutive Issuance.
(i) EFFECT ON FIXED CONVERSION PRICE OF CERTAIN EVENTS.
For purposes of determining the Fixed Conversion Price under Section VI.C(f) of
Article V.A(d) of the Articles of Incorporation, the following will be
applicable:
A. ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Fixed Conversion Price then in effect, then the Fixed
Conversion Price shall be equal to such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
the exercise of such Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the issuance
or granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming
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<PAGE> 18
full conversion of Convertible Securities, if applicable). No further adjustment
to the Fixed Conversion Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such Options.
B. ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options), and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Fixed Conversion Price then in
effect, then the Fixed Conversion Price shall be equal to such price per share.
For the purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon such conversion or exchange" is determined by
dividing (i) the total amount, if any, received or receivable by the Corporation
as consideration for the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment to the Fixed
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
C. CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional consideration payable to the
Corporation upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Fixed Conversion Price in effect at the time of such change will
be readjusted to the Fixed Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
D. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Fixed Conversion Price then in effect will be readjusted to the
Fixed Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
E. CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes hereof will be the amount received
by the Corporation therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid
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<PAGE> 19
or incurred by the Corporation in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Corporation will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Corporation will be the Market Value (as defined below) thereof as of the date
of receipt. In case any Common Stock, Options or Convertible Securities are
issued in connection with any acquisition, merger or consolidation in which the
Corporation is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined in good faith
by the Board of Directors of the Corporation.
F. EXCEPTIONS TO ADJUSTMENT OF CONVERSION PRICE. No adjustment
to the Fixed Conversion Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the Issue Date, (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of the
Corporation now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the independent
members of the Board of Directors of the Corporation or a majority of the
members of a committee of independent directors established for such purpose; or
(iii) upon the conversion of the Series A Preferred Stock.
(ii) DEFINITION OF MARKET VALUE. "MARKET VALUE," for
any security as of any date, (i) means the average of the last reported sale
prices for such security on the NNM for the five (5) Trading Days immediately
preceding such date as reported by Bloomberg, or (ii) if the NNM is not the
principal trading market for such security, the average of the last reported
sale prices on the principal trading market for such security during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or (b) at the option of a majority of the holders
of the then outstanding shares of Series A Preferred Stock, by an independent
investment bank of nationally recognized standing in the valuation of businesses
similar to the business of the issuing corporation.
D. MECHANICS OF CONVERSION. In order to convert Series A
Preferred Stock into full shares of Common Stock, a holder of Series A Preferred
Stock shall: (i) submit a copy of the fully executed notice of conversion in the
form attached hereto as Exhibit A ("NOTICE OF CONVERSION") to the Corporation by
facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE"), on the date specified therein as the Conversion Date (as
defined in Section VI.D(d) of Article V.A(d) of the Articles of Incorporation)
(or by other means resulting in, or reasonably expected to result in, notice to
the Corporation on the Conversion Date) to the office of the Corporation or its
designated Transfer Agent for the Series A Preferred Stock, which notice shall
specify the number of shares of Series A Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
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<PAGE> 20
Stock issuable upon such conversion (together with a copy of the first page of
each certificate to be converted); and (ii) surrender the original certificates
representing the Series A Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent for the Series A Preferred
Stock as soon as practicable thereafter. The Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (a) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days after
such surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above)
(the "DELIVERY PERIOD"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements of Section
2(g) of the Purchase Agreement) to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of Series A
Preferred Stock converted as shall be determined in accordance herewith and (ii)
a certificate representing the balance of the shares of Series A Preferred Stock
not converted, if any. In addition to any other remedies available to the
holder, including actual damages and/or equitable relief, the Corporation shall
pay to a holder $2,000 per business day in cash for each day beyond a two (2)
business day grace period following the Delivery Period that the Corporation
fails to deliver Common Stock (a "DELIVERY DEFAULT") issuable upon surrender of
shares of Series A Preferred Stock with a Notice of Conversion until such time
as the Corporation has delivered all such Common Stock (the "DELIVERY DEFAULT
PAYMENTS"). Such Delivery Default Payments shall be paid to such holder by the
fifth day of the month following the month in which it has accrued or, at the
option of the holder (by written notice to the Corporation by the first day of
the month following the month in which it has accrued), shall be convertible
into Common Stock in accordance with the terms of this Section VI of Article
V.A(d) of the Articles of Incorporation.
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<PAGE> 21
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Corporation's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the holder and its compliance with
the provisions contained in Section VI.A of Article V.A(d) of the Articles of
Incorporation and in this Section VI.D of Article V.A(d) of the Articles of
Incorporation, the Corporation shall use its best efforts to cause its Transfer
Agent to electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of holder's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(c) NO FRACTIONAL SHARES. If any conversion of Series A
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon Conversion of
the Series A Preferred Stock shall be the next higher number of shares.
(d) CONVERSION DATE. The "CONVERSION DATE" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Corporation or its Transfer Agent before Midnight,
New York City time, on the date so specified, otherwise the Conversion Date
shall be the first business day after the date so specified on which the Notice
of Conversion is actually received by the Corporation or its Transfer Agent. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series A Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders preferential rights as a
holder of Series A Preferred Stock shall survive to the extent the Corporation
fails to deliver such securities.
E. RESERVATION OF SHARES. A number of shares of the authorized but
unissued Common Stock sufficient to provide for the conversion of the Series A
Preferred Stock outstanding (based on the lesser of the Variable Conversion
Price and the Fixed Conversion Price in effect from time to time) shall at all
times be reserved by the Corporation, free from preemptive rights, for such
conversion or exercise. As of the date of issuance of the Series A Preferred
Stock, 2,500,000 authorized and unissued shares of Common Stock have been duly
reserved for issuance upon conversion of the Series A Preferred Stock (the
"RESERVED AMOUNT"). The Reserved Amount shall be increased from time to time in
accordance with the Corporation's obligations pursuant to Section 4(h) of the
Purchase Agreement. In addition, if the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Series A Preferred Stock
shall be convertible, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and
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<PAGE> 22
reserved, free from preemptive rights, for conversion of the outstanding Series
A Preferred Stock.
If at any time a holder of shares of Series A Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Section VI of Article V.A(d) of the
Articles of Incorporation (a "CONVERSION DEFAULT"), subject to Section X of
Article V.A(d) of the Articles of Incorporation, the Corporation shall issue to
the holder all of the shares of Common Stock which are available to effect such
conversion. The number of shares of Series A Preferred Stock included in the
Notice of Conversion which exceeds the amount which is then convertible into
available shares of Common Stock (the "EXCESS AMOUNT") shall, notwithstanding
anything to the contrary contained herein, not be convertible into Common Stock
in accordance with the terms hereof until (and at the holder's option at any
time after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following the earlier of (i) such time that a
holder of Series A Preferred Stock notifies the Corporation or that the
Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series A Preferred Stock held by such holder through the
Authorization Date (as defined below), multiplied by (c) (N/365), where N = the
number of days from the day the holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series A Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such payment in
cash, cash payment shall be made to holder by the fifth day of the month
following the month in which it has accrued; and
(b) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Section VI of Article V.A(d) of the Articles
of Incorporation (so long as there is then a sufficient number of authorized
shares of Common Stock).
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<PAGE> 23
The holder's election shall be made in writing to the
Corporation at any time prior to 5:00 p.m, New York City Time, on the third
(3rd) day of the month following the month in which Conversion Default payments
have accrued. If no election is made, the holder shall be deemed to have elected
to receive cash. Nothing herein shall limit the holder's right to pursue actual
damages (to the extent in excess of the Conversion Default Payments) for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
F. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Section VI of Article V.A(d) of the Articles of Incorporation, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series A Preferred Stock.
G. STATUS AS STOCKHOLDERS. Upon submission of a Notice of
Conversion by a holder of Series A Preferred Stock, (i) the shares covered
thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such holder's allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and
(ii) the holder's rights as a holder of such converted shares of Series A
Preferred Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such holder because of a failure
by the Corporation to comply with the terms of this Article V.A(d) of the
Articles of Incorporation. Notwithstanding the foregoing, if a holder has not
received certificates for all shares of Common Stock prior to the tenth (10th)
business day after the expiration of the Delivery Period with respect to a
conversion of shares of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series A Preferred Stock with respect to such unconverted shares
of Series A Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Delivery Default
Payments pursuant to Section VI.E of Article V.A(d) of the Articles of
Incorporation to the extent required thereby for such Delivery Default and any
subsequent Delivery Default and (ii) the right to have the Conversion Price with
respect to subsequent conversions determined in accordance with Section VI.E.of
Article V.A(d) of the Articles of Incorporation) for the Corporation's failure
to convert the Series A Preferred Stock.
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<PAGE> 24
VII. MATURITY DATE
Each share of Series A Preferred Stock issued and outstanding (or not
subject to a Notice of Conversion submitted with respect thereto) at 5:00 p.m.,
Eastern Standard Time, on April 17, 2003 (the "MATURITY DATE"), shall be
redeemed by the Corporation for an amount in cash equal to the Liquidation
Preference. At the option of the holders of a majority of the Series A Preferred
Stock outstanding, exercisable by the delivery of written notice to the
Corporation prior to April 17, 2003, the Maturity Date shall be delayed by one
(1) Trading Day for each Trading Day occurring prior thereto and prior to the
full conversion of the Series A Preferred Stock that (i) any Registration
Statement required to be filed and to be effective pursuant to the Registration
Rights Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made thereunder during the Registration Period (as defined
in the Registration Rights Agreement) (whether by reason of the Corporation's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement or otherwise),
(ii) any Mandatory Redemption Event or Trading Market Redemption Event exists,
without regard to whether any cure periods shall have run, or (iii) that the
Corporation is in breach of any of its obligations pursuant to Section 4(h) or
4(i) of the Purchase Agreement.
VIII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the CBCA, in this Section VIII of
Article V.A(d) of the Articles of Incorporation, and in Section IX of Article
V.A(d) of the Articles of Incorporation below.
Notwithstanding the above, the Corporation shall provide each holder of
Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the CBCA the vote of the holders of the Series
A Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a
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<PAGE> 25
given action of the Corporation, the affirmative vote or consent of the holders
of at least a majority of the shares of the Series A Preferred Stock represented
at a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under the CBCA shall constitute the approval of such action by the
class. To the extent that under the CBCA holders of the Series A Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series A Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated. Holders
of the Series A Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents (and copies of proxy materials and other
information sent to shareholders) with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation's bylaws and
the CBCA.
IX. PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the CBCA) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
(a) alter, amend or repeal (whether by merger, consolidation
or otherwise) the rights, preferences or privileges of the Series A Preferred
Stock or any capital stock of the Corporation so as to affect adversely the
Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Section II of Article V.A(d) of the Articles of Incorporation, "SENIOR
SECURITIES");
(c) create any new class or series of capital stock ranking
pari passu with the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Section II of Article V.A(d) of the Articles of Incorporation, "PARI PASSU
SECURITIES");
(d) increase the authorized number of shares of Series A
Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by this
Article V.A(d) of the Articles of Incorporation which would result in taxation
of the holders of shares of the Series A Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as
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<PAGE> 26
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series A Preferred Stock that did not agree to such alteration or
change (the "DISSENTING HOLDERS") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Article V.A(d) of the Articles of Incorporation as they exist prior to such
alteration or change or continue to hold their shares of Series A Preferred
Stock.
X. PRO RATA ALLOCATIONS
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock issued to each holder. Each increase to the Maximum Share Amount
and the Reserved Amount shall be allocated pro rata among the holders of Series
A Preferred Stock based on the number of shares of Series A Preferred Stock held
by each holder at the time of the increase in the Maximum Share Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer any of
such holder's shares of Series A Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares of Series
A Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such holders.
XI. REMEDIES
The Corporation acknowledges that a breach by it of its obligations
under this Article V.A(d) of the Articles of Incorporation will cause
irreparable harm to each holder of Series A Preferred Stock by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Corporation acknowledges that the remedy at law for a breach of its obligations
under this Article V.A(d) of the Articles of Incorporation will be inadequate
and agrees, in the event of a breach or threatened breach by the Corporation of
the provisions of this Article V.A(d) of the Articles of Incorporation, that
each holder of Series A Preferred Stock shall be entitled, in addition to all
other available remedies in law or in equity, to any injunction or injunctions
to prevent or cure any breaches of the provisions of this Article V.A(d) of the
Articles of Incorporation and to enforce specifically the terms and provisions
of this Article V.A(d) of the Articles of Incorporation, without the necessity
of showing economic loss and without any bond or other security being required.
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<PAGE> 27
IN WITNESS WHEREOF, this Amendment is executed on behalf of
the Corporation this 17th day of April, 2000.
T-NETIX, INC.
By:
------------------------------------
Alvyn A. Schopp
Chief Executive Officer
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<PAGE> 28
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s). __________
(the "PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON
STOCK") of T-NETIX, Inc., a Colorado corporation (the "CORPORATION"), according
to the conditions of the Amendment to the Articles of Incorporation relating to
the Series A Preferred Stock, as of the date written below. If securities are to
be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any. A copy of each Preferred Stock
Certificate is attached hereto (or evidence of loss, theft or destruction
thereof).
The undersigned hereby irrevocably elects to convert $___________ in
Conversion Default Payments, $__________ in Delivery Default Payments and/or
$___________ in payments pursuant to Section 2(c) of the Registration Rights
Agreement at the Applicable Conversion Price set forth below.
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:
Account Number:
---------------------------------------
[ ] In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for
the number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:
---------------------------------------
Address:
------------------------------------
------------------------------------
- 28 -
<PAGE> 29
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:
--------------------------------
Market Price Days:
---------------------------------
Applicable Conversion Price:
------------------------
Number of Shares of
Common Stock to be Issued pursuant to:
(i) Conversion of Series A Preferred Stock:
----------------------------------------------------
(ii) Conversion of Conversion Default Payments, Delivery
Default Payments and/or payments pursuant to Section 2(c) of
the Registration Rights Agreement:
-----------------------------------------------------
Signature:
-------------------------------------------
Name:
-----------------------------------------------
Address:
---------------------------------------------
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Amendment to the Articles of Incorporation relating to
the Series A Preferred Stock for the number of business days such issuance and
delivery is late.
- 29 -
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF APRIL 17, 2000, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
Right to
Purchase
340,909
Shares of
Common
Stock, par
value $0.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International
Investors, LDC or its registered assigns, is entitled to purchase from T-NETIX,
Inc., a Colorado corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Three Hundred Forty Thousand,
Nine Hundred Nine (340,909) fully paid and nonassessable shares of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), at an exercise
price of $6.60 per share (the "Exercise Price"). The term "Warrant Shares," as
used herein, refers to the shares of Common Stock purchasable hereunder. The
Warrant Shares and the Exercise Price are subject to adjustment as provided in
Paragraph 4 hereof. The term Warrants means this Warrant and the other warrants
issued pursuant to that certain Securities Purchase Agreement, dated April 17,
2000, by and among the Company and the Buyers listed on the execution page
thereof (the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions,
and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or
<PAGE> 2
in part, by the surrender of this Warrant, together with a completed exercise
agreement in the form attached hereto (the "Exercise Agreement"), to the Company
during normal business hours on any trading day at the Company's principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon (i) payment to the Company
in cash, by certified or official bank check or by wire transfer for the account
of the Company of the Exercise Price for the Warrant Shares specified in the
Exercise Agreement or (ii) if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), delivery to the
Company of a written notice of an election to effect a "Cashless Exercise" (as
defined in Section 11(c) below) for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares (or an election to effect a
Cashless Exercise has been made) as set forth above. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding two (2) trading days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised.
Notwithstanding anything in this Warrant to the contrary, in
no event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof. Notwithstanding anything to the contrary contained herein,
the limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.
2
<PAGE> 3
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time
or from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement (the "Issue
Date") and before 5:00 p.m., New York City time, on the fifth (5th) anniversary
of the Issue Date (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges with
respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the
listing of the shares of Common Stock issuable upon exercise of the Warrant upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not,
by amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be
binding upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
3
<PAGE> 4
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise Price shall be
rounded up to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
UPON ISSUANCE OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the Issue Date of this Warrant, the
Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of issuance (or deemed
issuance) of such Common Stock (a "Dilutive Issuance"), then immediately upon
the Dilutive Issuance, the Exercise Price will be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
4
<PAGE> 5
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE.
If there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND
UNEXERCISED CONVERTIBLE SECURITIES. If, in any case, the total number of shares
of Common Stock issuable upon exercise of any Option or upon conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
5
<PAGE> 6
(v) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If
the Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
6
<PAGE> 7
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor or acquiring entity (if other than the Company) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock of the Company are
entitled to receive as a result of such consolidation, merger or sale or
conveyance assumes by written instrument the obligations under this Warrant
(including under this Paragraph 4) and the obligations to deliver to the holder
of this Warrant such shares of stock, securities or assets as, in accordance
with the foregoing provisions, the holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any
event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment and
the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such calculation
shall be certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No
adjustment of the Exercise Price shall be made in an amount of less than 1% of
the Exercise Price in effect at the time such adjustment is otherwise required
to be made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment
7
<PAGE> 8
which, together with any adjustments so carried forward, shall amount to not
less than 1% of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription
pro rata to the holders of the Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization
of the Company, or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.
8
<PAGE> 9
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean
the number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means
the average of the last reported sale prices for the shares of Common Stock on
the Nasdaq National Market (the "NNM") for the five (5) trading days immediately
preceding such date as reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter designated by
the holder of this Warrant and the Company ("Bloomberg"), or (ii) if the NNM is
not the principal trading market for the shares of Common Stock, the average of
the last reported sale prices on the principal trading market for the Common
Stock during the same period as reported by Bloomberg, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined in good faith by
(a) the Board of Directors of the Corporation or (b) at the option of a
majority-in-interest of the holders of the outstanding Warrants, by an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this
Paragraph 4, includes the Common Stock, par value $0.01 per share, and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant to
this Warrant shall include only shares of Common Stock, par value $0.01 per
share, in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(e) hereof, the stock or other securities or
property provided for in such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant
shall not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No
9
<PAGE> 10
provision of this Warrant, in the absence of affirmative action by the holder
hereof to purchase Warrant Shares, and no mere enumeration herein of the rights
or privileges of the holder hereof, shall give rise to any liability of such
holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the
rights granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in accordance
with the provisions of that certain Registration Rights Agreement, dated as of
April 17, 2000, by and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.
This Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the
surrender of this Warrant in connection with any transfer, exchange, or
replacement as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any,
incurred by the Holder or transferees) and charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Paragraph
7.
(e) REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and
10
<PAGE> 11
address of the person in whose name this Warrant has been issued, as well as the
name and address of each transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at
the time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such exercise, transfer, or
exchange, (i) that the holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel, which opinion and counsel
are acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant
(and certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 67 Inverness Drive East,
Suite 100, Englewood, Colorado 80112, Attention: Chief Executive Officer, or at
such other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
11
<PAGE> 12
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF DELAWARE
(WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY
CONSENT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS AND
THE STATE COURTS LOCATED IN DELAWARE WITH RESPECT TO ANY SUIT OR PROCEEDING
BASED ON OR ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY AND
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT OR PROCEEDING MAY BE
DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof
may only be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to
the contrary contained in this Warrant, if the resale of the Warrant Shares by
the holder is not then registered pursuant to an effective registration
statement under the Securities Act, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
12
<PAGE> 13
(d) REMEDIES. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Warrant will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Warrant,
that the holder shall be entitled, in addition to all other available remedies
at law or in equity, to an injunction or injunctions restraining, preventing or
curing any breach of this Warrant and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss and without
any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
T-NETIX, INC.
By:
---------------------------------------
Alvyn A. Schopp
Chief Executive Officer
Dated as of April 17, 2000
14
<PAGE> 15
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 200_
To: T-NETIX, Inc.
The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to purchase ________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in cash or by certified or official
bank check in the amount of, or, if the resale of such Common Stock by the
undersigned is not currently registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended, by surrender of
securities issued by the Company (including a portion of the Warrant) having a
market value (in the case of a portion of this Warrant, determined in accordance
with Section 11(c) of the Warrant) equal to $_________. Please issue a
certificate or certificates for such shares of Common Stock in the name of and
pay any cash for any fractional share to:
Name:
---------------------------------------------
Signature:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
15
<PAGE> 16
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: ________ __, 200_
In the presence of:
- -------------------------
Name:
------------------------------------------------
Signature:
-------------------------------------------
Title of Signing Officer or Agent (if any):
- ----------------------------------
Address:
--------------------------------------------
--------------------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
16
<PAGE> 1
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
Right to
Purchase
25,000 Shares
of Common
Stock, par
value $0.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Daniel M. Carney or
his registered assigns, is entitled to purchase from T-NETIX, Inc., a Colorado
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, twenty-five thousand (25,000) fully paid and
nonassessable shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), at an exercise price of $6.05 per share (the "Exercise
Price"). The term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions,
and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant, together
with a completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any trading day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The
<PAGE> 2
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or
such holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such shares (or an election to effect a Cashless Exercise has been
made) as set forth above. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
two (2) trading days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time
or from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement (the "Issue
Date") and before 5:00 p.m., New York City time, on the fifth (5th) anniversary
of the Issue Date (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges with
respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the
listing of the shares of Common Stock issuable upon exercise of the Warrant upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
-2-
<PAGE> 3
(d) CERTAIN ACTIONS PROHIBITED. The Company will not,
by amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be
binding upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise Price shall be
rounded up to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
UPON ISSUANCE OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the Issue Date of this Warrant, the
Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of issuance (or deemed
issuance) of such Common Stock (a "Dilutive Issuance"), then immediately upon
the Dilutive Issuance, the Exercise Price will be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
-3-
<PAGE> 4
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner (except in replacement of or exchange for warrants, rights
or options of a target company in a merger or acquisition) issues or grants any
warrants, rights or options, whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or other securities convertible into
or exchangeable for Common Stock ("Convertible Securities") (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options") and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Market
Price on the date of issuance or grant of such Options, then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
will, as of the date of the issuance or grant of such Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If
the Company in any manner issues or sells any Convertible Securities, whether or
not immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further
-4-
<PAGE> 5
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION
RATE. If there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND
UNEXERCISED CONVERTIBLE SECURITIES. If, in any case, the total number of shares
of Common Stock issuable upon exercise of any Option or upon conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED.
If any Common Stock, Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with such issuance, grant
or sale. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price thereof as of the date of receipt. The fair value of
any consideration other than cash or securities will be determined in good faith
by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE
PRICE. No adjustment to the Exercise Price will be made (i) upon the exercise of
any warrants, options or convertible securities granted, issued and outstanding
on the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of
-5-
<PAGE> 6
a committee of independent directors established for such purpose; or (iii) upon
the exercise of the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If
the Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then:
(1) If the fair value per share of Common
Stock of the shares of stock, securities or assets that are to be issued or paid
to the Company or its common shareholders in such consolidation, merger, sale or
conveyance, is greater than the then applicable Exercise Price, the Company
shall have the right to declare this Warrant to be exercised in full (using the
Cashless Exercise described herein), effective as of a date immediately prior to
the closing of such consolidation, merger, sale or conveyance. The Company shall
provide notice of its intent to make such a declaration (which intent may be
subject to fluctuations in the fair value of the consideration to be received in
such consolidation, merger, sale or conveyance) a reasonable time prior to the
anticipated closing of the consolidation, merger, sale or conveyance, and in no
case less than 10 business days prior to such closing. The declaration shall be
made in writing and provided to the holder of this Warrant on or as soon as
reasonably practicable after the effective date of such declaration. Upon such
declaration this Warrant shall be deemed to represent only the right to receive
such shares of stock, securities or assets as may be issued or paid with respect
to or in exchange for the number of shares of Common Stock acquirable and
receivable upon the Cashless Exercise of this Warrant on the effective date of
such declaration. The exercise of this Warrant pursuant to the Company's
declaration as just described shall be void and of no effect if the
consolidation, merger, sale or conveyance giving rise to the declaration does
not close within 10 business days after the effective date of such declaration.
-6-
<PAGE> 7
Or, if the Company does not or cannot declare this Warrant to be exercised in
full,
(2) As a condition of such consolidation,
merger or sale or conveyance, adequate provision will be made whereby the holder
of this Warrant will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon exercise
of this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant.
The Company will not effect any consolidation, merger or sale
or conveyance unless the Company declares the exercise in full of this Warrant
or, prior to the consummation of such consolidation, merger, sale or conveyance,
the successor or acquiring entity (if other than the Company) and, if an entity
different from the successor or acquiring entity, the entity whose capital stock
or assets the holders of the Common Stock of the Company are entitled to receive
as a result of such consolidation, merger or sale or conveyance assumes by
written instrument the obligations under this Warrant (including under this
Paragraph 4) and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any
event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment and
the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such calculation
shall be certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No
adjustment of the Exercise Price shall be made in an amount of less than 1% of
the Exercise Price in effect at the time such adjustment is otherwise required
to be made, but any such lesser adjustment shall be
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<PAGE> 8
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to not less than 1% of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend
upon the Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for
subscription pro rata to the holders of the Common Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital
reorganization of the Company, or reclassification of the Common Stock, or
consolidation or merger of the Company with or into, or sale of all or
substantially all its assets to, another corporation or entity; or
(iv) there shall be a voluntary or
involuntary dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the
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<PAGE> 9
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of this
Warrant so that the rights of the Holder shall be neither enhanced nor
diminished by such event.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall
mean the number of shares of Common Stock actually outstanding (not including
shares of Common Stock held in the treasury of the Company), plus (x) pursuant
to Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i)
means the average of the last reported sale prices for the shares of Common
Stock on the Nasdaq National Market (the "NNM") for the five (5) trading days
immediately preceding such date as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holder of this Warrant and the Company ("Bloomberg"), or (ii)
if the NNM is not the principal trading market for the shares of Common Stock,
the average of the last reported sale prices on the principal trading market for
the Common Stock during the same period as reported by Bloomberg, or (iii) if
market value cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or (b) at the option of a
majority-in-interest of the holders of the outstanding Warrants, by an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this
Paragraph 4, includes the Common Stock, par value $0.01 per share, and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant to
this Warrant shall include only shares of Common Stock, par value $0.01 per
share, in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(e) hereof, the stock or other securities or
property provided for in such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this Warrant.
-9-
<PAGE> 10
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant
shall not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the
rights granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to all
applicable securities laws. Until due presentment for registration of transfer
on the books of the Company, the Company may treat the registered holder hereof
as the owner and holder hereof for all purposes, and the Company shall not be
affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.
This Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the
surrender of this Warrant in connection with any transfer, exchange, or
replacement as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any,
incurred by the Holder or transferees) and charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Paragraph
7.
(e) REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
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<PAGE> 11
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at
the time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such exercise, transfer, or
exchange, (i) that the holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel, which opinion and counsel
are acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant is
entitled to the benefit of such registration rights in respect of the Warrant
Shares as are set forth in Section 2 of that certain Registration Rights
Agreement by and between the Company and RGC International Investors, LDC, to be
dated April 17, 2000.
9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 67 Inverness Drive East,
Suite 100, Englewood, Colorado 80112, Attention: Chief Executive Officer, or at
such other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO
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<PAGE> 12
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF COLORADO
(WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY
CONSENT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS AND
THE STATE COURTS LOCATED IN COLORADO WITH RESPECT TO ANY SUIT OR PROCEEDING
BASED ON OR ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY AND
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT OR PROCEEDING MAY BE
DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof
may only be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to
the contrary contained in this Warrant, if the resale of the Warrant Shares by
the holder is not then registered pursuant to an effective registration
statement under the Securities Act, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
(d) REMEDIES. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the holder, by
vitiating the intent and
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<PAGE> 13
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Warrant will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Warrant, that the holder shall
be entitled, in addition to all other available remedies at law or in equity, to
an injunction or injunctions restraining, preventing or curing any breach of
this Warrant and to enforce specifically the terms and provisions thereof,
without the necessity of showing economic loss and without any bond or other
security being required.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
T-NETIX, INC.
By:
--------------------------------------
Alvyn A. Schopp
Chief Executive Officer
Dated as of April 14, 2000
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<PAGE> 14
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 200_
To: T-NETIX, Inc.
The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to purchase ________ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in cash or by certified or official
bank check in the amount of, or, if the resale of such Common Stock by the
undersigned is not currently registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended, by surrender of
securities issued by the Company (including a portion of the Warrant) having a
market value (in the case of a portion of this Warrant, determined in accordance
with Section 11(c) of the Warrant) equal to $_________. Please issue a
certificate or certificates for such shares of Common Stock in the name of and
pay any cash for any fractional share to:
Name:
-----------------------------
Signature:
-----------------------------
Address:
-----------------------------
-----------------------------
Note: The above signature should
correspond exactly with the name on the
face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 15
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________, 200__
In the presence of:
- --------------------------------------------
Name:
---------------------------------------
Signature:
----------------------------------
Title of Signing Officer or Agent (if any):
- --------------------------------------------
Address:
------------------------------------
- --------------------------------------------
Note: The above signature should
correspond exactly with the name on the
face of the within Warrant.
<PAGE> 1
EXHIBIT 99.1
T-NETIX, INC.
67 INVERNESS DRIVE EAST
ENGLEWOOD, CO 80112
WEB SITE: http://www.T-NETIX.com
NASDAQ: TNTX
AT THE COMPANY: AT FRB:
Alvyn Schopp Tad Gage (general info) (312) 640-6745
CEO ([email protected])
(303) 790-9111 Alicia DaCosta (analysts) (312) 640-6780
([email protected])
Tim Grace (media) (312) 274-2240
([email protected])
FOR IMMEDIATE RELEASE
WEDNESDAY, APRIL 19, 2000
T-NETIX, INC. RAISES $7.5 MILLION OF EQUITY
AND DEBT WITH PRIVATE FINANCING
ENGLEWOOD, COLO., APRIL 19, 2000 -- T-NETIX, INC. (NASDAQ:TNTX). T-NETIX, a
leading provider of specialized call processing and fraud control software
technologies, the nation's largest provider of corrections-related
telecommunications services, and one of the country's largest purchasers of
Internet bandwidth, has raised approximately $7.5 million of private financing,
through the issuance of $3.75 million of its Series A Preferred Stock and $3.75
million of subordinated notes.
The convertible preferred stock was issued to a fund managed by Rose Glen
Capital Management, L.P. The preferred stock has a yield of 8% per annum and is
convertible into common stock at a conversion price based on the market price of
the common stock during a pricing period preceding conversion, up to a
conversion price of $6.05 (the "Fixed Conversion Price"). The Fixed Conversion
Price is subject to adjustment if the market price four months from issuance is
below $6.05. With limited exceptions, during the six month period following
issuance, the preferred stock is not convertible unless the market price equals
or exceeds the Fixed Conversion Price. Thereafter, the company has the right to
issue cash instead of common stock upon conversion of the preferred stock if the
closing price of the common stock is less than the Fixed Conversion Price. The
purchaser of the preferred stock also received five-year warrants to purchase
340,909 shares of common stock at an exercise price of $6.60.
The subordinated notes, which bear interest at prime rate plus one percent, were
issued to Daniel M. Carney, chairman of the board of T-NETIX The purchaser of
the note also receive five-year warrants to purchase 25,000 shares of common
stock at an exercise price of $6.05.
Alvyn Schopp, CEO, commented: "The company has been working hard over the past
five months to install its significant backlog of telecommunications lines.
These proceeds will assist in financing the completion of these installations,
which should be reflected in the company's first and second quarter 2000
revenues. Additionally, as we evaluate our growth opportunities in the Internet
and speaker verification markets, we now have an established relationship with a
quality fund, which may lead to additional financing opportunities."
MORE...
<PAGE> 2
T-NETIX, INC.
ADD 1
Based in Englewood, Colorado, T-NETIX provides specialized call processing and
billing services for correctional institutions to the telecommunications
industry, direct local and long distance call processing for correctional
facilities, value-added telecommunications services such as pre-connection
restrictions, digital recording, jail and inmate management systems, video
booking, and sales of call-processing systems hardware. Through its T-NETIX
Monitoring Division, T-NETIX provides parolee and home detention monitoring
services using Internet, and voice verification technology, including its
SpeakEZ Voice Print(R) technology. For news and information, and to try thE
SpeakEZ voice verification software, visit the company's web site at
www.T-NETIX.com. For more information on T-NETIX via fax, free of charge, dial
1-800-PRO-INFO and enter the ticker "TNTX."
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<PAGE> 1
EXHIBIT 99.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 17,
2000, by and among T-NETIX, Inc. , a Colorado corporation with headquarters
located at 67 Inverness Drive East, Suite 100, Englewood, Colorado 80112
("COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized a new series of preferred stock, designated
as Series A Convertible Preferred Stock, having the rights, preferences and
privileges set forth in the Amendment to the Articles of Incorporation attached
hereto as EXHIBIT "A" (the "AMENDMENT");
C. The Series A Preferred Stock is convertible into shares of common stock,
$0.01 par value per share, of the Company (the "COMMON STOCK"), upon the terms
and subject to the limitations and conditions set forth in the Amendment;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as EXHIBIT "B", to purchase Three Hundred Forty
Thousand, Nine Hundred Nine (340,909) shares of Common Stock (the "WARRANTS");
E. The Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, (i) an aggregate of
Three Thousand Seven Hundred Fifty (3,750) shares of Series A Preferred Stock
(such shares, together with any shares of Series A Preferred Stock issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms thereof, being hereinafter collectively referred to
as the "PREFERRED SHARES"), and (ii) Warrants to purchase Three Hundred Forty
Thousand, Nine Hundred Nine (340,909) shares of Common Stock, for an aggregate
purchase price of Three Million Seven Hundred Fifty Thousand Dollars
($3,750,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Preferred Shares and number of Warrants as is set
forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto
<PAGE> 2
as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws; and
NOW, THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES AND WARRANTS. On the Closing Date
(as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such number of Preferred
Shares and number of Warrants as is set forth immediately below such Buyer's
name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Preferred Shares and the
Warrants to be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions, against
delivery of duly executed certificates representing the Preferred Shares and
duly executed Warrants which such Buyer is purchasing and (ii) the Company shall
deliver such certificates and Warrants duly executed on behalf of the Company,
to such Buyer, against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares and the Warrants pursuant to
this Agreement (the "CLOSING DATE") shall be 12:00 noon, Eastern Standard Time,
on April 17, 2000 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735
Market Street, Philadelphia, PA 19103, or at such other location as may be
agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Preferred Shares (including, without
limitation, such additional shares of Common Stock as are issuable as a result
of the events described in Sections V, VI.D(b) or VI.E of the Amendment and
Section 2(c) of the Registration Rights Agreement) (such shares of Common Stock
being collectively referred to herein as the "CONVERSION SHARES") and the
Warrants and the shares of Common Stock issuable upon exercise of or otherwise
pursuant to the
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<PAGE> 3
Warrants (the "WARRANT SHARES" and, collectively with the Preferred Shares,
Warrants and Conversion Shares, the "SECURITIES") for its own account and not
with a present view towards the public sale or distribution thereof; provided,
however, that by making the representations herein, the Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act and
applicable state securities laws.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
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applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Preferred Shares and
the Warrants and, until such time as the Conversion Shares and Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the Conversion Shares and Warrant Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or unless
sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will
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<PAGE> 5
constitute, valid and binding agreements of the Buyer enforceable in accordance
with their terms, subject to any applicable laws regarding bankruptcy,
insolvency, moratoriums, reorganization or other laws of general application
affecting enforcement of creditors' rights and subject to general principles of
equity.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii)
on the transactions contemplated hereby or by the agreements or instruments to
be entered into in connection herewith or (iv) the authority or the ability of
the Company to perform its obligation under this Agreement, the Registration
Rights Agreement, the Amendment or the Warrants. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, at least a twenty percent (20%)
equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to file and perform its obligations under the
Amendment and to enter into and perform this Agreement, the Registration Rights
Agreement and the Warrants and to consummate the transactions contemplated
hereby and thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants by the Company, the filing of the
Amendment and the consummation by it of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Preferred Shares and
the Warrants and the issuance and reservation for issuance of the Conversion
Shares issuable upon conversion of or otherwise pursuant to the Preferred Shares
and the Warrant Shares issuable upon exercise of or otherwise pursuant to the
Warrants) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
stockholders is required, provided that additional authorization of the Board of
Directors or the stockholders may be required in the event that the number of
shares of Common Stock to be
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<PAGE> 6
issued upon conversion of the Preferred Shares or exercise of the Warrants
exceeds the number of authorized, but unissued, shares available under the
Articles of Incorporation (as defined in Section 3(c) below), (iii) this
Agreement has been duly executed and delivered by the Company, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement and the Warrants and upon execution and filing of
the Amendment, each of such agreements and instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to any applicable laws regarding bankruptcy,
insolvency, moratoriums, reorganization or other laws of general application
affecting enforcement of creditors' rights and subject to general principles of
equity.
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 70,000,000 shares of Common Stock, of which
12,731,584 shares are issued and outstanding, 3,850,000 shares are reserved for
issuance pursuant to the Company's stock option plans, 75,000 shares are
reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 2,500,000 shares are reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants (subject to
adjustment pursuant to the Company's covenant set forth in Section 4(h) below);
and (ii) 10,000,000 shares of preferred stock, none of which are issued and
outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in SCHEDULE 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Preferred Shares, the
Warrants, the Conversion Shares or Warrant Shares. The Company has furnished to
the Buyer true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof ("ARTICLES OF INCORPORATION"), the Company's
Bylaws, as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed by the
Company's Chief Executive Officer or Chief Financial Officer on behalf of the
Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms of this Agreement, will be
validly issued, fully paid
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and non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance as provided in Section 3(c), and, upon
conversion of the Preferred Shares and exercise of the Warrants in accordance
with the terms thereof, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances and will not be subject
to preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Preferred Shares and upon issuance of the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. The Company's directors and executive
officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Preferred Shares or
exercise of the Warrants in accordance with this Agreement, the Amendment and
the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company. Taking the foregoing into account, the Company's Board of Directors
has determined, in its good faith business judgment, that the issuance of the
Securities hereunder and under the Amendment and the Warrants and the
consummation of the transactions contemplated hereby and thereby are in the best
interest of the Company and its stockholders.
f. SERIES OF PREFERRED STOCK. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Shares) are as stated in the Articles
of Incorporation, filed on or prior to the date hereof, and the Bylaws. The
terms, designations, powers, preferences and relative, participating and
optional or special rights, and the qualifications, limitations and restrictions
of the Preferred Shares are as stated in the Amendment.
g. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the filing of the Amendment and the
issuance and reservation for issuance, as applicable, of the Preferred Shares,
Conversion Shares and Warrant Shares) will not (i) conflict with or result in a
violation of any provision of the Articles of Incorporation or Bylaws or (ii)
violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to
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<PAGE> 8
which the Company or its securities are subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, Bylaws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants in accordance with
the terms hereof or thereof or to issue and sell the Preferred Shares and
Warrants in accordance with the terms hereof and to issue the Conversion Shares
upon conversion of or otherwise pursuant to the Preferred Shares and the Warrant
Shares upon exercise of or otherwise pursuant to the Warrants. Except as
disclosed in SCHEDULE 3(g), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Nasdaq National
Market (the "NNM") and does not reasonably anticipate that the Common Stock will
be delisted by the NNM in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
h. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since July 31, 1996, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC DOCUMENTS"). The Company has delivered to each
Buyer true and complete copies of the SEC Documents, except for such exhibits
and incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be
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<PAGE> 9
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 1999 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which are not material to the financial
condition or operating results of the Company.
i. ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.
j. ABSENCE OF LITIGATION. Except as set forth on SCHEDULE
3(j)(i), there is no action, suit, claim, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as such, that
could have a Material Adverse Effect. SCHEDULE 3(j)(ii) contains a complete list
and summary description of any pending or threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to whether it
would have a Material Adverse Effect. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
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<PAGE> 10
k. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(k) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future),
except for such licenses or rights the absence of which would not, individually
or in the aggregate, have a Material Adverse Effect. Except as described in
SCHEDULE 3(j)(i), there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in SCHEDULE 3(k) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the Company
to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000 Compliant,
except for Information Technology which, if not Year 2000 Compliant, would not
have a Material Adverse Effect. For purposes of this Agreement, the term "YEAR
2000 COMPLIANT" means, with respect to the Company's Information Technology,
that the Information Technology is designed to be used prior to, during and
after the calendar Year 2000 A.D., and the Information Technology used during
each such time period will accurately receive, provide and process date and time
data (including, but not limited to, calculating, comparing and sequencing)
from, into and between the 20th and 21st centuries, including the years 1999 and
2000, and leap-year calculations, and will not malfunction, cease to function,
or provide invalid or incorrect results as a result of the date or time data, to
the extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it. The
Company has delivered to the Buyer true and correct copies of all analyses,
reports, studies and similar written information, whether prepared by the
Company or another party, relating to whether the Information Technology is Year
2000 Compliant.
l. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
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<PAGE> 11
m. TAX STATUS. Except as set forth on SCHEDULE 3(m), the Company
and each of its Subsidiaries has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE 3(m), none
of the Company's tax returns is presently being audited by any taxing authority.
n. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(n) and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
o. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which has
not been publicly announced or disclosed but under applicable law, rule or
regulation, requires public disclosure or announcement by the Company (assuming
for this purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
p. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's
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length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is acting as
a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and that
any statement made by any Buyer or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to the Buyers'
purchase of the Securities and has not been relied upon by the Company, its
officers or directors in any way. The Company further represents to each Buyer
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation of the Company and its representatives.
q. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. NO BROKERS. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Zanett Securities Corp., whose commissions and
fees will be paid for by the Company.
s. PERMITS; COMPLIANCE. The Company and each of its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS") (except for
Company Permits the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect), and there is no action pending or,
to the knowledge of the Company, threatened regarding suspension or cancellation
of any of the Company Permits. Neither the Company nor any of its Subsidiaries
is in conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since December 31, 1999, neither the Company nor any of its Subsidiaries
has received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
t. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(t), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances,
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<PAGE> 13
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, to the Company's knowledge, no
Hazardous Materials are contained on or about any real property currently owned,
leased or used by the Company or any of its Subsidiaries, and, to the Company's
knowledge, no Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or any of its Subsidiaries
during the period the property was owned, leased or used by the Company or any
of its Subsidiaries, except in the normal course of the Company's or any of its
Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(t), to the Company's
knowledge, there are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
u. TITLE TO PROPERTY. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in SCHEDULE 3(u) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
v. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
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w. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
x. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
y. SOLVENCY. The Company (both before and after giving effect to
the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
z. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement, the
Amendment and the Warrants will not be, an "investment company" required to be
registered under the Investment Company Act of 1940 (an "INVESTMENT COMPANY").
The Company is not controlled by an Investment Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to
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each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to each Buyer on or prior
to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The Company's
Common Stock is registered under Section 12(g) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3. The Company shall issue a
press release describing the materials terms of the transaction contemplated
hereby within one (1) business of the Closing Date and shall file with the SEC a
Current Report on Form 8-K describing the material terms of the transaction
contemplated hereby within three (3) business days of the Closing Date, which
press release and Form 8-K shall be subject to prior review by the Buyers.
d. USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Preferred Shares and the Warrants and from the exercise of the
Warrants in the manner set forth in SCHEDULE 4(d) attached hereto and made a
part hereof and shall not, directly or indirectly, use such proceeds for any
loan to or investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or indirect
Subsidiaries).
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject to
the exceptions described below, the Company will not, without the prior written
consent of Rose Glen Capital Management, L.P. ("RGC"), negotiate or contract
with any party to obtain additional equity financing (including debt financing
with an equity component) during the period (the "LOCK-UP PERIOD") beginning on
the Closing Date and ending One Hundred Eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement)
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective (plus any days following the initial declaration
of effectiveness thereof in which sales cannot be made thereunder). In addition,
subject to the exceptions described below, the Company will not conduct any
equity financing (including debt with an equity component) ("FUTURE OFFERINGS")
during the period beginning on the Closing Date and ending One Hundred Eighty
(180) days after the end of the Lock-up Period, unless it shall have first
delivered to RGC at least fifteen (15) business days prior to the closing of
such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing RGC (and its
affiliates) with an option during the ten (10) day period following delivery of
such notice to purchase the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the
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preceding sentence are collectively referred to as the "CAPITAL RAISING
LIMITATIONS"). In the event the terms and conditions of a proposed Future
Offering are amended in any respect after delivery of the notice to RGC
concerning the proposed Future Offering, the Company shall deliver a new notice
to RGC describing the amended terms and conditions of the proposed Future
Offering and RGC (and its affiliates) thereafter shall have an option during the
ten (10) day period following delivery of such new notice to purchase the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the stockholders of the Company.
f. EXPENSES. The Company shall pay to RGC at the Closing a
non-accountable expense allowance equal to Thirty Five Thousand Dollars
($35,000) (of which Ten Thousand Dollars ($10,000) was advanced previously) for
all expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, attorneys'
and consultants' fees and expenses and travel expenses.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the stockholders
of the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection with the
Preferred Shares (based on the lesser of the Variable Conversion Price in effect
from time to time and the Fixed Conversion Price in effect from time to time
(each as defined in the Amendment)) and as otherwise required by the Amendment
and the full exercise of the Warrants and issuance of the Warrant Shares in
connection therewith (based on the Exercise Price (as defined in the Warrants)
of the Warrants in effect from time to time). The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion of or
otherwise pursuant to the Preferred Shares and upon exercise of
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<PAGE> 17
or otherwise pursuant to the Warrants without the consent of each Buyer. The
Company shall use its best efforts at all times to maintain the number of shares
of Common Stock so reserved for issuance at no less than two (2) times the
number that is then actually issuable upon full conversion of the Preferred
Shares (based on the lesser of the Variable Conversion Price in effect from time
to time and the Fixed Conversion Price in effect from time to time (each as
defined in the Amendment)) and full exercise of the Warrants (based on the
Exercise Price (as defined in the Warrants) of the Warrants in effect from time
to time). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares issued and
issuable upon conversion of or otherwise pursuant to the Preferred Shares (based
on the lesser of the Variable Conversion Price in effect from time to time and
the Fixed Conversion Price in effect from time to time (each as defined in the
Amendment)) and the aggregate number of Warrant Shares issued and issuable upon
exercise of the Warrants (based on the Exercise Price (as defined in the
Warrants) of the Warrants in effect from time to time), the Company will
promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain stockholder approval of
an increase in such authorized number of shares.
i. LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of or otherwise pursuant to
the Preferred Shares or exercise of or otherwise pursuant to the Warrants. The
Company will obtain and, so long as any Buyer owns any of the Securities,
maintain the listing and trading of its Common Stock on, the NNM, the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from the NNM and any other exchanges or quotation systems on
which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate existence
and shall not merge, consolidate or sell all or substantially all of the
Company's assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where (i) the successor or
acquiring entity and, if an entity different from the successor or acquiring
entity, the entity whose securities into which the Preferred Shares and/or
Warrants shall become convertible or exercisable, as applicable, pursuant to
Section VI.C(b) of the Amendment and/or Section 4(e) of the Warrants, as
applicable, in such transaction assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith
(including the
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<PAGE> 18
Amendment and the Warrants) and (ii) the entity whose securities into which the
Preferred Shares and/or Warrants shall become convertible or exercisable, as
applicable, pursuant to Section VI.C(b) of the Amendment and/or Section 4(e) of
the Warrants, as applicable, is a publicly traded corporation whose Common Stock
is listed for trading on the NNM, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. TRADING LIMITATIONS. Each Buyer agrees that it will conduct
any sales of Common Stock in compliance with all relevant securities laws and
regulations and will not create any daily low trading prices in the Common
Stock.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in accordance
with the terms thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares or Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares or Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel, in form, substance
and scope customary for opinions in comparable transactions, to the effect that
a public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates, free from any restrictive legend, in such name and in such
denominations as specified by such Buyer.
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<PAGE> 19
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Preferred Shares and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. All Buyers shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. All Buyers shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The Amendment shall have been accepted for filing with the
Secretary of State of the State of Colorado.
d. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Preferred Shares and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares and duly executed Warrants in accordance with Section 1(b)
above.
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<PAGE> 20
c. The Amendment shall have been accepted for filing with the
Secretary of State of the State of Colorado, and a copy thereof certified by
such Secretary of State shall have been delivered to such Buyer.
d. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
e. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to, certificates with respect to the Company's
Articles of Incorporation, Bylaws and Board of Directors' resolutions relating
to the transactions contemplated hereby.
f. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
g. The Conversion Shares and the Warrant Shares shall have been
authorized for quotation on the NNM and trading in the Common Stock on the NNM
shall not have been suspended by the SEC or the NNM.
h. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
i. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
j. The Company shall have received, on or prior to the Closing
Date, proceeds of at least $3,750,000 from a third party investment, the
structure of which investment shall be satisfactory to RGC in its sole
discretion.
k. Each of Bank One, Colorado N.A., Cobank, ACB and Intrust Bank,
NA shall have (i) acknowledged in writing that the transactions contemplated
hereby, together with the transaction referred to in Section 7(j) hereof,
satisfy the provision set forth in
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that certain Certificate of Waiver dated March 21, 2000 relating to the
obtaining of at least $7.5 million of additional equity capital and (ii) waived
compliance with such provision with respect to the April 14, 2000 date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
exclusive jurisdiction of the United States federal courts and the state courts
located in Delaware with respect to any suit or proceeding based on or arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail (postage prepaid to the
address set forth in Section 8(f)) shall be deemed in every respect effective
service of process upon the party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. Both parties agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed by
a party, may be delivered to the other party hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
c. HEADINGS. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
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<PAGE> 22
f. NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
67 Inverness Drive East, Suite 100
Englewood, Colorado 80112
Attention: Chief Executive Officer
Facsimile: (303) 705-5584
With copy to:
Rothgerber Johnson & Lyons LLP
1200 17th Street, Suite 3000
Denver, Colorado 80202
Attention: Herbert H. Davis, III, Esq.
Facsimile: (303) 623-9222
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, Pennsylvania 19103
Attn: Gerald J. Guarcini, Esq.
Facsimile: (215) 864-8625
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
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h. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3, 4, 5 and 8 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Buyer by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
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<PAGE> 25
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
T-NETIX, INC.
By:
-------------------------------------
Alvyn A. Schopp
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
-------------------------------------
Steve Katznelson
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<S> <C>
Number of Preferred Shares: 3,750
Number of Warrants: 340,909
Aggregate Purchase Price: $3,750,000
</TABLE>
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<PAGE> 1
EXHIBIT 99.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 17,
2000, by and among T-NETIX, INC., a Colorado corporation, with its headquarters
located at 67 Inverness Drive East, Suite 100, Englewood, Colorado 80112 (the
"COMPANY"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors: (i) shares of its Series A
Convertible Preferred Stock (the "PREFERRED STOCK") that are convertible into
shares of the Company's common stock, par value $.01 per share (the "COMMON
STOCK"), upon the terms and subject to the limitations and conditions set forth
in the Amendment to the Company's Articles of Incorporation setting forth the
rights, preferences and privileges of the Preferred Stock (the "AMENDMENT"); and
(ii) stock purchase warrants (the "WARRANTS") that are exercisable into shares
of Common Stock upon the terms and conditions subject to the terms and
conditions set forth in the Warrants; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
<PAGE> 2
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means: (A) the
Conversion Shares issued or issuable upon conversion of or otherwise pursuant to
the Preferred Shares (including, without limitation, any shares issued or
issuable pursuant to Sections V, VI.D(b) and VI.E of the Amendment and Section
2(c) herein); (B) the Warrant Shares issued or issuable upon exercise of or
otherwise pursuant to the Warrants; and (C) any shares of capital stock issued
or issuable as a dividend on or in exchange for or otherwise with respect to any
of the foregoing.
(iv) "REGISTRATION STATEMENT(S)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the Securities Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare and, on
or prior to the date (the "FILING DATE") which is thirty (30) days after the
date of the closing under the Securities Purchase Agreement (the "CLOSING
Date"), file with the SEC a Registration Statement on Form S-3 covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of or otherwise pursuant to the Preferred
Shares and upon exercise of or otherwise pursuant to the Warrants to prevent
dilution resulting from stock splits, stock dividends or similar transactions.
The number of shares of Common Stock initially included in such Registration
Statement shall be no less than two (2) times the sum of (i) the aggregate
number of Conversion Shares that are then issuable upon conversion of or
otherwise pursuant to the Preferred Shares (based on the Conversion Price (as
defined in the Amendment) then in effect) and (ii) the number of Warrant Shares
issuable upon exercise of or otherwise pursuant to the Warrants (based on the
Exercise Price (as defined in the Warrants) then in effect), in each case
without regard to any limitation on the Investor's ability to convert the
Preferred Shares or exercise the Warrants. The Company acknowledges that the
number of shares initially included in the Registration Statement represents a
good faith estimate of the maximum number of shares issuable upon conversion of
or otherwise pursuant to the Preferred Shares and upon exercise of or otherwise
pursuant to the Warrants. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of the Initial Investors and
their counsel prior to its filing or other submission.
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<PAGE> 3
b. UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of non-participating Investors to sell from time to time at any time
during the effectiveness of such Registration Statement).
c. PAYMENTS BY THE COMPANY. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable, but in any event not later than the ninetieth (90th) day after the
Closing Date (the "REGISTRATION DEADLINE"). If (i) the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not declared effective by the SEC by the Registration
Deadline, or (ii) after the Registration Statement has been declared effective
by the SEC, sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement, or (iii) the Common Stock is not listed or
included for quotation on the Nasdaq National Market (the "NNM"), the Nasdaq
SmallCap Market (the "NASDAQ SMALLCAP"), the New York Stock Exchange (the
"NYSE") or the American Stock Exchange (the "AMEX") after being so listed or
included for quotation, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of the Preferred Shares or
Registrable Securities an amount equal to the stated value of the Preferred
Shares then outstanding (and, in the case of holders of Registrable Securities,
the stated value of Preferred Shares from which such Registrable Securities were
converted or the exercise price of the Warrants upon exercise of which such
Registrable Securities were received) ("AGGREGATE SHARE PRICE"), multiplied by
the Applicable Percentage (as defined below), multiplied by the sum of: (i) the
number of months (prorated for partial months) after the Registration Deadline
and prior to the date the Registration Statement is declared effective by the
SEC; provided, however, that there shall be excluded from such period any delays
which are solely attributable to changes required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investors to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) the number of
months (prorated for partial months) during the Registration Period (as defined
below) that sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this
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<PAGE> 4
Agreement (including Section 3(b) hereof or otherwise), but excluding any days
during an Allowed Delay (as defined in Section 3(f)); and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the NNM, Nasdaq SmallCap, NYSE or AMEX or that trading
thereon is halted after the Registration Statement has been declared effective.
The term "APPLICABLE PERCENTAGE" means 1.5 hundredths (.015). (For example, if
the Registration Statement becomes effective one (1) month after the
Registration Deadline, the Company would pay $15,000 for each $1,000,000 of
Aggregate Share Price. If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month, the Company
would pay an additional $15,000 for each $1,000,000 of Aggregate Share Price.)
Such amounts shall be paid in cash or, at each Investor's option, may be added
to the Conversion Amount (as defined in the Amendment) of the Preferred Shares
pursuant to Section VI.A(a) of the Amendment and thereafter be convertible into
Common Stock at the "CONVERSION PRICE" (as defined in the Amendment) in
accordance with the terms of the Preferred Shares. Any shares of Common Stock
issued upon conversion of such amounts shall be Registrable Securities. If the
Investor desires to convert the amounts due hereunder into Registrable
Securities, it shall so notify the Company in writing within two (2) business
days of the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the mechanics set forth in the
Amendment), beginning on the last day upon which the cash amount would otherwise
be due in accordance with the following sentence. Payments of cash pursuant
hereto shall be made within five (5) days after the end of each period that
gives rise to such obligation, provided that, if any such period extends for
more than thirty (30) days, interim payments shall be made for each such thirty
(30) day period.
d. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall determine to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the date of such notice, such Investor
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities such Investor requests
to be registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities
in proportion to the number of Registrable Securities sought to be included by
such Investors; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled by contract to inclusion of
such securities in such Registration Statement or are not entitled to pro rata
inclusion with the
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<PAGE> 5
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
contractual right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
any Registration Statement to be filed pursuant to Section 2(a) in accordance
with the terms of this Agreement.
e. ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
as soon as practicable after the Closing Date (but in no event later than the
Filing Date), a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing (but in no event later than the
Registration Deadline), and keep the Registration Statement effective pursuant
to Rule 415 at all times until such date as is the earlier of (i) the date on
which all of the Registrable Securities have been sold by the Investors and (ii)
the date on which the Registrable Securities (in the opinion of counsel to the
Initial Investors) may be immediately sold to the public without registration or
restriction (including without limitation as to volume by each holder thereof)
under the 1933 Act (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
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<PAGE> 6
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event that on any
Trading Day (as defined in the Amendment) (the "REGISTRATION TRIGGER DATE") the
number of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities issued or
issuable upon conversion of or otherwise pursuant to the Preferred Shares (based
on the Conversion Price (as defined in the Amendment) then in effect) and upon
exercise of or otherwise pursuant to the Warrants, in each case without giving
effect to any limitations on the Investors' ability to convert the Preferred
Shares or exercise the Warrants, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefore, if applicable), or both, so as to cover two hundred percent (200%) of
all of the Registrable Securities so issued or issuable (without giving effect
to any limitations on conversion or exercise contained in the Amendment or the
Warrants) as of the Registration Trigger Date, in each case, as soon as
practicable, but in any event within twenty (20) business days after the
necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof, but in any event within sixty (60) days of the Registration
Trigger Date. The provisions of Section 2(c) above shall be applicable with
respect to the Company's obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of each Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance
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<PAGE> 7
of all SEC comments or, if applicable, following notification by the SEC that
any such Registration Statement or any amendment thereto will not be subject to
review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of
the Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than twenty (20) consecutive
calendar days (or a total of not more than forty-five (45) calendar days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company, in the best interests of the Company (an
"ALLOWED DELAY"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the
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<PAGE> 8
Company shall again be bound by the first sentence of this Section 3(f) with
respect to the information giving rise thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement and
all amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with any Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any
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<PAGE> 9
Inspector may reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in confidence and shall not make any
disclosure (except to an Investor) of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation of all the Registrable Securities
covered by the Registration Statement on the NNM or, if not eligible for the
NNM, on the Nasdaq SmallCap and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
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<PAGE> 10
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. At the request of the holders of a majority-in-interest of
the Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
q. Except pursuant to that certain warrant to purchase 25,000
shares of Common Stock granted by the Company to Daniel M. Carney on April 14,
2000 and that certain warrant to purchase 50,000 shares of Common Stock granted
by the Company to Zanett Securities Corp., the Company shall not, and shall not
agree to, allow the holders of any securities of the Company to include any of
their securities in any Registration Statement under Section 2(a) hereof or any
amendment or supplement thereto under Section 3(b) hereof without the consent of
the holders of a majority-in-interest of the Registrable Securities. In
addition, the Company shall not offer any securities for its own account or the
account of others in any Registration Statement under Section 2(a) hereof or any
amendment or supplement thereto under Section 3(b) hereof without the consent of
the holders of a majority-in- interest of the Registrable Securities.
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
s. The Company shall comply with all applicable laws related
to a Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the 1933 Act and the 1934 Act and the
rules and regulations promulgated by the SEC).
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<PAGE> 11
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided
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<PAGE> 12
in any underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees and the fees and disbursements
of counsel for the Company, shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified
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<PAGE> 13
Person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of such Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with
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<PAGE> 14
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a majority-in-
interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by
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<PAGE> 15
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
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<PAGE> 16
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
T-NETIX, Inc.
67 Inverness Drive East, Suite 100
Englewood, Colorado 80112
Attention: Chief Executive Officer
Facsimile: 303-705-5584
With copy to:
Rothgerber Johnson & Lyons LLP
1200 17th Street, Suite 3000
Denver, Colorado 80202
Attention: Herbert H. Davis, III, Esq.
Facsimile: 303-623-9222
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
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<PAGE> 17
With copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103
Attention: Gerald J. Guarcini, Esq.
Facsimile: 215-864-8999
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). Both parties irrevocably consent to the exclusive
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement, the Securities Purchase Agreement and the
Warrants (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement and the Warrants supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by
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<PAGE> 18
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock and Warrants then outstanding
have been converted into or exercised for Registrable Securities, as the case
may be.
k. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations
hereunder will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions hereunder, that each Investor
shall be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.
l. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
m. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
n. The initial number of Registrable Securities included in
any Registration Statement and each increase to the number of Registrable
Securities included therein shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included in a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of
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<PAGE> 19
doubt, the number of Registrable Securities held by an Investor shall be
determined as if all Preferred Shares and Warrants then outstanding and held by
an Investor were converted into or exercised for Registrable Securities.
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
T-NETIX, INC.
By:
------------------------------------
Alvyn A. Schopp
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
------------------------------------
Steve Katznelson
Managing Director
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<PAGE> 1
================================================================================
EXHIBIT 99.4
SUBORDINATED LOAN AGREEMENT
between
T-NETIX, Inc.
and
Daniel M. Carney
Dated as of April 14, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS ..................................... 1
Act .......................................................... 1
Board of Directors ........................................... 1
Capitalized Lease ............................................ 1
Capitalized Lease Obligation ................................. 1
Capital Stock ................................................ 1
Carney ....................................................... 1
Closing Date ................................................. 1
Company ...................................................... 1
Debt ......................................................... 2
Default ...................................................... 2
Event of Default ............................................. 2
GAAP ......................................................... 2
Governmental Authority ....................................... 2
Lien ......................................................... 2
Loan ......................................................... 3
Material ..................................................... 3
Material Adverse Effect ...................................... 3
Past Due Amount .............................................. 3
Person ....................................................... 3
Property ..................................................... 3
Responsible Officer .......................................... 3
Restricted Payment ........................................... 3
Scheduled Rate ............................................... 3
SEC .......................................................... 4
Senior Debt .................................................. 4
Series A Preferred ........................................... 4
Subordinated Note ............................................ 4
Subsidiary ................................................... 4
Suspension Event ............................................. 4
Voting Stock ................................................. 4
Wholly Owned Subsidiary ...................................... 5
ARTICLE II THE LOAN ................................................. 5
Section 2.01. The Loan ....................................... 5
Section 2.02. Voluntary Prepayment ........................... 5
Section 2.03. Interest on the Loan ........................... 5
Section 2.04. Method and Date of Payment ..................... 5
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE III SUBORDINATION ............................................ 6
Section 3.01. Agreement to Subordinate ....................... 6
Section 3.02. Default on Senior Debt ......................... 6
Section 3.03. Liquidation; Dissolution; Bankruptcy ........... 6
Section 3.04. Subrogation .................................... 7
Section 3.05. Notice by the Company .......................... 8
Section 3.06. Rights of Holders of Senior Debt ............... 9
Section 3.07. Subordination May Not Be Impaired .............. 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES ........................... 10
Section 4.01. Representations and Warranties ................. 10
ARTICLE V COVENANTS ................................................ 11
Section 5.01. Existence ...................................... 11
Section 5.02. Insurance ...................................... 11
Section 5.03. Taxes, Compliance with Laws .................... 12
Section 5.04. Limitation on Consolidations, Mergers, Etc ..... 12
Section 5.05. Limitation on Restricted Payments .............. 12
Section 5.06. Financial and Business Information ............. 13
Section 5.07. Inspection ..................................... 13
ARTICLE VI EVENTS OF DEFAULT ........................................ 14
Section 6.01. Events of Default .............................. 14
Section 6.02. Acceleration ................................... 14
Section 6.03. Other Remedies ................................. 15
Section 6.04. Indemnification ................................ 15
Section 6.05. No Waivers or Election of Remedies, Etc ........ 15
ARTICLE VII ASSIGNMENT AND TRANSFER .................................. 15
Section 7.01. Representations of Carney ...................... 15
Section 7.02. Restrictions on Transfer of the
Subordinated Note .............................. 16
Section 7.03. Restrictions on Assignment by the Company ...... 16
Section 7.04. Permissible Transfer; Binding Effect ........... 16
Section 7.05. Mechanics of Transfer .......................... 16
Section 7.06. Indemnification ................................ 17
ARTICLE VIII MISCELLANEOUS ............................................ 17
Section 8.01. Notices ........................................ 17
Section 8.02. Governing Law .................................. 18
Section 8.03. Counterparts ................................... 18
Section 8.04. Amendments and Waivers ......................... 18
</TABLE>
Exhibit A - Form of Subordinated Note
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<PAGE> 4
SUBORDINATED LOAN AGREEMENT dated as of April 14, 2000, between
T-NETIX, INC., a Colorado corporation (the "COMPANY"), and DANIEL M. CARNEY, an
individual ("CARNEY").
RECITALS
WHEREAS, the Company has requested Carney to make a loan to the Company
in the aggregate principal amount of $3,750,000, and Carney wishes to make such
a loan on the terms and conditions herein specified.
NOW, THEREFORE, Carney agrees to lend and the Company agrees to borrow
such amount on the terms and conditions set forth herein:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms set forth below shall have the
following meanings:
"ACT" is defined in Section 5.06(a).
"BOARD OF DIRECTORS" means the managers comprising the Board of
Directors of the Company, any body performing similar functions on behalf of the
Company, or any duly authorized committee thereof.
"CAPITALIZED LEASE" means any lease with respect to which the lessee
is required to recognize concurrently the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATION" means any rental obligation with
respect to a Capitalized Lease or for which the amount of the asset and
liability thereunder as if so capitalized should be disclosed in a note to such
balance sheet, taken at the amount thereof accounted for as indebtedness (net of
interest expense) in accordance with GAAP.
"CAPITAL STOCK" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest, unless and until so converted), warrants or options to acquire
an equity interest in such Person.
"CARNEY" is defined in the preamble hereof.
"CLOSING DATE" means April 14, 2000, or such other date for closing of
the Loan as the parties hereto may agree in writing.
"COMPANY" is defined in the preamble hereof.
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"DEBT" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every Capitalized Lease Obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
the payment of which, in either case, such Person has guaranteed or for which
such Person is responsible or liable, directly or indirectly, as obligor or
otherwise.
"DEFAULT" means any event, act or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"EVENT OF DEFAULT" is defined in Section 6.01.
"GAAP" means generally accepted accounting principles in effect in the
United States at the time of application thereof, as set forth in the opinions
and pronouncements of the Financial Accounting Standards Board and the American
Institute of Certified Public Accountants, consistently applied. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all unaudited financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the most
recent audited consolidated financial statements of the Company and its
Subsidiaries.
"GOVERNMENTAL AUTHORITY" means:
(a) the government of (i) the United States of America and any
State or other political subdivision thereof, or (ii) any jurisdiction
in which the Company or any of its Subsidiaries conducts all or any
part of its business, or which asserts jurisdiction over any
properties of the Company or any of its Subsidiaries, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance (including,
without limitation, any banker's lien or right of offset), or any interest or
title of any vendor, lessor, lender or other secured party to or of such Person
under any conditional sale or other title retention agreement or Capitalized
Lease, upon or with respect to any Property of such Person (including, in the
case of Capital Stock, stockholder agreements, voting trust agreements and all
similar arrangements), or any other type
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of preferential arrangement for the purpose, or having the effect, of protecting
a creditor against loss or securing the payment or performance of an obligation,
and any agreement to provide any such Lien.
"LOAN" is defined in Section 2.01.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties or prospects of the Company and
its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, or properties of the
Company and its Subsidiaries, taken as a whole, (b) the ability of the Company
to perform its obligations under this Agreement or the Subordinated Note or (c)
the validity or enforceability of this Agreement or the Subordinated Note.
"PAST DUE AMOUNT" means, in relation to the Loan, that portion of the
interest or principal which is due for payment and which is not, by reason of
default, paid on the due date. Interest on the Past Due Amount shall accrue at
the Scheduled Rate from the scheduled due date until paid in full.
"PERSON" means any individual, corporation, partnership, joint
venture, trust, limited liability company, unincorporated organization or
governmental entity.
"PROPERTY" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible.
"RESPONSIBLE OFFICER" means the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"RESTRICTED PAYMENT" means (a) the declaration or payment of any
dividend on, or the making of any distribution in respect of, any Capital Stock
of the Company or any of its Subsidiaries, other than dividends or distributions
payable solely in Capital Stock of the Company or, in the case of a Subsidiary,
dividends or other payments or distributions in respect of its Capital Stock
paid to the Company or a Wholly Owned Subsidiary or (b) the purchase,
redemption, retirement or other acquisition, whether direct or indirect, of any
Capital Stock of the Company or its Subsidiaries; provided, that "RESTRICTED
PAYMENT" shall not include (i) any declaration of a non-cash dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto; or (ii) any purchase of common
stock of the Company related to rights under any of the Company's benefit plans
for its directors, officers or employees.
"SCHEDULED RATE" is defined in Section 2.03.
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"SEC" is defined in Section 7.01(c).
"SENIOR DEBT" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Agreement or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Subordinated Note or to other Debt which is
pari passu with, or subordinated to, the Subordinated Note; provided, however,
that Senior Debt shall not be deemed to include (i) any Debt of the Company
which when incurred and without respect to any election under section 1111(b) of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Company, (ii) any Debt of the Company to any of its Subsidiaries, (iii) any
Debt to any employee, officer or director of the Company or any of its
Subsidiaries, or (iv) any Debt which by its terms is subordinated to trade
accounts payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such Debt by the
holders of the Subordinated Note as a result of the subordination provisions of
this Agreement would be greater than they otherwise would have been as a result
of any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject.
Notwithstanding anything to the contrary herein, "Senior Debt" shall include the
Debt pursuant to that certain Loan Agreement dated as of September 9, 1999, by
and among the Company, Bank One Colorado, NA and the other Lenders party
thereto.
"SERIES A PREFERRED" is defined in the recitals hereof.
"SUBORDINATED NOTE" is defined in Section 2.01.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity in which such Person or one or more of its
subsidiaries or such Person and one or more of its subsidiaries together owns
sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership, limited liability company, joint venture or similar entity if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its subsidiaries or such Person and one or more of its
subsidiaries together (unless such partnership, limited liability company, joint
venture or similar entity can and does ordinarily take major business actions
without the prior approval of such Person or one or more of its subsidiaries).
Unless the context otherwise clearly requires, any reference to a "SUBSIDIARY"
is a reference to a Subsidiary of the Company.
"SUSPENSION EVENT" is defined in Section 3.02.
"VOTING STOCK" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
under ordinary circumstances to vote in
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the election of members of the board of directors (or Persons performing similar
functions) of such Person (irrespective of whether at the time stock of any
other class or classes shall have or might have voting power or rights by reason
of the happening of any contingency).
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary of which 100% of the
total Voting Stock is at the time owned by the Company, either directly or
indirectly through ownership of one or more Wholly Owned Subsidiaries.
ARTICLE II
THE LOAN
Section 2.01. THE LOAN. Subject to the terms and conditions herein, Carney
agrees to make a subordinated loan to the Company on the date hereof in the
principal amount of $3,750,000 (the "LOAN"). The amount of the loan may
subsequently be increased up to a maximum aggregate amount of $7,500,000 in
accordance with Article VIII hereof. Subject to the provisions of this Agreement
relating to prepayment or acceleration of the maturity of the Loan, the Loan
shall mature on April 30, 2001. The Loan shall be evidenced by one or more
subordinated promissory notes (collectively, the "SUBORDINATED NOTE") of the
Company to Carney, substantially in the form of Exhibit A hereto.
Section 2.02. VOLUNTARY PREPAYMENT. The Company shall have the right at any time
to prepay the Loan, in whole or in part (together with any accrued but unpaid
interest on any Past Due Amounts, if any, on the portion being prepaid), at any
time on or after the date hereof, in amounts in integral multiples of $100,000
in the case of a partial prepayment, and in all cases except where such
prepayment would violate the terms of any Senior Debt.
Section 2.03. INTEREST ON THE LOAN. The Loan shall bear interest at a floating
rate equal to 100 basis points above the prime rate as reported by the Wall
Street Journal, from the date it is made until maturity or full prepayment (the
"SCHEDULED RATE"). Such interest shall be payable on October 14, 2000 and April
30, 2001. Interest will be computed on the basis of a 360-day year and twelve
30-day months and, for any interest period that is shorter than a full calendar
quarter, will be calculated on the basis of the number of days elapsed in a
360-day year of twelve 30-day months. If any date on which interest is payable
on the Loan is not a Business Day, then payment of the interest due on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay).
Section 2.04. METHOD AND DATE OF PAYMENT. Each payment by the Company of
principal and interest on the Loan shall be made to Carney in United States
Dollars to such place or account as may be designated in writing by Carney.
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ARTICLE III
SUBORDINATION
Section 3.01. AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and
Carney likewise covenants and agrees, that the Subordinated Note shall be issued
subject to the provisions of this Article III, and each holder of the
Subordinated Note, whether upon original issuance or upon transfer or assignment
thereof, accepts and agrees to be bound by such provisions.
The payment by the Company of the principal of and interest on the
Subordinated Note shall, to the extent and in the manner hereinafter set forth,
be subordinated and junior in right of payment to the prior payment in full of
all Senior Debt, whether outstanding at the date of this Agreement or thereafter
incurred.
Section 3.02. DEFAULT ON SENIOR DEBT. In the event and during the continuation
of any default by the Company in the payment of principal, premium or interest
due on any Senior Debt of the Company, or in the event that the maturity of any
Senior Debt of the Company has been accelerated because of a default, then, in
either case (any such event being herein referred to as a "SUSPENSION EVENT"),
no payment shall be made by the Company with respect to the principal of or
interest on the Subordinated Note unless and until such default shall have been
cured or waived in writing or shall have ceased to exist or such Senior Debt
shall have been discharged or paid in full, after which the Company shall resume
making any and all payments in respect of the Subordinated Note, including any
payments that would have been required by this Agreement to be made by the
Company, but for the provisions of this Section 3.02.
In the event that, notwithstanding the foregoing, any payment shall be
received by the holder of the Subordinated Note when such payment is prohibited
by the preceding paragraph of this Section 3.02, such payment shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Debt or their respective representatives, or to trustees under any
indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, but only to the extent that the holders
of the Senior Debt (or their representative or representatives or a trustee)
notify such holder in writing within 90 days after such payment of the amounts
then due and owing on the Senior Debt and only the amounts specified in such
notice to such holder shall be paid to the holders of Senior Debt.
Section 3.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding-up or liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due upon all Senior Debt of the Company shall first be paid in full, or
payment thereof provided for in money in accordance with its terms, before any
payment is made by the Company on account of the principal of or interest on the
Subordinated Note; and upon any such dissolution or winding-up or liquidation or
reorganization, any payment by the
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Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, which the holder of the Subordinated
Note would be entitled to receive from the Company except for the provisions of
this Article III, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by such holder if received by it, directly to the holders of
Senior Debt of the Company (pro rata to such holders on the basis of the
respective amounts of Senior Debt held by such holders, as calculated by the
Company) or their representative or representatives or a trustee or trustees
under any indenture pursuant to which any instruments evidencing such Senior
Debt may have been issued, as their respective interests may appear, to the
extent necessary to pay such Senior Debt in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Debt, before any payment or distribution is made to the
holder of the Subordinated Note.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
holder of the Subordinated Note before all Senior Debt of the Company is paid in
full, or provision is made for such payment in money in accordance with its
terms, such payment or distribution shall, subject to Section 3.05, be held in
trust for the benefit of and shall be paid over or delivered to the holders of
such Senior Debt or their representative or representatives or a trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Debt may have been issued, as their respective interests may appear, as
calculated by the Company, for application to the payment of all Senior Debt of
the Company, as the case may be, remaining unpaid to the extent necessary to pay
such Senior Debt in full in money in accordance with its terms, after giving
effect to any concurrent payment or distribution to or for the benefit of the
holders of such Senior Debt.
For purposes of this Article III, the words "CASH, PROPERTY OR
SECURITIES" shall not be deemed to include equity securities of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated in right of payment to all Debt of the Company to substantially
the same extent as, or to a greater extent than, the Subordinated Note is so
subordinated as provided in this Article III. The consolidation of the Company
with, or the merger of the Company into, another corporation or the liquidation
or dissolution of the Company following the conveyance or transfer of its
property as an entirety, or substantially as an entirety, to another corporation
upon the terms and conditions provided for in Section 5.04 of this Agreement
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section 3.03 if such other corporation shall, as a part of
such consolidation, merger, conveyance or transfer, comply with the conditions
stated in Section 5.04 of this Agreement.
Section 3.04. SUBROGATION. Subject to the payment in full of all Senior Debt of
the Company, the rights of the holder of the Subordinated Note shall be
subrogated to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Debt until the principal of and interest
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on the Subordinated Note shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior Debt of
any cash, property or securities to which the holder of the Subordinated Note
would be entitled except for the provisions of this Article III, and no payment
over pursuant to the provisions of this Article III to or for the benefit of the
holders of such Senior Debt by the holder of the Subordinated Note, shall, as
between the Company, its creditors other than holders of Senior Debt of the
Company, and the holder of the Subordinated Note, be deemed to be a payment by
the Company to or on account of such Senior Debt. It is understood that the
provisions of this Article III are and are intended solely for the purposes of
defining the relative rights of the holder of the Subordinated Note, on the one
hand, and the holders of such Senior Debt on the other hand.
Nothing contained in this Article III or elsewhere in this Agreement or
in the Subordinated Note is intended to or shall impair, as between the Company,
its creditors other than the holders of Senior Debt of the Company, and the
holder of the Subordinated Note, the obligation of the Company, which is
absolute and unconditional, to pay to the holder of the Subordinated Note the
principal of and interest on the Subordinated Note as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holder of the Subordinated Note and
creditors of the Company, other than the holders of Senior Debt of the Company,
nor shall anything herein or therein prevent the holder of the Subordinated Note
from exercising all remedies otherwise permitted by applicable law upon default
under this Agreement, subject to the rights, if any, under this Article III of
the holders of such Senior Debt in respect of cash, property or securities of
the Company, as the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article III, the holder of the Subordinated Note shall be entitled to
rely conclusively upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the holder of the Subordinated Note, for
the purposes of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Debt and other indebtedness of the Company,
as the case may be, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article III.
Section 3.05. NOTICE BY THE COMPANY. The Company shall give prompt written
notice to the holder of the Subordinated Note of any fact known to the Company
that would prohibit the making of any payment of monies in respect of the
Subordinated Note pursuant to the provisions of this Article III.
Notwithstanding the provisions of this Article III or any other provision of
this Agreement, the holder of the Subordinated Note shall not be charged with
knowledge of the existence of any facts that would prohibit the making of any
payment of monies to such holder in respect of the Subordinated Note pursuant to
the provisions of this Article III, unless and until the holder of the
Subordinated Note shall have received written notice thereof from the Company or
a holder or holders of Senior Debt or from any trustee therefor; and before the
receipt of any such
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written notice, such holder shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the holder of the Subordinated Note
shall not have received the notice provided for in this Section 3.05 at least
two Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of or interest on the Subordinated Note), then, anything herein
contained to the contrary notwithstanding, the holder of the Subordinated Note
shall have full power and authority to receive such money, and shall not be
affected by any notice to the contrary that may be received by it within two
Business Days prior to such date.
The holder of the Subordinated Note, if acting in good faith, shall be
entitled to rely conclusively on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Debt of the Company (or a
trustee on behalf of such holder), to establish that such notice has been given
by a holder of such Senior Debt or a trustee on behalf of any such holder or
holders. In the event that the holder of the Subordinated Note determines in
good faith that further evidence is required with respect to the right of any
Person as a holder of such Senior Debt to participate in any payment or
distribution pursuant to this Article III, the holder of the Subordinated Note
may request such Person to furnish evidence to the reasonable satisfaction of
the holder of the Subordinated Note as to the amount of such Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article III, and, if such evidence is not furnished, the
holder of the Subordinated Note may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
Section 3.06. RIGHTS OF HOLDERS OF SENIOR DEBT. With respect to the holders of
Senior Debt of the Company, each holder of the Subordinated Note undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article III, and no implied covenants or
obligations with respect to the holders of such Senior Debt shall be read into
this Agreement against any holder of the Subordinated Note. No holder of the
Subordinated Note shall be deemed to owe any fiduciary duty to the holders of
such Senior Debt and, so long as it is acting in good faith, no such holder of
the Subordinated Note shall be liable to any holder of such Senior Debt if it
shall receive from or pay over or deliver to the Company or any other Person
money or assets to which any holder of such Senior Debt shall be entitled by
virtue of this Article III or otherwise.
Section 3.07. SUBORDINATION MAY NOT BE IMPAIRED. No right of any present or
future holder of any Senior Debt of the Company to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Agreement, regardless of any
knowledge thereof that any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt of the Company may, at any time and from time to
time, without the consent of or notice to any holder of the Subordinated Note,
without incurring responsibility to any holder of
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the Subordinated Note and without impairing or releasing the subordination
provided in this Article III or the obligations hereunder of any holder of the
Subordinated Note to the holders of such Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, such Senior Debt, or otherwise amend or
supplement in any manner such Senior Debt or any instrument evidencing the same
or any agreement under which such Senior Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Debt; (iii) release any Person liable in any
manner for the collection of such Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to Carney as follows:
(a) GOOD STANDING. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Colorado and is duly qualified as a foreign corporation in each other
jurisdiction where such qualification is necessary. The Company has
all requisite power and authority to own or hold under lease the
properties it purports to own or hold under lease, to transact its
business, to execute and deliver this Agreement and the Subordinated
Note and to perform its obligations under the provisions hereof and
thereof.
(b) AUTHORIZATION, ETC.
(i) This Agreement has been duly authorized by the Company, and
this Agreement constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting
enforcement of creditors' rights generally.
(ii) The Subordinated Note has been duly authorized by the
Company and, when executed, issued and delivered in the manner
provided for herein and sold to and paid for by Carney, the
Subordinated Note will constitute a valid and binding obligation of
the Company and will be enforceable against the Company in accordance
with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally.
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(c) COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
(i) The execution, delivery and performance by the Company of
this Agreement and the Subordinated Note will not (a) contravene,
result in a breach of or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or any
Subsidiary under any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter, bylaws or
other constituent documents, or any other agreement or instrument to
which the Company or any Subsidiary is bound or by which the Company
or any Subsidiary or any of their respective properties may be bound
or affected, (b) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (c) violate any provision of any
statute or other rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary.
(ii) Neither the Company nor any Subsidiary is in violation or
breach of or default under any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter or bylaws
or any other agreement or instrument to which it is bound or by which
its properties are bound or affected, which violation, breach or
default, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(d) GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution,
delivery or performance by the Company of this Agreement or the
Subordinated Note.
ARTICLE V
COVENANTS
Section 5.01. EXISTENCE. Except as otherwise permitted by Section 5.04, the
Company will, and will cause each of its Subsidiaries to, preserve and keep in
full force and effect its corporate or other applicable organizational existence
and all its rights and franchises, except in the case of such rights and
franchises where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 5.02. INSURANCE. The Company will maintain and will cause each of its
Subsidiaries to maintain, with financially sound and reputable insurers,
insurance with respect to their respective Property and businesses against such
casualties and contingencies, of such types, on such terms and in such amounts
(including deductibles and co-insurance, if adequate reserves are maintained
with respect thereto) as are customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
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Section 5.03. TAXES, COMPLIANCE WITH LAWS. The Company will, and will cause each
of its Subsidiaries to, file all tax returns required to be filed in any
jurisdiction and to pay and discharge (or cause to be paid and discharged) all
taxes shown to be due and payable on such returns and all other taxes imposed on
them or any of their properties, assets, income or franchises, to the extent
such taxes have become due and payable and before they have become delinquent;
provided that neither the Company nor any Subsidiary need pay any such taxes if
(a) the amount, applicability or validity thereof is contested by the Company or
such Subsidiary on a timely basis in good faith and in appropriate proceedings,
and the Company or such Subsidiary has established adequate reserves therefor on
its books, to the extent required by GAAP, or (b) the nonpayment of such taxes
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company will comply and will cause each Subsidiary
to comply with all laws and ordinances to which it is subject, including without
limitation, and as applicable, all laws, ordinances, governmental rules and
regulations relating to environmental protection in all applicable
jurisdictions, unless the violation of such laws, ordinances, rules or
regulations would not have a Material Adverse Effect.
Section 5.04. LIMITATION ON CONSOLIDATIONS, MERGERS, ETC. The Company will not,
and will not permit any of its Subsidiaries to, merge or consolidate with or
into any Person or convey, transfer or otherwise dispose of all or substantially
all of its assets to any Person, except that:
(a) The Company may merge or consolidate with or into any other
Person or convey, transfer or otherwise dispose of all or
substantially all of its assets to any other Person; provided, that
(i) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or other
disposition all or substantially all of the assets of the Company, as
the case may be, shall be a corporation organized and existing under
the laws of a state of the United States or the United States; (ii) if
the Company is not such successor or survivor, the successor, survivor
or acquirer shall have expressly assumed all obligations of the
Company under or with respect to the Loan, this Agreement, the
Subordinated Note and any other agreement entered into in connection
with the transactions contemplated hereby, and such Person shall have
caused to be delivered to the holder of the Subordinated Note an
opinion of independent counsel reasonably acceptable to the holder, to
the effect that all agreements and instruments effecting such
assumption are enforceable in accordance with their terms and comply
with the terms hereof; and (iii) no Default or Event of Default or
Suspension Event shall exist, either prior to or immediately after
giving effect to such merger, consolidation or asset conveyance,
transfer or other disposition; and
(b) any Subsidiary may merge with the Company or a Wholly Owned
Subsidiary, or may convey, transfer or otherwise dispose of all or
substantially all of its assets to the Company or to a Wholly Owned
Subsidiary; provided, that no Default or Event of Default or
Suspension Event shall exist.
Section 5.05. LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, declare, make or incur any
liability or obligation to make any Restricted Payment if a Default or Event of
Default or Suspension Event has occurred and is continuing or if a Default or
Event of Default or Suspension Event would result therefrom.
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<PAGE> 16
Section 5.06. FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver to
the holder of the Subordinated Note:
(a) SEC AND OTHER REPORTS. Promptly after their having been
filed, one copy of each report, notice, proxy statement, registration
statement or prospectus filed by the Company or any of its
Subsidiaries with the Securities and Exchange Commission or any
successor agency pursuant to the Securities Act of 1933, as amended
(the "ACT") or the Securities Exchange Act of 1934, as amended, and
copies of any orders in any proceedings to which the Company or any of
its Subsidiaries is a party, issued by any Governmental Authority;
(b) NOTICE OF DEFAULT OR EVENT OF DEFAULT OR SUSPENSION EVENT.
Immediately upon (and in any event within three Business Days after)
any Responsible Officer's becoming aware of the existence of any
condition or event which constitutes any Default or Event of Default
or Suspension Event, a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes
to take with respect thereto; and
(c) NOTICE OF CLAIMED DEFAULT. Immediately upon (and in any event
within three Business Days after) any Responsible Officer's becoming
aware that the holder or holders of any evidences of Debt of the
Company and/or one or more Subsidiaries aggregating $1,000,000 or more
has or have given notice or taken any other action with respect to a
claimed default, a written notice specifying the notice given or
action taken by such holder or holders and the nature of the claimed
default, and what action the Company is taking or proposes to take
with respect thereto.
Section 5.07. INSPECTION. Subject to the Company's and its Subsidiaries' legal
and contractual obligations to protect the confidentiality of information
regarding their customers, suppliers and other contract counterparties, the
Company will permit, and will cause each of its Subsidiaries to permit, the
holder of the Subordinated Note (or such Persons as such holder may designate)
to visit and inspect any of the properties of the Company and its Subsidiaries
to examine all the books, records, reports and other papers of the Company and
its Subsidiaries, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees, and independent public accountants (and by this provision the Company
authorizes, and agrees to cause its Subsidiaries to authorize, said accountants
to discuss with such holder the finances and affairs of the Company and its
Subsidiaries), all at such reasonable times and as often as may be reasonably
requested and using reasonable efforts to avoid or minimize interruption of
business. During any period in which a Default or Event of Default or Suspension
Event has occurred and is continuing, the Company shall pay or reimburse such
holder for expenses which it may incur in connection with any such visitation or
inspection; otherwise the Company shall not be required to pay or reimburse such
expenses.
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<PAGE> 17
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if one or
more of the following events shall occur and be continuing:
(a) default in the payment of interest on the Loan for more than
ten Business Days after the same has become due; or
(b) default in the payment of principal on the Loan when due; or
(c) any Bankruptcy Event; or
(d) the making of any Restricted Payments in violation of the
provisions of Section 5.05; or
(e) the breach by the Company of any other covenant or obligation
contained herein and such breach continues for 30 days after any
Responsible Officer obtains actual knowledge thereof;
(f) any representation or warranty made by the Company herein
shall be false or misleading in any material respect on the date as of
which made; or
(g) default by the Company on any Senior Debt.
Section 6.02. ACCELERATION.
(a) If an Event of Default described in clause (c) of Section
6.01 has occurred with respect to the Company, the Loan shall
automatically become immediately due and payable.
(b) If an Event of Default described in clause (a), (b), (d) or
(g) of Section 6.01 has occurred, Carney may at any time declare the
Loan to be immediately due and payable.
(c) Upon the Loan becoming due and payable under this Section
6.02, whether automatically or by declaration, the Loan will forthwith
mature and the entire unpaid principal amount of the Loan, plus all
accrued and unpaid interest thereon, shall be immediately due and
payable, in each and every case without presentment, demand, protest
or further notice, all of which are hereby waived; provided, however,
that payment of such accelerated amount shall be subject to Article
III hereof.
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<PAGE> 18
(d) Interest shall accrue on such accelerated amount at the
Scheduled Rate from and after the date of such acceleration until such
amount is paid in full or the acceleration is revoked upon cure by the
Company as provided in Section 6.02(e), below.
(e) The acceleration of the Loan under this Section 6.02 shall be
revoked upon the Company's paying to the holder of the Subordinated
Note all amounts which would have been due had the Loan not been
accelerated under this Section 6.02, including principal and
ordinarily accruing interest, plus all interest accrued under Section
6.02(d), plus any required indemnification amounts under Section 6.04.
Upon such revocation of acceleration, the Loan shall mature and
interest shall accrue in accordance with Article II hereof as though
such acceleration had not occurred; provided, however, that nothing in
this paragraph shall preclude the operation of this Section 6.02 upon
subsequent Events of Default.
Section 6.03. OTHER REMEDIES. If any Default or Event of Default has occurred,
and irrespective of whether the Loan has become or has been or may be declared
immediately due and payable under Section 6.02, Carney may proceed to protect
and enforce its rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein, or for an injunction against a violation of any of the terms hereof, or
in aid of the exercise of any power granted hereby or by law or otherwise.
Section 6.04. INDEMNIFICATION. The Company shall indemnify and hold the holder
of the Subordinated Note harmless from and against any and all liabilities and
expenses, including reasonable attorneys' fees, incurred by such holder in
enforcing this Agreement and the Subordinated Note, or that may otherwise result
from an Event of Default.
Section 6.05. NO WAIVERS OR ELECTION OF REMEDIES, ETC. No course of dealing and
no delay on the part of Carney in exercising any right, power or remedy shall
operate as a waiver thereof or otherwise prejudice Carney's rights, powers or
remedies. No right, power or remedy conferred by this Agreement upon Carney
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise.
ARTICLE VII
ASSIGNMENT AND TRANSFER
Section 7.01. REPRESENTATIONS OF CARNEY. Carney hereby represents and warrants
to the Company as follows:
(a) He is an "accredited investor" as that term is defined under
the Act.
(b) He is acquiring the Subordinated Note solely for his personal
account, for investment purposes only and not with a view toward
resale, distribution or subdivision
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<PAGE> 19
thereof, and he has no contract, agreement or understanding to sell,
transfer or pledge the Subordinated Note or any part thereof.
(c) He understands that the Subordinated Note has not been
registered with the Securities and Exchange Commission (the "SEC")
under the Act or any state securities laws and that there is no intent
on the part of the Company to do so.
(d) He understands that the economic risk of investment must be
borne for an indefinite period of time because the Subordinated Note
has not been registered under the Act or any state securities laws
and, therefore, cannot be publicly resold for two years or more after
issuance unless the Subordinated Note is subsequently registered under
the Act and any applicable state securities laws or unless an
exemption from such registration provisions is available as evidenced
by a "no action letter" from the SEC or an opinion of counsel
acceptable to the Company.
Section 7.02. RESTRICTIONS ON TRANSFER OF THE SUBORDINATED NOTE. The holder of
the Subordinate Note shall not sell, assign, pledge, encumber, exchange or
otherwise transfer the Subordinated Note without registration under the Act
and/or any applicable state securities laws or unless such holder obtains an
opinion of counsel acceptable to the Company that such sale, assignment, pledge,
encumbrance or transfer is exempt from such registration provisions.
Section 7.03. RESTRICTIONS ON ASSIGNMENT BY THE COMPANY. The Company may not
assign its rights or obligations under this Agreement without the prior written
consent of the holder of the Subordinated Note.
Section 7.04. PERMISSIBLE TRANSFER; BINDING EFFECT. Subject to the foregoing,
the Subordinated Note may be transferred by the holder thereof in whole, but not
in part, at any time prior to the payment in full of all principal and interest
thereunder. Upon the transfer of the Subordinated Note, the provisions of this
Agreement shall be binding upon, and shall inure to the benefit of, such
transferee. Upon acceptance of the Subordinated Note by any transferee, such
transferee shall be deemed to have made the representations and warranties made
by Carney in this Agreement, and shall be bound thereby. Any sale, assignment,
pledge, encumbrance, exchange or other transfer by the Company or Carney in
contravention of this Article VII shall be void.
Section 7.05. MECHANICS OF TRANSFER. Transfer of the Subordinated Note shall be
made only on the books of the Company. In order to effect a transfer, the holder
of the Subordinated Note shall surrender the Subordinated Note to the Company,
together with a written instrument signed by such holder and the transferee
containing the following: instructions to the Company to cancel the Subordinated
Note and issue a replacement Subordinated Note; the name in which the
replacement Subordinated Note is to be registered; the address, telephone number
and fax number of the transferee; confirmation by the holder and the transferee
that this Agreement henceforth will be binding upon and will inure to the
benefit of the transferee and not the holder of the Subordinated Note being
canceled (except that any indemnification for violation of this
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<PAGE> 20
Article VII by the holder shall survive); and confirmation by the transferee
that the representations and warranties of Carney are true and accurate as if
made by the transferee on the date such transfer is made.
Section 7.06. INDEMNIFICATION. The holder of the Subordinate Note shall
indemnify and hold the Company (and its directors, officers, employees and
agents) harmless from and against any and all liabilities and expenses,
including reasonable attorneys' fees, that may result from the breach of any
representation and warranty contained in this Article VII, or from the transfer
of the Subordinated Note in violation of any provision of this Article VII
and/or applicable United States federal or state securities laws.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. NOTICES. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering the same
against receipt therefor by facsimile transmission (if the sender on the same
day sends a confirming copy of such notice by a recognized overnight delivery
service, charges prepaid), telex or by a recognized overnight delivery service
(charges prepaid), addressed as follows (and if so given, shall be deemed given
when sent or upon receipt of an answer-back, if sent by telex):
If to the Company:
John Giannaula
T-NETIX, Inc.
67 Inverness Drive East, Suite 100
Englewood, Colorado 80112
Telephone: (303) 790-9111
Fax: (303) 705-5584
If to the holder of the Subordinated Note:
Daniel M. Carney
Tallgrass Executive Park
Building 1900
8100 East 22nd Street North
Wichita, Kansas 67226
Telephone: (316) 686-7314
Fax: (316) 683-6638
or according to the information provided for any subsequent holder in any
amendment or supplement provided for in Section 7.05.
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<PAGE> 21
Section 8.02. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado without giving effect (to
the maximum extent permitted by applicable law) to its principles of conflicts
of law.
Section 8.03. COUNTERPARTS. This Agreement may be executed in counterparts. Any
single counterpart or set of counterparts signed, in either case, by the parties
hereto shall constitute a full and original agreement for all purposes.
Section 8.04. AMENDMENTS AND WAIVERS. This Agreement and the Subordinated Note
may be amended or compliance herewith or therewith may be waived by an
instrument in writing signed by both parties.
[Signature Page Follows]
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
T-NETIX, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
----------------------------------
Name: Daniel M. Carney
<PAGE> 23
T-NETIX, INC.
A COLORADO CORPORATION (THE "COMPANY")
Subordinated Promissory Note EXHIBIT A
U.S. $3,750,000 Dated: April 14, 2000
FOR VALUE RECEIVED, the undersigned, T-NETIX, Inc., a Colorado
corporation ("the COMPANY"), HEREBY PROMISES TO PAY to Daniel M. Carney, an
individual ("CARNEY"), or his registered assigns the principal sum of Three
Million Seven Hundred Fifty Thousand and no/100 United States Dollars
($3,750,000) on April 30, 2001. The interest rate herein shall be as determined
in Section 2.03 of the Subordinated Loan Agreement. The loan evidenced hereby
(the "LOAN") is subject to certain rights of voluntary prepayment as specified
in the Subordinated Loan Agreement.
The Company promises to pay interest on the unpaid principal amount of
the Loan from the date hereof until such principal amount is paid in full, at
such interest rates, and payable at such times, as are specified in the
Subordinated Loan Agreement.
This Subordinated Promissory Note is the Subordinated Note referred to
in, and is entitled to the benefits of, the Subordinated Loan Agreement dated as
of April 14, 2000 (said Subordinated Loan Agreement, as it may be amended or
otherwise modified from time to time, the "SUBORDINATED LOAN AGREEMENT"),
between the Company and Carney. The Subordinated Loan Agreement, among other
things, (i) provides for the Loan to Carney in the amount evidenced by this
Subordinated Note, (ii) contains provisions for acceleration of the maturity of
the unpaid principal amount of this Subordinated Note upon the occurrence of
certain stated events and otherwise upon the terms and conditions therein
specified, (iii) contains provisions regarding the subordination of the Loan to
Senior Debt (as defined in the Subordinated Loan Agreement) of the Company and
(iv) provides for transfer of this Subordinated Promissory Note only in whole
and only on the books of the Company.
Demand, presentment, protest and notice of non-payment and protest are
hereby waived by the Company.
This Subordinated Note shall be governed by, and construed and
interpreted in accordance with, the laws of the state of Colorado without giving
effect (to the maximum extent permitted by applicable law) to its principles of
conflicts of law.
THIS SUBORDINATED NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED
IN THE SUBORDINATED LOAN AGREEMENT, AND ANY TRANSFER IN VIOLATION
THEREOF SHALL BE VOID.
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS
SUBORDINATED NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO
<PAGE> 24
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION,
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, AND ANY
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
WITH RESPECT TO THE PROPOSED DISPOSITION THEREOF AND THAT SUCH
DISPOSITION WILL NOT CAUSE THE LOSS OF THE EXEMPTION UPON WHICH THE
COMPANY RELIED IN SELLING SUCH SHARES TO THE ORIGINAL PURCHASER.
T-NETIX, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
