SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 16, 2000
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of Registrant as Specified in its Charter)
Delaware 0-25380 43-1401158
(State of Incorporation) (Commission File (IRS Employer
Number) Identification No.)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices)
(314) 997-2250
Registrant's Telephone Number
Item 5. SALE OF PREFERRED SHARES AND WARRANTS
On May 10, 2000, Ultradata Systems, Incorporated ("Ultradata") signed a
Convertible Preferred Stock and Warrants Purchase Agreement (the "Agreement")
with two investors, BH Capital Investments, L.P. and Excalibur Limited
Partnership (the "Investors"). Each of the Investors committed to purchase
50% of the securities covered by the Agreement. On May 16, 2000 the Initial
Closing was held, at which the Investors paid $1,600,000 for Series A Convert
ible Preferred Shares (the "Preferred Shares") and Common Stock Purchase
Warrants ("Warrants").
A second closing, at which the Investors will purchase Preferred Shares
and Warrants for $1,400,000, will occur if the following conditions are
satisfied:
1. The shareholders of Ultradata must approve the transaction to the
extent that it may permit the Investors to acquire over 19.9% of the
Common Stock of Ultradata.
2. A registration statement permitting the resale of the Common Stock
into which the Preferred Shares are convertible as well as the
Common Stock underlying the Warrants must be filed with the Securi
ties and Exchange Commission ("SEC"), declared effective by the SEC,
and have been effective for a period of 40 trading days.
3. The average daily trading volume of the Common Stock for the 30
trading days preceding the closing must have been no less than
75,000 shares.
4. The average of the closing bid prices for the Common Stock for the
30 trading days preceding the closing must be no less than $4.50.
Ultradata made a number of covenants to the Investors in the Agreement,
which included the following:
1. During the next six months, Ultradata will not issue any securities
for the purpose of financing itself without the approval of the
Investors.
2. The Investors will have a right of first refusal on any sale of
securities by Ultradata during the next twelve months.
3. Ultradata will file with the SEC a registration statement permitting
the resale of the Common Stock into which the Preferred Shares are
convertible as well as the Common Stock underlying the Warrants.
4. Ultradata paid $25,000 toward the expenses incurred by the Investors
in connection with the transaction.
The Preferred Shares have no voting rights, except as to matters which
directly affect the rights of the holders of Preferred Shares. The holders of
Preferred Shares are not entitled to any dividends. Among the rights
attendant to the Preferred Shares are:
1. The Preferred Shares have a liquidation preference equal to their
face value plus an accrued amount equal to 11.25% from the date of
issuance (22.5% if the Common Stock is delisted by NASDAQ). The
holders will be entitled to payment of the liquidation preference
upon the liquidation of Ultradata or its bankruptcy or certain other
events.
2. The Preferred Shares may be converted into Common Stock at any time
at the option of the holders. If not previously converted, the
Preferred Shares will automatically convert into Common Stock on May
15, 2003. The conversion rate will be the lower of $3.50 or 75% of
the 5-day average closing bid price, subject to certain anti-dilu
tion rights and to the Floor. The "Floor" will be $2.50, but only
during the first 18 months after the issuance of the Preferred
Shares. Moreover, if the conversion price for any 20 trading days
during the first 12 months would have been less than $2.50 but for
the Floor, then the Floor will be reduced to $2.00; and if the
conversion price for any 20 trading days during months 13 through 18
after issuance would have been less than $2.00 but for the Floor,
the Floor will reduce to $1.50.
3. Conversion will be limited to 635,668 shares unless the shareholders
of Ultradata approve conversion to a higher number. The Investors
may require Ultradata to repurchase any Preferred Shares that could
not be converted due to that limitation. The redemption price would
be the greater of (a) 130% of face value plus 11.25% of face value
from the date of issuance or (b) the difference between the conver
sion price of the unconvertible shares and the 5-day average closing
asked price. Such a redemption will also be available to the
Investors if Ultradata is unable to issue to them free-trading
shares at the time of conversion.
The Warrants issued on May 16 will permit the Investors to each purchase
up to 239,253 shares of Common Stock (a total of 478,506 shares) for a price
of $5.00 per share until May 15, 2003. If the second closing occurs, the
terms of the Warrants will be identical, except that the Warrants then issued
will allow the Investors together to purchase a number of shares equal to
$1,400,000 divided by the 5-day average closing price of the Common Stock
preceding the second closing.
The placement was arranged by Thornhill Group, Inc., a member of the
NASD ("Thornhill"). In compensation for its services, Ultradata will pay to
Thornhill 12% of the gross proceeds of the placement, and will issue to
Thornhill (a) an option to purchase, on the same terms as the Investors,
Preferred Shares equal to ten percent of those sold to the Investors, and (b)
an option to purchase up to 162,500 shares of Ultradata Common Stock for
$2.50. By reason of the closing on May 16, 2000, Ultradata paid Thornhill
$192,000 and issued options for $160,000 in Preferred Shares and for 128,000
Common Shares. Ultradata will also pay a finder in connection with the
placement a fee of five percent of the gross proceeds up to $2,000,000 and
2 1/2% of the gross proceeds over $2,000,000, which fee will be paid in a
combination of cash and stock.
EXHIBITS
1. Convertible Preferred Stock and Warrants Purchase Agreement dated May 10,
2000 - filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ULTRADATA SYSTEMS, INCORPORATED
Dated: May 18, 2000 By:/s/ Ernest Clarke
Ernest Clarke
Chief Financial Officer
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Exhibit 1.
FINAL
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE
AGREEMENT
Between
ULTRADATA SYSTEMS, INCORPORATED
and
the Investors Signatory Hereto
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of May 10,
2000 (the "Agreement"), between the Investors signatory hereto (each an
"Investor" and together the "Investors"), and Ultradata Systems, Incorporated,
a Delaware corporation (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $3,000,000 Stated Value
of Convertible Preferred Stock (as defined below) and (ii) Warrants (as defined
below) to purchase shares of the Common Stock (as defined below) at and exercise
price of $5.00.
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and/or Section 4(6) ("Section 4(6)") of the United
States Securities Act of 1933 and/or Regulation D ("Regulation D") and the other
rules and regulations promulgated thereunder (the "Securities Act"), and/or upon
such other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the investments in securities to
be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
In addition to the definitions set forth in the text of this Agreement, the
following capitalized terms shall have the meanings ascribed to them below:
"Capital Shares" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for purchase or otherwise acquire Capital Shares or
any such convertible or exchangeable securities.
"Certificate of Designations" shall mean the Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock of the Company
setting forth the terms of the Convertible Preferred Stock in the form of
Exhibit A hereto.
"Closing" shall mean each closing of the purchase and sale of the Convertible
Preferred Stock and Warrants pursuant to Section 2.1.
"Closing Date" shall mean the Initial Closing Date or the Second Closing Date,
as applicable.
"Code" shall mean the United States Internal Revenue Code of 1986, as amended,
including the Treasury Regulations promulgated thereunder, as applicable.
"Common Stock" shall mean the Company's common stock, $0.01 par value per
share.
"Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock, including any shares of Common
Stock issued in payment of the "Additional Amount under the Convertible
Preferred Stock.
"Convertible Preferred Stock" shall mean the $3,320,000 Stated Value of
Series A Convertible Preferred Stock, as described in the Certificate of
Designations, to be issued to the Investors pursuant to this Agreement.
"Damages" shall mean any loss, claim, damage, judgment, penalty, deficiency,
liability, costs or expenses (including, without limitation, reasonable
attorneys' fees and disbursements and reasonable costs and expenses of expert
witnesses and investigation).
"Disclosure Schedule" shall mean the written disclosure schedule delivered on
or prior to the date hereof by the Company to the Investors that is arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained
in this Agreement.
"Effective Date" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities as set forth in the Registration Rights Agreement.
"Environmental Laws" shall mean foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants.
"Escrow Agent" shall have the meaning set forth in the Escrow Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially the form
of Exhibit D hereto executed and delivered contemporaneously with this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" shall mean United States generally accepted accounting principles as
shall be in effect from time to time.
"Initial Closing Date" shall mean the first date on which (x) all conditions
to Closing have been satisfied or waived as provided in Section 2.1(d) hereof
and (y) the Closing shall have occurred.
"Intellectual Property" shall mean all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and other
similar proprietary rights, information and knowledge.
"Irrevocable Transfer Agent Instructions" shall mean the Irrevocable Transfer
Agent Instructions, in the form of Exhibit F attached hereto, from the Company
to the Company's transfer agent.
"IRS" shall mean the United States Internal Revenue Service.
"Legend" shall mean the legend set forth in Section 9.1.
"Market Price" on any given date shall mean the average of the closing bid
prices of the Common Stock on the Principal Market (as reported by Bloomberg
L.P.) for the period of five consecutive Trading Days ending on the Trading
Day immediately prior to the date for which the Market Price is to be
determined.
"Material Adverse Effect" shall mean any effect on the business, operations,
properties, prospects, stock price or financial condition of the Company that
is material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Certificate of Designations or the
Warrants in any material respect.
"100% Warrant Shares" shall mean as of any Closing Date that number of shares
of Common Stock determined by dividing (x) the Stated Value of the Convertible
Preferred Stock sold by the Company to the Investors on such Closing Date by
(y) the Market Price of the Common Stock on such Closing Date.
"Outstanding" when used with reference to any Capital Shares, shall mean, at
any date as of which the number of such Capital Shares is to be determined,
all issued and outstanding Capital Shares, and shall include all such Capital
Shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Capital Shares; provided, however,
that "Outstanding" shall not mean any such Capital Shares then directly or
indirectly owned or held by or for the account of the Company.
"Person" shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Principal Market" shall mean the American Stock Exchange, the New York Stock
Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market,
whichever is at the time the principal trading exchange or market for the
Common Stock, based upon share volume, or if the Common Stock is not traded on
an exchange, the OTC Bulletin Board.
"Purchase Price" shall mean the Stated Value per share of Convertible
Preferred Stock.
"Registrable Securities" shall mean the Conversion Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by the
SEC, and all Conversion Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Conversion Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing
a restrictive legend or (iv) such time as, in the opinion of counsel to the
Company (which opinion and counsel shall be reasonably satisfactory to the
holder of the Conversion Shares or the Warrant Shares, as the case may be),
all Conversion Shares and Warrant Shares may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then
in effect) under the Securities Act.
"Registration Rights Agreement" shall mean the agreement regarding the filing
of the Registration Statement for the resale of the Registrable Securities,
entered into between the Company and the Investor as of the Closing Date in
the form annexed hereto as Exhibit C.
"Registration Statement" shall mean a registration statement on Form S-3 (if
use of such form is then available to the Company pursuant to the rules of the
SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with
the provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for
the registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
"Regulation D" shall have the meaning set forth in the recitals of this
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Second Closing Date" shall mean the date that is three months after the
Effective Date or, if such date is not a Trading Day, the first Trading Day
thereafter.
"Section 4(2)" and "Section 4(6)" shall have the meanings set forth in the
recitals of this Agreement.
"Securities"shall mean the Convertible Preferred Stock, the Warrants, the
Conversion Shares and the Warrant Shares, individually and collectively.
"Securities Act" shall have the meaning set forth in the recitals of this
Agreement.
"SEC Documents" shall mean the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999 and each report, proxy statement and
registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
"Stated Value" shall have the meaning set forth in the Certificate of
Designations.
"Subsidiary" shall mean any entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other income,
gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-
on minimum, estimated and other taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
"Trading Day" shall mean any day during which the Principal Market shall be
open for business.
"Transaction Documents" shall mean this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement.
"Warrants" shall mean the Warrants substantially in the form of Exhibit B to
be issued to the Investors hereunder.
"Warrant Shares" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Preferred Stock and Warrants
Section 2.1.Investment.
(a)Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree to purchase, the Convertible
Preferred Stock together with the Warrants for the Purchase Price as follows:
(i)On the Initial Closing Date, the Company shall sell, and the
Investors shall purchase, Convertible Preferred Stock having
a Stated Value of $1,600,000 and Warrants to purchase 100%
Warrant Shares having an exercise price of $5.00;
(ii)On the Second Closing Date, if any, the Company shall sell,
and the Investors shall purchase, Convertible Preferred
Stock having a Stated Value of $1,400,000 and Warrants to
purchase 100% Warrant Shares having an initial exercise
price of $5.00.
(b)Upon execution and delivery of this Agreement, each Investor shall
deliver to the Escrow Agent immediately available funds in its proportionate
amount of the Purchase Price to be paid at the Initial Closing as set forth on
the signature pages hereto, and the Company shall deliver to the Escrow Agent
certificates representing the Convertible Preferred Stock and the Warrants to
be delivered at the Initial Closing, in each case to be held by the Escrow
Agent pursuant to the Escrow Agreement.
(c)Each Closing shall occur at the offices of the Escrow Agent on the
applicable Closing Date, at which time the Escrow Agent (x) shall release to
the Investors the certificates representing the Convertible Preferred Stock
and the Warrants to be issued on such Closing Date and (y) shall release to
the Company the Purchase Price (after all fees have been paid as set forth in
the Escrow Agreement to be paid on such Closing Date), pursuant to the terms
of the Escrow Agreement.
(d)Each Closing shall be subject to the parties' satisfaction of the
conditions to Closing set forth below:
(i)The obligation of the Company hereunder to issue and sell
the Convertible Preferred Stock and issue the Warrants to each
Investor at such Closing is subject to the satisfaction, at or
before such Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole
discretion by providing each Investor with prior written notice
thereof:
(A)The Investors shall have executed each of the
Transaction Documents to be executed by them and delivered
the same to the Company.
(B)The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
(C)The Escrow Agent shall have delivered to the Company
the Purchase Price for the Convertible Preferred Stock and
Warrants being purchased by the Investors at the Closing by
wire transfer of immediately available funds pursuant to the
written wire instructions provided by the Company.
(D)The representations and warranties of the Investors
shall be true and correct as of the date when made and as of
such Closing Date as though made at that time (except for
representations and warranties that speak as of a specific
date), and the Investors shall have performed, satisfied and
complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed,
satisfied or complied with by them at or prior to the
Closing Date.
(ii)The obligation of each Investor hereunder to purchase the
Convertible Preferred Stock 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 each
Investor's sole benefit and may be waived by such Investor at any
time in its sole discretion:
(A)The Company shall have executed each of the
Transaction Documents to be executed by it and delivered the
same to such Investor.
(B)The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware, and
copies thereof certified by such Secretary of State shall
have been delivered to such Investor.
(C)The Common Stock shall be authorized for quotation on
the Principal Market, trading in the Common Stock shall not
have been suspended by the Principal Market or the SEC at
any time beginning on the date hereof and through and
including such Closing Date, and, except as set forth on the
Disclosure Schedule, the Company shall not have been
notified of any pending or threatened proceeding or other
action to delist or suspend the Common Stock.
(D)The representations and warranties of the Company
shall be true and correct as of the date when made and as of
such Closing Date as though made at that time (except for
representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to
such Closing Date. Such Investor shall have received a
certificate, executed by the Company's Chief Executive
Officer, dated as of such Closing Date, to the foregoing
effect and as to such other matters as may be reasonably
requested by such Investor, including, without limitation,
an update as of the Closing Date regarding the
representation contained in Section 4.3 below.
(E)Such Investor shall have received the opinion of the
Company's counsel dated as of such Closing Date, in form,
scope and substance reasonably satisfactory to such Investor
and in substantially the form of Exhibit E attached hereto.
(F)The Company shall have executed and delivered to such
Investor the Stock Certificates (in such denominations as
such Investor shall request) representing the Convertible
Preferred Stock being purchased by such Investor at such
Closing.
(G)The Company shall have executed and delivered to such
Investor the Warrants (in such denominations as such
Investor shall request) being purchased by such Investor at
such Closing.
(H)The Board of Directors of the Company shall have
adopted resolutions consistent with Section 4.2 below and in
a form reasonably acceptable to such Investor (the "Resolutions").
(I)As of such Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the
Convertible Preferred Stock and the exercise of the
Warrants, a number of shares of Common Stock equal to at
least 200% of the number of (x) Conversion Shares issuable
upon conversion of the Convertible Preferred Stock
outstanding on the Closing Date (after giving effect to the
Convertible Preferred Stock to be issued on such Closing
Date and assuming all such Convertible Preferred Stock was
fully convertible or exercisable on such date regardless of
any limitation on the timing or amount of such conversions
or exercises) and (y) Warrant Shares issuable upon exercise
of the Warrants outstanding on such Closing Date (after
giving effect to the Warrants to be issued on the Closing
Date and assuming all such Warrants were fully exercisable
on such date regardless of any limitation on the timing or
amount of such exercises).
(J)The Company shall have delivered the Irrevocable
Transfer Agent Instructions to its transfer agent, and such
transfer agent shall have acknowledged receipt thereof in
writing.
(K)The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing
of the Company and each Subsidiary in such corporation's
state of incorporation issued by the Secretary of State of
such state of incorporation as of a date within ten days of
the Closing Date.
(L)The Company shall have delivered to such Investor a
certified copy of its Certificate of Incorporation as
certified by the Secretary of State of the State of Delaware
within ten days of the Closing Date.
(M)The Company shall have delivered to such Investor a
certificate, executed by the Company's Secretary dated the
Closing Date, as to (i) the resolutions described in Section
4.2, (ii) the Articles of Incorporation and (iii) the
Bylaws, each as in effect on the Closing Date.
(N)The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by
this Agreement as such Investor or its counsel may reasonably
request.
(O)The Company shall have delivered to such Investor the
written agreements of each officer and director of the
Company addressed to the Investors, to vote all shares of
Common Stock over which they have voting control in favor of
a shareholder proposal permitting the issuance of a number
of Conversion Shares and Warrant Shares in excess of 19.9%
of the number of shares of Common Stock issued and outstanding
on the Closing Date.
(P)Such Investor shall have received a certificate, executed by the
Company's Chief Executive Officer, dated as of the Second Closing
Date, to the effect that since the Initial Closing Date, (i) no
Material Adverse Effect has occurred or exists with respect to the
Company, except as disclosed in any SEC Documents filed at least
five (5) days prior to the Second Closing Date and available on
EDGAR, and (ii) the Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge or
reason to believe that its creditors intend to initiate involuntary
bankruptcy.
(e)Not later than one (1) Trading Day before the Second Closing Date,
each Investor shall deliver to the Escrow Agent immediately available funds in
its proportionate amount of the Purchase Price to be paid on such Closing Date
as set forth on the signature pages hereto, and the Company shall deliver to
the Escrow Agent certificates representing the Convertible Preferred Stock and
the Warrants to be delivered on such Closing Date, in each case to be held by
the Escrow Agent pursuant to the Escrow Agreement.
(f)In addition to the conditions to Closing set forth in Section 2.1(a)
above, each Investor's obligation hereunder to purchase the Convertible
Preferred Stock and Warrants to be purchased by it on the Second Closing Date
shall be subject to the satisfaction, on or before the Second Closing Date, of
each of the following additional conditions, provided that these conditions
are for the Investor's sole benefit and may be waived by it at any time in its
sole discretion by providing the Company with prior written notice thereof:
(i)the Registration Statement shall be effective on the Second
Closing Date and shall have been effective continuously for the
forty (40) Trading Days immediately preceding the Second Closing
Date;
(ii)the Company shall have received stockholder approval of the
Company's issuance of all of the Conversion Shares and Warrant
Shares in excess of the Exchange Cap (as defined in the
Certificate of Designations) as contemplated by Section 6.15;
(iii)each of the Transaction Documents shall be and remain in
full force and effect on and as of the Second Closing Date;
(iv)the average of the closing bid prices of the Company's
Common Stock on the Principal Market for the thirty (30) Trading
Days immediately preceding the Second Closing Date shall be not
less than $4.50; and
(v)the average daily trading volume of the Company's Common
Stock on the Principal Market for the thirty (30) Trading Days
immediately preceding the Second Closing Date shall be not less
than 75,000 shares of the Company's Common Stock.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and
agree that the amounts payable by the Company to the Investors pursuant to the
Registration Rights Agreement with respect to a Registration Default
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (i) the amount of loss or damages likely to be
incurred as a result of such Registration Default is incapable or is difficult
to precisely estimate, (ii) the amounts payable as a result of a Registration
Default bear a reasonable proportion to and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investors
in connection with the failure by the Company to timely cause the registration
of the Registrable Securities under the Registration Rights Agreement and
(iii) the parties are sophisticated business parties and have been represented
by sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length.
ARTICLE III
Representations and Warranties of the Investors
Each Investor, severally and not jointly, represents and warrants to the
Company that:
Section 3.1. Intent. Such Investor is entering into this Agreement for
its own account and not with a view to or for sale in connection with any
distribution of the Common Stock. Such Investor has no present arrangement
(whether or not legally binding) at any time to sell the Securities to or
through any person or entity; provided, however, that by making the
representations herein, such Investor does not agree to hold such Securities
for any minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2. Sophisticated Investor. Such Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an
accredited investor (as defined in Rule 501 of Regulation D), and such
Investor has such experience in business and financial matters that it has
the capacity to protect its own interests in connection with this transaction
and is capable of evaluating the merits and risks of an investment in the
Securities. Such Investor acknowledges that an investment in the Securities
is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each of the Transaction
Documents that is required to be executed by such Investor has been duly
authorized and validly executed and delivered by such Investor and is a valid
and binding agreement of such Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. Not an Affiliate. Such Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each other Transaction Document, and the consummation of the
transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof by such Investor, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding
on such Investor or (a) violate any provision of any indenture, instrument or
agreement to which such Investor is a party or is subject, or by which such
Investor or any of its assets is bound; (b) conflict with or constitute a
material default thereunder; (c) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by such Investor to any third
party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any
of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. Such Investor has
received all documents, records, books and other publicly available
information pertaining to such Investor's investment in the Company as such
Investor has requested. Such Investor acknowledges that the Company is
subject to the periodic reporting requirements of the Exchange Act, and such
Investor has reviewed copies of all SEC Documents deemed relevant by such
Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.8. Investors' Principal Place of Business. The principal place
of business of each Investor is Toronto, Ontario, Canada.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted. The Company's
Subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated and
have the requisite corporate power and authority to own their properties and
to carry on their business as now being conducted. The Company does not have
any Subsidiaries and does not own more that fifty percent (50%) of or control
any other business entity except as set forth in the SEC Documents. The
Company and each of its Subsidiaries is duly qualified and is in good standing
as a foreign corporation to do business in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
the Transaction Documents and to issue the Securities pursuant to their
respective terms; (ii) the execution, issuance and delivery of the Transaction
Documents, the Certificate of Designations, the Convertible Preferred Stock
certificates and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required; (iii) the Transaction
Documents have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application; and (iv) the Certificate of
Designations has been filed with the Secretary of State of the State of
Delaware and is in full force and effect, enforceable against the Company in
accordance with its terms. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Convertible Preferred Stock and for the exercise of the
Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion Shares and, upon
any exercise of the Warrants, the Warrant Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Preferred Stock and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement, the Certificate of Designations
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 and notwithstanding the commencement of any case
under 11 U.S.C. 101 et seq. (the "Bankruptcy Code").
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, $0.01 par value per share, of
which 3,178,345 shares were issued and outstanding as of May 9, 2000 and
5,000,000 shares of preferred stock, par value $0.01 per share, of which 3,320
shares have been designated as Series A Convertible Preferred Stock, none of
which are issued and outstanding. Except for (i) outstanding options and
warrants as set forth in the SEC Documents, (ii) 82,977 stock options awarded
under the Company's 1994 Stock Option Plan, (iii) 239,088 stock options
awarded under the Company's 1996 Stock Option Plan, and (iv) as set forth in
the Disclosure Schedule, there are no outstanding Capital Shares Equivalents
nor any agreements or understandings pursuant to which any Capital Shares
Equivalents may become outstanding. The Company is not a party to any
agreement granting preemptive, registration or anti-dilution rights to any
person with respect to any of its equity or debt securities. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, a
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
SmallCap Market, and except as set forth in the SEC Documents, the Company has
not received any notice regarding, and to its knowledge there is no threat of,
the termination or discontinuance of the eligibility of the Common Stock for
such listing.
Section 4.5. SEC Documents. The Company has delivered to the Investors
true and complete copies of the SEC Documents. The Company has not provided
the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and rules and regulations of the SEC promulgated thereunder, and the SEC
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
GAAP applied on a consistent basis 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
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments). Neither the Company nor any of its subsidiaries
has any material indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or
otherwise described in the financial statements or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the financial statements or the notes thereto included
in the SEC Documents or was not incurred in the ordinary course of business
consistent with the Company's past practices since the last date of such
financial statements. No other information provided by or on behalf of the
Company to the Investors that is not included in the SEC Documents, including,
without limitation, information referred to in Section 3.6 of this Agreement,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the light
of the circumstance under which they are or were made, not misleading.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to
the accuracy of the Investors' representations in Article III, the Company's
sale of the Convertible Preferred Stock and its issuance of the Warrants
under this Agreement does not, and the Company's issuance of the Conversion
Shares on the Investor's conversion of the Convertible Preferred Stock and the
Warrant Shares on the exercise of the Warrants will not, require registration
under the Securities Act and/or any applicable state securities law. When
issued and paid for in accordance with the Warrants and validly converted in
accordance with the terms of the Convertible Preferred Stock, the Conversion
Shares and the Warrant Shares will be duly and validly issued, fully paid, and
non-assessable. Neither the sales of the Securities pursuant to, nor the
Company's performance of its obligations under, the Transaction Documents will
(i) result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon any of the Securities or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to
subscribe for or acquire the Capital Shares or other securities of the
Company. None of the Securities will subject the Investors to personal
liability to the Company or its creditors by reason of an Investor's
possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any person
acting on its or their behalf (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to the sale of the Convertible Preferred Stock or the
Warrants, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Securities under the Securities Act.
Section 4.8. No Conflicts. The Company's execution, delivery and
performance of the Transaction Documents, the Company's performance of its
obligations under the Certificate of Designations, and the Company's
consummation of the transactions contemplated hereby and thereby do not and
will not (i) result in a violation of the Company's Certificate of
Incorporation or By-Laws or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument, or any
"lock-up" or similar provision of any underwriting or similar agreement to
which the Company 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 the rules and regulations of the Principal Market)
applicable to the Company or by which any property or asset of the Company is
bound or affected. The Company is not otherwise in violation of any term of
or in default under its Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock or its By-laws, or any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that
would not individually or in the aggregate have a Material Adverse Effect.
The Company's business is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not result in a
Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required by the Securities Act, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory organization, in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents or to
perform its obligations under the Certificate of Designations, in each case in
accordance with the terms hereof or thereof. 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 Principal Market as in effect on the date hereof and is
not aware of any facts which would reasonably lead to delisting of the Common
Stock by the Principal Market in the foreseeable future.
Section 4.9. No Material Adverse Change. Since December 31, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in any SEC Documents filed at least five (5) days prior to
the date hereof and available on EDGAR. The Company has not taken any steps,
and does not currently expect to take any steps, to seek protection pursuant
to any the Bankruptcy Code or any law generally affecting creditors' rights
nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
Section 4.10. No Undisclosed Events, Liabilities, Developments, or
Circumstances. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
Section 4.11. No Integrated Offering. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
any of the Securities under the Securities Act or cause this offering of
Securities to be integrated with prior offerings of securities by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Principal Market; nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of the Securities under the
Securities Act or cause the offering of the Securities to be integrated with
other offerings.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in
the SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any Subsidiary or
any of their officers or directors in their capacities as such, nor has the
Company received any written or oral notice of any such action, suit,
proceeding or investigation, which could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, to
the knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. Neither Company nor,
to the knowledge of the Company, any person representing the Company, or any
other person selling or offering to sell the Convertible Preferred Stock or
the Warrants in connection with the transaction contemplated by this
Agreement, has made, at any time, any oral communication in connection with
the offer or sale of the same which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.14. Material Non-Public Information. The Company has not
disclosed to the Investors any material non-public information that (i) if
disclosed, would reasonably be expected to have a material effect on the price
of the Common Stock or (ii) according to applicable law, rule or regulation,
should have been disclosed publicly by the Company prior to the date hereof,
but which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. Neither the Company
nor any Subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.
Section 4.16. Tax Matters.
(a)The Company and each Subsidiary has filed all Tax Returns which it
is required to file under applicable laws; all such Tax Returns are true and
accurate and have been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any Subsidiary (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor
or other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company as if its current tax year were
treated as ending on the date hereof.
(b)No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any Subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any Subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to 7121 of the Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to, and is not required to make any
adjustments pursuant to 481 (a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries, has no knowledge that the
IRS has proposed any such adjustment or change in accounting method, and does
not have any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business
or operations of the Company. The Company has not been a United States real
property holding corporation within the meaning of 897(c)(2) of the Code
during the applicable period specified in 897(c)(1)(A)(ii) of the Code.
(c)The Company has not made an election under 341(f) of the Code.
The Company is not liable for the Taxes of another person that is not a
Subsidiary of the Company under (A) Treas. Reg. 1.1502-6 (or comparable
provisions of state, local or foreign law), (B) as a transferee or successor,
(C) by contract or indemnity or (D) otherwise. The Company is not a party to
any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate
it to make any payments that would not be deductible under 280G of the Code.
Section 4.17. Property. Neither the Company nor any of its Subsidiaries
owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property that it owns, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge, any real property, mineral or water rights, and buildings that the
Company holds under lease as a tenant are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and intended to be made of such property, mineral
or water rights, and buildings by the Company and its Subsidiaries.
Section 4.18. Intellectual Property. Each of the Company and its
Subsidiaries owns or possesses adequate and enforceable rights or licenses to
use all Intellectual Property necessary for the conduct of its business as now
being conducted. None of the Company's or any Subsidiary's Intellectual
Property necessary to conduct its business as now conducted or as proposed to
be conducted have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. To the Company's
knowledge, except as disclosed in the SEC Documents neither the Company nor
any of its subsidiaries is infringing upon or in conflict with any right of
any other person with respect to any Intellectual Property. Except as
disclosed in the SEC Documents, no adverse claims have been asserted by any
person to the ownership or use of any Intellectual Property, and the Company
has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls that provide reasonable
assurance that (i) all transactions to which the Company or any Subsidiary is
a party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated
assets is compared with existing assets at regular intervals; (iii) access to
the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any Subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
Section 4.20. Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment of
Company funds to any foreign or domestic government official or employee;
(iii) violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other similar payment to any person with
respect to Company matters.
Section 4.21. Acknowledgment Regarding Investors' Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of arm's-length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that no Investor is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any of the Investors or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Investor's purchase of the
Securities. The Company further represents to each Investor that the
Company's decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.
Section 4.22. Labor Matters. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company
nor any of its Subsidiaries is a party to a collective bargaining agreement,
and the Company and its Subsidiaries believe that relations with their
employees are good. No executive officer (as defined in Rule 501(f) of the
Securities Act) has notified the Company that such officer intends to leave
the Company or otherwise terminate such officer's employment with the Company.
Section 4.23. Environmental Laws. The Company and its Subsidiaries (i) are
in compliance with any and all applicable Environmental Laws, (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the three foregoing cases, the failure to so comply
would have, individually or in the aggregate, a Material Adverse Effect.
Section 4.24. Regulatory Permits. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such items would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
Section 4.25. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
that in the reasonable judgment of the Company's officers has or is expected
to have a Material Adverse Effect.
Section 4.26. Certain Transactions. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and except for arm's-length
transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed in the
Disclosure Schedule, none of the officers or directors of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer or
director or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.
Section 4.27. Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and other than the
grant of stock options disclosed on the Disclosure Schedule, 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.
Section 4.28. Application of Takeover Protections. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its
incorporation which is or could become applicable to the Investors as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Investor's
ownership of the Securities.
Section 4.29. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents,
except as set forth in the Transaction Documents.
Section 4.30. No Misrepresentation. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Section 5.1 Best Efforts. Each Investor, severally and not jointly, covenants
with the Company that it shall use its best efforts to timely satisfy each of
the conditions to be established by it as provided in Article II of this
Agreement.
Section 5.2 Restrictions on Short Sales. Each Investor, severally and not
jointly, covenants with the Company that it will not, directly or indirectly
through any affiliate, sell short any shares of the Company's Common Stock,
except during the period of ten (10) Trading Days immediately preceding any
Conversion Date (as defined in the Certificate of Designations). Each
Investor shall have the right to sell short shares of the Company's Common
Stock during the period of ten (10) Trading Days immediately preceding any
Conversion Date, provided that the number of shares of Common Stock sold by
such Investor on any Trading Date shall not exceed ten percent (10%) of the
trading volume of the Company's Common Stock on such Trading Date.
ARTICLE VI
Covenants of the Company
Section 6.1. Best Efforts. The Company shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Article II
of this Agreement.
Section 6.2. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect, and the
Company shall comply in all material respects with the terms thereof.
Section 6.3. Reservation of Common Stock. As of the date hereof, the
Company has reserved for the purpose of enabling the Company to issue the
Conversion Shares and the Warrant Shares pursuant to any conversion of the
Convertible Preferred Stock or exercise of the Warrants, not less than 200% of
the number of shares of Common Stock needed to provide for the issuance of the
Conversion Shares and the Warrant Shares.
Section 6.4. Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market and, as soon as required by
the rules of the Principal Market and any other national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
listed, shall list the Conversion Shares and the Warrant Shares on the
Principal Market and each such other exchange or system. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Conversion Shares
and the Warrant Shares, and will take such other action as is necessary or
desirable in the opinion of the Investors to cause the Conversion Shares and
Warrant Shares to be listed on such other Principal Market as promptly as
possible. The Company will take all action necessary to continue the listing
and trading of its Common Stock on a Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide Investors with
copies of any correspondence to or from such Principal Market which questions
or threatens delisting of the Common Stock, within three (3) Trading Days of
the Company's receipt thereof, until the Investors have disposed of all of
their Registrable Securities.
Section 6.5. Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(b) or (g) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange
Act until the Investors have disposed of all of their Registrable Securities.
Section 6.6. Legends. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.7. Corporate Existence; Conflicting Agreements. The Company
will take all steps necessary to preserve and continue its corporate
existence. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement, or any of the other
Transaction Documents or the Certificate of Designations.
Section 6.8. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with
or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument or by operation of law the obligation to deliver to the Investors
such shares of stock and/or securities as the Investors are entitled to
receive pursuant to this Agreement and the Certificate of Designations.
Section 6.9. Issuance of Convertible Preferred Stock and Warrant Shares.
The sale of the Convertible Preferred Stock and the Warrants and the issuance
of the Warrant Shares pursuant to exercise of the Warrants and the Conversion
Shares upon conversion of the Convertible Preferred Stock shall be made in
accordance with the provisions and requirements of Section 4(2), Section 4(6)
or Regulation D and any applicable state securities law. The Company shall
file a Form D with respect to the Convertible Preferred Stock as required
under Regulation D and provide a copy thereof to each Investor promptly after
such filing. The Company shall take such action as reasonably necessary to
qualify the Convertible Preferred Stock for, or obtain exemption for the
Convertible Preferred Stock for, sale to the Investors at the Closing pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States, and shall provide evidence of any such action so taken
to the Investors on or prior to the Closing Date. The Company shall make all
filings and reports relating the offer and sale of the Securities required
under the applicable securities or "Blue Sky" laws of the states of the United
States following the Closing Date.
Section 6.10. Limitation on Future Financing. The Company agrees that it
will not sell or enter into any agreement to sell any of its securities or
incur any indebtedness outside the ordinary course of business until later of
(x) 90 days after the Effective Date or (y) six months after a Closing Date,
except for any (i) sales pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders, (ii) sales
pursuant to any compensatory plan for a full-time employee or key consultant,
(iii) issuances of securities in connection with a merger of the Company, the
Company's acquisition of another company, a share exchange or merger of a
subsidiary of the Company that does not result in a change of control of the
Company, or a reorganization, in each case the principal purpose of which is
not a financing of the Company's business operations, or (iv) with the prior
approval of holders of a majority of the shares of Convertible Preferred Stock
then outstanding, which will not be unreasonably withheld, in issuance of
securities in connection with a strategic partnership or other business
transaction, the principal purpose of which is not financing the Company's
business operations.
Section 6.11. Pro-Rata Redemption. The Company agrees that if it shall
redeem any of the Convertible Preferred Stock, that it shall make such
redemption pro-rata among all Investors in proportion their respective initial
purchases of such Convertible Preferred Stock pursuant to this Agreement.
Section 6.12. Relief in Bankruptcy. The Company shall not seek judicial
relief from its obligations hereunder except pursuant to the Bankruptcy Code.
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C. 362 in respect of the conversion of the Convertible
Preferred Stock and the exercise of the Warrants. The Company agrees, without
cost or expense to the Investors, to take or consent to any and all action
necessary to effectuate relief under 11 U.S.C. 362.
Section 6.13. Use of Proceeds. The Company will use the proceeds from the
sale of the Convertible Preferred Stock for substantially the same purposes
and in substantially the same amounts as indicated in the Disclosure Schedule.
Section 6.14. Financial Information. Until all Registrable Securities may be
sold without registration under the Securities Act, the Company shall send the
following to each holder of Registrable Securities: (i) within five (5) days
after the filing thereof with the SEC, a copy of its Annual Report on Form 10-
KSB, its Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and
any registration statements or amendments (other than on Form S-8) filed
pursuant to the Securities Act; (ii) on the same day as the release thereof,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) copies of any notices and other information made available or given
to the stockholders of the Company generally, contemporaneously with the
making available or giving thereof to the stockholders. The Company may send
such information to each Investor by e-mail to the e-mail address specified in
Article XII.
Section 6.15. Proxy Statement. The Company shall within twenty (20) business
days of the Closing file with the SEC a notice of a stockholders' meeting and
a proxy statement (which proxy statement has been previously reviewed by the
Investors and a counsel of their choice), which shall be for a stockholders'
meeting to be held not later than ninety (90) days after the Closing,
soliciting each such stockholder's affirmative vote at such stockholders'
meeting for approval of the Company's issuance of all of the Conversion Shares
and Warrant Shares in excess of the Exchange Cap (as defined in the
Certificate of Designations) as described in this Agreement. Promptly after
the earlier of (x) the expiration of the period during which the SEC may, but
does not, review such notice and proxy statement, or (y) the SEC's approval of
such notice of meeting and proxy statement, if the SEC reviews them, the
Company shall provide each stockholder entitled to vote at a meeting of
stockholders of the Company with such notice of a stockholders' meeting and
proxy statement, and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal. If the Company fails to give notice or hold a stockholders'
meeting within ninety (90) days after the Closing, if the SEC does not review
the proxy statement, or one hundred twenty (120) days after the Closing, if
the SEC reviews the proxy statement (unless such failure is the result solely
of the actions of the Investors) then, as partial relief (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall pay to each holder of Convertible Preferred Stock an amount in
cash per share of Convertible Preferred Stock equal to the product of (i)
$10,000 multiplied by (ii) .025 multiplied by (iii) the quotient of (x) the
number of days after the such default or defaults have occurred, divided by
(y) 30. The Company shall make the payments referred to in the immediately
preceding sentence within ten days of the date such payment accrued. In the
event the Company fails to make such payments in a timely manner, such
payments shall bear interest at the rate of 2.5% per month (pro rated for
partial months) until paid in full.
Section 6.16. Transactions With Affiliates. So long as (i) any shares of
Convertible Preferred Stock or Warrants are outstanding or (ii) any Investor
owns Conversion Shares and/or Warrant Shares with a market value equal to or
greater than $500,000, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage
or adoption to any such individual or with any entity in which any such entity
or individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arm's-length basis on terms no less favorable than terms which would have
been obtainable from a person other than such Related Party, or (c) any
agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof,
any director who is also an officer of the Company or any Subsidiary of the
Company shall not be a disinterested director with respect to any such
agreement, transaction, commitment or arrangement. "Affiliate" for purposes
of this Section means, with respect to any Person, another Person that,
directly or indirectly, (i) has a 5% or more equity interest in that Person,
(ii) has 5% or more common ownership with that Person, (iii) controls that
Person, or (iv) shares common control with that Person. "Control" or
"controls" for purposes of this Agreement hereof means that a Person has the
power, direct or indirect, to conduct or govern the policies of another
Person.
Section 6.17. Filing of Form 8-K. On or before the second (2nd) business day
following the Closing Date, the Company shall file a Form 8-K with the SEC
attaching the Transaction Documents and otherwise in the form required by the
Exchange Act.
Section 6.18. Right of First Refusal. The Company shall not sell any of its
securities to Persons other than the Investors during the period commencing on
the date hereof and ending one year after the Effective Date unless the
Company shall first have satisfied its obligations under this Section 6.18.
(a) If the Company receives a written offer from any Person or group of
Persons other than the Investors to purchase any of the Company's securities,
the Company shall give the Investors a written notice of such offer stating
the type, terms, and purchase price of such securities and the other material
terms and conditions of the sale of such securities and attaching a copy of
the offer signed by the Person or Persons making such offer.
(b) The Investors shall have the right to purchase all or any part of
such securities on the same terms and conditions as are set forth in the
Company's written notice. Each Investor may exercise its right to purchase
such securities by giving a written notice of exercise to the Company within
seven days after such Investor's receipt of the Company's notice. Each
Investor shall have the right to purchase such securities pro rata in
accordance with the number of shares of Convertible Preferred Stock that it
has purchased under this Agreement. Each Investor may also notify the Company
that it will purchase its pro rata share of any such securities not purchased
by the other Investors.
(c) If the Investors shall not have exercised their rights to purchase
all of such securities, then the Company shall have the right to sell all
securities not subscribed by the Investors on the same terms and conditions as
those set forth in the Company's notice. If the Company shall not' have sold
all such securities within 30 days after the expiration of the 7-day period in
paragraph (b) above, then the Company shall not sell any such securities
unless it first offers to sell such securities to the Investors in accordance
with the procedures set forth in this Section 6.18.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants
made by each of the Company and each Investor in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement and
certificate entered into and delivered by them pursuant to this Agreement,
shall survive the Closing and the consummation of the transactions
contemplated hereby. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement, irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date.
Section 7.2.Indemnity. The Company shall indemnify and hold harmless
the Investors, their respective Affiliates and their respective officers,
directors, partners and members (each an "Indemnified Party"), from and
against any and all Damages, and shall reimburse the Indemnified Parties for
all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by such
Indemnified Party and to the extent arising out of or in connection with:
(i)any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in any
of the Transaction Documents or the Certificate of
Designations, the annexes, schedules or exhibits thereto or
any instrument, agreement or certificate entered into or
delivered by the Company pursuant hereto or thereto; or
(ii)any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in any of the Transaction Documents or
the Certificate of Designations, the annexes, schedules or
exhibits thereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant hereto or
thereto; or
(iii)any action instituted against the Investors, or any of them,
by any stockholder of the Company who is not an Affiliate of
an Investor, with respect to any of the transactions
contemplated by the Transaction Documents.
Section 7.3. Notice. Promptly after receipt by an Indemnified Party
seeking indemnification pursuant to Section 7.2 of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the Company of the commencement thereof; but the
omission so to notify the Company shall not relieve it from any liability that
it otherwise may have to the Indemnified Party, except to the extent that the
Company is actually prejudiced by such omission or delay. In connection with
any Claim as to which both the Indemnified Party and the Company are parties,
the Company shall be entitled to assume the defense thereof. Notwithstanding
the assumption of the defense of any Claim by the Company, the Indemnified
Party shall have the right to employ separate legal counsel and to participate
in the defense of such Claim, and the Company shall bear the reasonable fees,
out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Company shall have agreed to pay
such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party
and the Company by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Company, or (z) the Company shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Company shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm
of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Company shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event an Indemnified party should
have a claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Company. If the Company disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the Company
or by binding arbitration conducted in accordance with the procedures and
rules of the American Arbitration Association as set forth in Article X.
Judgment upon any award rendered by any arbitrators may be entered in any
court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to
and representatives of the Investors (who may or may not be affiliated with
the Investors and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
Nasdaq or other filing, all SEC Documents and other filings with the SEC, and
all other publicly available corporate documents and properties of the Company
as may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such publicly
available information reasonably requested by the Investors or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and
other inquiries reasonably made or submitted by any of them), prior to and
from time to time after the filing and effectiveness of the Registration
Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a)The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as
being non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such non-
public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information
hereunder, require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b)Nothing herein shall require the Company to disclose material non-
public information to the Investors or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in
light of the circumstances in which they were made, not misleading. Nothing
contained in this Section 8.2 shall be construed to mean that such persons or
entities other than the Investors (without the written consent of the
Investors prior to disclosure of such information as set forth in Section
8.2(a)) may not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or
omits a material fact required to be stated in the Registration Statement or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and
delivery hereof, the Company is issuing to the transfer agent for its Common
Stock (and shall issue to any substitute or replacement transfer agent for its
Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) Irrevocable Transfer Agent Instructions
substantially in the form of Exhibit F hereto. Such Irrevocable Transfer
Agent Instructions shall be irrevocable by the Company from and after the date
hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect
thereto other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect
in any way each Investor's obligations to comply with all applicable
securities laws upon resale of the Common Stock.
Section 9.5. Transfers without Registration. If an Investor provides the
Company with an opinion of counsel, in generally acceptable form, that
registration of a resale by such Investor of any Securities is not required
under the Securities Act, the Company shall permit the transfer and, in the
case of the Conversion Shares, promptly instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified
by such Investor and, if such opinion provides that such legends can be
removed, without any restrictive legends.
Section 9.6. Injunctive Relief. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Investors by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Article XI will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Article XI, that the Investors shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws ; provided, however, that the
corporate laws of the State of Delaware shall govern all issues concerning the
relative rights of the Company and its stockholders.
Section 10.2. Arbitration. Any dispute under this Agreement shall be
submitted to arbitration under the American Arbitration Association (the
"AAA") in New York, New York, and shall be finally and conclusively determined
by the decision of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected according to
the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York, New York, and shall reach and render a
decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the
corporation law of the company's state of incorporation, in which event the
corporation law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more
than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to
be delivered to all parties involved in the dispute. Any decision made by the
Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction. The Board
of Arbitration shall be authorized and is hereby directed to enter a default
judgment against any party failing to participate in any proceeding hereunder
within the time periods set forth in the AAA rules. The non-prevailing party
to any arbitration (as determined by the Board of Arbitration) shall pay the
expenses of the prevailing party, including reasonable attorneys' fees, in
connection with such arbitration. Any party shall be entitled to obtain
injunctive relief from a court in any case where such relief is available, and
the non-prevailing party to any such injunctive proceeding shall pay the
expenses of the prevailing party, including reasonable attorneys' fees, in
connection with such proceeding.
ARTICLE XI
Assignment
Neither this Agreement nor any rights of the Investors or the Company
hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any permitted transferee of
any Securities, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's
interest in this Agreement may be assigned at any time, in whole or in part,
to any other Person (including any Affiliate of the Investor) who agrees to
make the representations and warranties contained in Article III and who
agrees to be bound by the terms of this Agreement.
ARTICLE XII
Notices
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice.
Any notice or other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by facsimile,
with accurate confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or
(b) on the first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such communications
shall be:
If to the Company:Ultradata Systems, Inc.
9375 Dielman Industrial Drive
St. Louis, MO 63132
Attn: Mr. Monte Ross
Tel: (314) 997-2250
Fax: (314) 997-1281
with a copy to (shall not constitute notice):
Robert Brantl, Esq.
322 Fourth Street
Brooklyn, New York 11215
Tel: (718) 768-6045
Fax: (718) 965-4042
if to the Investors: As set forth on the signature pages hereto
with a copy to (shall not constitute notice):
Eric Honick, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Telephone: (212) 687-3860
Facsimile: (212) 949-7052
e-mail: [email protected]
Either party hereto may from time to time change its address or facsimile
number for notices under this Article XII by giving written notice of such
changed address or facsimile number to the other party hereto as provided in
this Article XII.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by fewer
than all of the parties and shall be deemed to be an original instrument that
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument.
Except as otherwise stated herein, in lieu of the original documents, a
facsimile transmission or copy of the original documents shall be as
effective and enforceable as the original. This Agreement may be amended
only by a writing executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the other Transaction
Documents, which include, but are not limited to, the Warrants, the Escrow
Agreement, the Registration Rights Agreement and the Irrevocable Transfer
Agent Instructions, and the Certificate of Designations set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof and supersede all prior and contemporaneous agreements, negotiations
and understandings between the parties, both oral and written, relating to
the subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part
of this Agreement as is fully set forth herein.
Section 13.3. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and effect without such provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement
to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of
the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written agreement of
the Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i)receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing any Securities and (ii) in the case
of any such loss, theft or destruction of such certificate, upon delivery of
an indemnity agreement or security reasonably satisfactory in form to the
Company (which shall not include the posting of any bond) or (iii) in the
case of any such mutilation, on surrender and cancellation of such
certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Snow Becker Krauss P.C., the Investors' counsel, and
Soberman, Isenbaum & Colomby LLP, the Investors' accountants, all as set
forth in the Escrow Agreement.
Section 13.9. Brokerage. Each of the parties hereto
represents that it has had no dealings in connection with this transaction
with any finder or broker who will demand payment of any fee or commission
from the other party, except for Thornhill Group, Inc., whose fee shall be
paid by the Company. The Company on the one hand, and the Investors, on the
other hand, each agree to indemnify the other against and hold the other
harmless from any and all liabilities to any person claiming brokerage
commissions or finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section 13.10. Publicity. The Company agrees that it
will not issue any press release or other public announcement of the
transactions contemplated by this Agreement without the prior consent of the
Investors, which shall not be unreasonably withheld nor delayed by more than
two (2) Trading Days from their receipt of such proposed release. No release
shall name the Investors without their express consent.
Section 13.11. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
Section 13.12. Termination. If the Initial Closing shall not have occurred
on or before five (5) business days from the date hereof due to the Company's
or an Investor's failure to satisfy the conditions set forth in Article II
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on
such date without liability of any party to any other party; provided,
however, that if this Agreement is terminated pursuant to this Section 13.12,
the Company shall remain obligated to reimburse the non-breaching Investors
for the expenses described in Section 13.8 above.
Section 13.13. 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.
Section 13.14. Remedies. Each Investor and each holder of Securities shall
have all rights and remedies set forth in this Agreement and the Certificate
of Designations and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person or entity having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
Section 13.15. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investors hereunder or pursuant to the Certificate
of Designations or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other person or entity under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first
set forth above.
Ultradata Systems, Incorporated
By:
Monte Ross
Chief Executive Officer
Address:Investor: BH Capital Investments, L.P.
175 Bloor Street East, 7th Floor
By: HB and Co., Inc. its General Partner
Toronto, Ontario Canada M4W 3R8
Fax: 416-929-5314
e-mail: [email protected]
Total principal amount of
Convertible Preferred Stock By:
to be purchased at: Name: Henry Brachfeld
Initial Closing: $ 800,000 Authorized Signatory
Second Closing: $ 700,000 Address:Investor: Excalibur Limited Partnership
33 Prince Arthur Avenue
By: Excalibur Capital Management, Inc.
its General Partner
Fax: 416-964-8868
e-mail: [email protected]
Total Principal amount of
Convertible Preferred Stock
to be purchased at: By:
Initial Closing: $ 800,000 Name: William Hechter
Second Closing: $ 700,000 Authorized Signatory
EXHIBIT A
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
ULTRADATA SYSTEMS, INC.
PURSUANT TO SECTION 151 OF THE DELAWARE
GENERAL CORPORATION LAW
Ultradata Systems, Inc., a corporation organized and existing under and
by virtue of the laws of the State of Delaware (hereinafter the
"Corporation"), DOES HEREBY CERTIFY:
Pursuant to authority expressly granted and vested in the Board of
Directors of the Corporation by the provisions of the Corporation's
Certificate of Incorporation, the Board of Directors adopted the following
resolution on May 9, 2000 (i) authorizing a series of the Corporation's
previously authorized preferred stock, par value $.01 per share, and
(ii) providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of Three Thousand Three Hundred Twenty (3,320) shares of Series A
Convertible Preferred Stock of the Corporation, as follows:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Certificate of Incorporation
(the "Certificate of Incorporation"), a series of Preferred Stock of the
Corporation be, and it hereby is, created out of the authorized but unissued
shares of the capital stock of the Corporation, such series to be designated
Series A Convertible Preferred Stock (the "Series A Convertible Preferred
Stock"), to consist of Three Thousand Three Hundred Twenty (3,320) shares, par
value $.01 per share, which shall have the following preferences, powers,
designations and other special rights;
1. Number of Shares of Series A Convertible Preferred Stock. Of the
5,000,000 shares of authorized but undesignated Preferred Stock, $.01 par
value ("Preferred Stock") of the Corporation, Three Thousand Three Hundred
Twenty (3,320) shares shall be designated and known as Series A Convertible
Preferred Stock, par value $.01 per share ("Series A Convertible Preferred
Stock").
2. Voting.
(a)No Voting Rights.Unless required by law, no holder of any shares of
Series A Convertible Preferred Stock shall be entitled to vote at any meeting
of stockholders of the Corporation (or in any written action of stockholders
in lieu of a meeting) with respect to any matters presented to the stock-
holders of the Corporation for their action or consideration. Notwithstanding
the foregoing, the Corporation shall provide each holder of record of Series
A Convertible Preferred Stock with timely notice of every meeting of stock-
holders of the Corporation and shall provide each holder with copies of all
proxy materials distributed in connection therewith.
(b)Exceptions.So long as any shares of Series A Convertible Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by the Delaware General
Corporation Law) of the holders of at least sixty-six and two-thirds percent
(66 %) of the then outstanding shares of Series A Convertible Preferred Stock:
(i)change this Certificate of Designations or the Corporation's
Certificate of Incorporation to amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Series A Convertible
Preferred Stock;
(ii)issue shares of the Series A Convertible Preferred
Stock other than pursuant to the Convertible Preferred Stock and Warrant
Purchase Agreement between the Corporation and the initial holders of the
Series A Convertible Preferred Stock concerning the purchase of the Series A
Convertible Preferred Stock (the "Securities Purchase Agreement");
(iii)create any new class or series of capital stock having parity
with or a preference over the Series A Convertible Preferred Stock as to
payment of dividends or distribution of assets upon liquidation, dissolution
or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series A Convertible Preferred Stock;
(iv)increase the authorized number of shares of Series A Convertible
Preferred Stock; or
(v)do any act or thing not authorized or contemplated by this
Certificate of Designations that would result in taxation of the holders of
shares of the Series A Convertible Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
(c)Conversion Rights of Dissenting Holders. If holders of at
least sixty-six and two-thirds percent (66 %) of the then outstanding shares
of Series A Convertible Preferred Stock authorize the Corporation to alter or
change the rights, preferences or privileges of the Series A Convertible
Preferred Stock pursuant to Section 2(b) above, so as to affect the Series A
Convertible Preferred Stock, then the Corporation will deliver notice of such
approved change to the holders of the Series A Convertible Preferred Stock
that did not agree to such alteration or change (the "Dissenting Holders"),
and the Dissenting Holders shall have the right for a period of thirty (30)
days from the date of notice thereof to convert any and all shares of then
held Series A Convertible Preferred Stock pursuant to the terms of this
Certificate of Designation as in effect prior to such alteration or change
(without giving effect to any restriction or limitation on conversion), or to
continue to hold their shares of Series A Convertible Preferred Stock pursuant
to the altered or changed terms.
3. Dividends.
The Series A Convertible Preferred Stock shall not bear any dividends.
4. Liquidation.
(a)Rank. All shares of Common Stock shall be junior in rank
to the Series A Convertible Preferred Stock in respect to the preferences as
to distributions and payments upon the liquidation, dissolution and winding up
of the Corporation. The rights of the shares of Common Stock shall be subject
to the preferences and relative rights of the Series A Convertible Preferred
Stock. Upon a Liquidation Event (as hereinafter defined), the holders of the
Series A Convertible Preferred Stock shall be entitled to receive in cash out
of the assets of the Corporation, whether from capital or from earnings
available for distribution to its stockholders (the "Preferred Funds"), before
any amount shall be paid to the holders of any of the capital stock of the
Company of any class junior in rank to the Series A Convertible Preferred
Stock in respect of the preferences as to the distributions and payments on
the liquidation, dissolution and winding up of the Company, an amount per
share of Series A Convertible Preferred Stock equal to the Liquidation
Preference (as defined below). No distribution shall be made to the holders of
any shares of capital stock of the Corporation other than Senior Securities
upon such Liquidation Event unless prior thereto, the holders of shares of
Series A Convertible Preferred Stock shall have received the Liquidation
Preference with respect to each such share. If, upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series A Convertible Preferred Stock and holders of securities
ranking pari passu as to preference upon liquidation with the Series A
Convertible Preferred Stock 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 Convertible Preferred Stock and such pari passu securities shall be
distributed ratably among such shares in proportion to the ratio that that
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
(b)Liquidation Event Definition. A "Liquidation Event" shall
occur (i) if (A) the Corporation shall (1) commence a voluntary case under the
federal bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or (2) consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
(3) make an assignment for the benefit of its creditors, or (4) admit in
writing its inability to pay its debts generally as they become due, or (B) a
decree or order (1) 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 (2) 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 specified in
clause (A) or (B) above, the Corporation shall liquidate, dissolve or wind up,
(ii) the Corporation shall otherwise liquidate, dissolve or wind up, or (iii)
a holder deems certain events enumerated in Section 4(d) as a Liquidation
Event for purposes of this Certificate of Designations.
(c)Liquidation Preference Definition. The "Liquidation
Preference" with respect to a share of Series A Convertible Preferred Stock
shall be equal to the sum of (i) the "Stated Value" of $1,000 per share of
Series A Convertible Preferred Stock, plus (ii) an amount equal to the product
of (0.1125) (N1/360) ($1,000), plus (ii) an amount equal to the product of
(0.225) (N2/360) ($1,000), where
"N1" means the number of days from, but excluding the first date
on which the Corporation issued such share of Series A Convertible
Preferred Stock (the "Issuance Date") through and including (1)
the date on which the holder shall have converted such share of
Series A Convertible Preferred Stock (the "Conversion Date") for
the Series A Convertible Preferred Stock for which conversion is
being elected, or (2) such other date of determination, as the
case may be, or (3) if earlier than either of the dates specified
in clauses (1) and (2) , the date on which the Corporation's
Common Stock ceases to be listed on a national securities exchange
or the Nasdaq Stock Market, as the case may be (the "Delisting
Date"); and
"N2" means the number of days from, but excluding, the Delisting
Date through and including (1) the Conversion Date for such share
of Series A Convertible Preferred Stock, or (2) such other date of
determination, as the case may be.
(d)Liquidation Event at Option of Holder. At the option of
each holder of Series A Convertible Preferred Stock, the sale, conveyance or
disposition of all or substantially all of the assets of the Corporation and
the occurrence of an Organic Change (as defined in Subsection 5(f)(iv)) in
which the Company fails to satisfy its obligations under Subsection 5(f)(iv)
shall each be deemed to be a Liquidation Event pursuant to which the
Corporation shall be required to distribute, upon consummation of and as a
condition to such transaction, an amount equal to the Liquidation Preference
with respect to each outstanding share of Series A Convertible Preferred Stock
held by such holder in accordance with and subject to the terms of this
Section 4.
(e)Events Deemed Not To Be Liquidation Events. The Corporation's
purchase or redemption of stock of any class, in any manner permitted by law,
shall not, for the purposes hereof, be regarded as a Liquidation Event.
Except as provided in Section 4(d) above, neither the consolidation or merger
of the Corporation with or into any other Person, nor the sale or transfer by
the Corporation of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a Liquidation Event. No holder of Series A
Convertible Preferred Stock shall be entitled to receive any amounts with
respect thereto upon any Liquidation Event other than the amounts provided
for herein; provided, however, that a holder of Series A Convertible Preferred
Stock shall be entitled to all amounts previously accrued with respect to
amounts owed hereunder.
5. Conversion. The holders of shares of Series A Convertible
Preferred Stock shall have the following conversion rights and obligations:
(a)Right to Convert.
(i)Subject to the terms, conditions, and restrictions
of this Section 5, at any time after the Issuance Date the holder of any
shares of Series A Convertible Preferred Stock shall have the right to convert
each whole share of Series A Convertible Preferred Stock into that number of
fully paid and nonassessable shares of Common Stock (rounded to the nearest
whole share in accordance with Section 5(e)), at the Conversion Rate (as
defined below).
(ii)Anything in Subsection 5(a)(i) to the contrary
notwithstanding, in no event shall any holder be entitled to convert Series A
Convertible Preferred Stock in excess of that number of shares of Series A
Convertible Preferred Stock that, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially owned by the
holder and its "affiliates" (as defined in Rule 405 under the Securities Act
of 1933, as amended (the "Securities Act")) to exceed 9.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of this
Subsection, the aggregate number of shares of Common Stock beneficially owned
by the holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Series A Convertible Preferred Stock
with respect to which the determination is being made, but shall exclude the
number of shares of Common Stock that would be issuable upon (i) conversion of
the remaining, nonconverted Series A Convertible Preferred Stock beneficially
owned by the holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Corporation
(including, without limitation, any warrants or convertible preferred stock)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates. Except
as set forth in the preceding sentence, for purposes of this Subsection
5(a)(ii), beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
For purposes of this Subsection, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Corporation's most recent Form 10-Q or
Form 10-K, as the case may be, (2) a more recent public announcement by the
Corporation or (3) any other notice by the Corporation or its transfer agent
setting forth the number of shares of Common Stock outstanding. For any
reason at any time, upon the written or oral request of any holder, the
Corporation shall immediately confirm orally and in writing to any such holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to conversions of Series A Convertible Preferred Stock by such holder
since the date as of which such number of outstanding shares of Common Stock
was reported. To the extent that the limitation contained in this Subsection
5(a)(ii) applies, the determination of whether shares of Series A Convertible
Preferred Stock are convertible (in relation to other securities owned by a
holder) and of which shares of Series A Convertible Preferred Stock are
convertible shall be in the sole discretion of such holder, and the submission
of shares of Series A Convertible Preferred Stock for conversion shall be
deemed to be such holder's determination of whether such shares of Series A
Convertible Preferred Stock are convertible (in relation to other securities
owned by such holder) and of which shares of Series A Convertible Preferred
Stock are convertible, in each case subject to such aggregate percentage
limitation, and the Corporation shall have no obligation or right to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert such shares of Series A
Convertible Preferred Stock at such time as such conversion will not violate
the provisions of this Subsection. A holder of Series A Convertible Preferred
Stock may waive the provisions of this Subsection 5(a)(ii) as to itself (and
solely as to itself) upon not less than 75 days' prior notice to the
Corporation, and the provisions of this Subsection 5(b)(ii) shall continue to
apply until such 75th day (or such later date as may be specified in such
notice of waiver). No conversion in violation of this Subsection 5(b)(ii), but
otherwise in accordance with this Certificate of Designations, shall affect
the status of the Common Stock issued upon such conversion as validly issued,
fully-paid and nonassessable. Section 5(g) sets forth additional limitations
on the Corporation's obligation to issue shares of Common Stock upon
conversion of the Series A Convertible Preferred Stock.
(b)Conversion Rate and Other Definitions. The number of
shares of Common Stock issuable upon conversion of each share of Series A
Convertible Preferred Stock pursuant to Section (5)(a) shall be determined
according to the following formula (the "Conversion Rate"):
Conversion Amount
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
"Additional Amount" means the result of the following formula:
[(0.1125)(N1/360)($1,000)] + [(0.225)(N2/360)($1,000)].
"Base Price" means, with respect to a share of Series A
Convertible Preferred Stock, $3.50.
"Closing Bid Price" or "Closing Ask Price" means, for any
security as of any date, the last closing bid or ask price, as the case may
be, for such security on the Principal Market as reported by Bloomberg
Financial Markets ("Bloomberg"), or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
closing bid or ask price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid or ask 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 or ask
price is reported for such security by Bloomberg, the last closing trade price
of such security as reported by Bloomberg, or, if no last closing trade price
is reported for such security by Bloomberg, the average of the bid or ask
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price or Closing
Ask Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price or Closing Ask Price of such security
on such date shall be the fair market value as mutually determined by the
Corporation and the holders of sixty-six and two-thirds percent (66 %)) of
the shares of Series A Convertible Preferred Stock then outstanding. If the
Corporation and the holders of Series A Convertible Preferred Stock are unable
to agree upon the fair market value of the Common Stock, then such dispute
shall be resolved pursuant to Section 5(h). (All such determinations to be
appropriately adjusted for any stock dividend, stock, split or other similar
transaction during such period).
"Conversion Amount" means as to each share of Series A
Convertible Preferred Stock the sum of (A) the Additional Amount and (B)
$1,000.
"Conversion Price" means, as of any Conversion Date or other
date of determination, the lower of (x) the Base Price, and (y) 75% of the
average of the Closing Bid Prices in the five (5) Trading Days immediately
preceding such date; provided, however, that the Conversion Price will be
reduced an additional 5% if the securities of the Corporation are not listed
on the Principal Market, each in effect as of such date and subject to
adjustment as provided herein, but in no event lower than the Floor Price.
"Floor Price" means, during the period of eighteen (18) months
after the Issuance Date of a share of Series A Convertible Preferred Stock,
$2.50, except that (x) if the Conversion Price for any twenty (20) Trading
Days during such eighteen (18) month period would have been less than $2.50,
but for the Floor Price, then the "Floor Price" shall be reduced to $2.00, and
(y) if Conversion Price for any twenty (20) Trading Days during the period
commencing one (1) year after the Issuance Date of such share and ending
eighteen (18) months after the Issuance Date thereof would have been less than
$2.00 but for the Floor Price then in effect, then the "Floor Price' shall be
reduced to $1.50. There will be no Floor Price after eighteen (18) months
after the Issuance Date of such share.
"N1" and "N2" have the meanings set forth in Section 4(c).
"Principal Market" means the Nasdaq Smallcap Market.
"Registration Rights Agreement" means that certain registration
rights agreement between the Corporation and the initial holders of the Series
A Convertible Preferred Stock concerning the registration of the resale of the
shares of Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock.
"Trading Day" means any day during which the Principal Market
shall be open for business.
(c)Conversion Notice. A holder of Series A Convertible
Preferred Stock may exercise its conversion right by giving a written
conversion notice in the form of Exhibit A hereto (the "Conversion Notice") to
the Corporation (x) by facsimile confirmed by a telephone call or (y) by
registered mail or overnight delivery service, with a copy by facsimile to the
Corporation's transfer agent for its Common Stock, as designated by the
Corporation from time to time. If such conversion will result in the
conversion of all of such holder's shares of Series A Convertible Preferred
Stock, such holder shall also surrender the certificate or certificates
representing the shares so to be converted (the "Preferred Stock
Certificates") to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by notice
in writing to the holders of the Series A Convertible Preferred Stock) at any
time during its usual business hours on the date set forth in the Conversion
Notice.
(d)Issuance of Certificates; Time Conversion Effected.
(i)Promptly, but in no event more than three (3)
Trading Days, after the receipt of the Conversion Notice referred to in
Section 5(c) and surrender of the Preferred Stock Certificates (if required),
the Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct, a
certificate or certificates for the number of whole shares of Common Stock
into which such shares of Series A Convertible Preferred Stock have been
converted. In the alternative, if the Corporation's transfer agent is a
participant in the electronic book transfer program, the transfer agent shall
credit such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance account with The
Depository Trust Company. Such conversion shall be deemed to have been
effected, and the Conversion Date shall be deemed to have occurred, on the
date on which such Conversion Notice shall have been received by the
Corporation and at the time specified stated in such Conversion Notice, which
must be during the calendar day of such notice. The rights of the holder of
such share or shares of Series A Convertible Preferred Stock shall cease, and
the person or persons in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares
represented thereby, on the Conversion Date. Issuance of shares of Common
Stock issuable upon conversion that are requested to be registered in a name
other than that of the registered holder shall be subject to compliance with
all applicable federal and state securities laws.
(ii)The Corporation understands that a delay in the
issuance of the shares of Common Stock beyond three (3) Trading Days after the
Conversion Date could result in economic loss to the holder of shares of
Series A Convertible Preferred Stock. As compensation to the holder for such
loss, the Corporation agrees to pay late payments to the holder for late
issuance of shares of Common Stock upon conversion in accordance with the
following schedule (where "No. Trading Days Late" means the number of Trading
Days after three (3) Trading Days from the date of receipt by the Corporation
of the Conversion Notice with electronic book entry transfer instructions if
the Company's Transfer Agent participates in the DWAC System of the Depository
Trust Company, or without electronic book entry transfer instructions if the
Company's Transfer Agent does not participate in such DWAC System) to and
including the date of the holder's or its designees' receipt of such shares):
No. Trading Days Late Late Payment For Each
$5,000 of Conversion Amount of
Amount Being Converted
- -------------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $100 for each Trading Day
late after 10 Calendar Days
The Corporation shall make all payments due under this Subsection 5(d)(ii) in
immediately available funds upon demand. Nothing herein shall limit a
holder's right to pursue injunctive relief and/or actual damages for the
Corporation's failure to issue and deliver Common Stock to such holder as
required by Subsection 5(d)(i), including, without limitation, such holder's
actual losses occasioned by any "buy-in" of Common Stock necessitated by such
late delivery. Furthermore, in addition to any other remedies that may be
available to such holder, if the Corporation fails for any reason to effect
delivery of such shares of Common Stock within five (5) Trading Days after the
Conversion Date, such holder will be entitled to revoke the relevant
Conversion Notice by delivering a notice to such effect to the Corporation.
Upon delivery of such notice of revocation, the Corporation and the holder
shall each be restored to their respective positions immediately prior to
delivery of such Conversion Notice, except that holder shall retain the right
to receive both the late payment amounts set forth above plus the actual cost
of any "buy-in."
(iii)If, at any time (a) the Corporation challenges,
disputes or denies the right of a holder to effect the conversion of the
Series A Convertible Preferred Stock into Common Stock or otherwise dishonors
or rejects any Conversion Notice properly delivered in accordance with this
Section 5 or (b) any third party who is not and has never been an affiliate of
a holder obtains a judgment or order from any court or public or governmental
authority that denies, enjoins, limits, modifies, or delays the right of such
holder to effect the conversion of the Series A Convertible Preferred Stock
into Common Stock, then such holder shall have the right, by written notice to
the Corporation, to require the Corporation to promptly redeem the Series A
Convertible Preferred Stock in accordance with Section 6(b). Under any of the
circumstances set forth above, the Corporation shall indemnify the holder
against and hold it harmless from, and be responsible for the payment of, all
costs and expenses of the holder, including its reasonable legal fees and
expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of such holder). The
Corporation shall not refuse to honor any Conversion Notice unless its has
actually been enjoined by a court of competent jurisdiction from doing so, and
if so enjoined, the Corporation shall post with such court a performance bond
equal to 150% of the Conversion Amount of the shares sought to be converted by
the holder that are the subject of such injunction.
(iv)The holders of Series A Convertible Preferred Stock
shall be entitled to exercise their conversion privilege notwithstanding the
commencement of any case under 11 U.S.C. 101 et seq. (the "Bankruptcy
Code"). The Corporation hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. 362 in respect of the holder's
conversion privilege, if it becomes a debtor under the Bankruptcy Code. The
Corporation agrees to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. 362 without cost or expense to the holder.
(e)Fractional Shares. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series A Convertible Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of a fraction of a share of Common Stock. If, after such
aggregation, the issuance would result in the issuance of a fraction of a
share of Common Stock, the Corporation shall round such fraction of a share of
Common Stock up to the nearest whole share.
(f)Adjustment to Conversion Price; Dilution and Other Events.
In order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 5(f).
(i)Adjustment of Base Price upon Issuance of Common Stock. If the
Corporation issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (other than Conversion Shares (as defined in
the Convertible Preferred Stock and Warrants Purchase Agreement) and shares of
Common Stock deemed to have been issued by the Corporation in connection with
Approved Issuances (as defined below)) for a consideration per share less than
the Base Price (an "Offering"), as in effect immediately prior to such time
(the "Applicable Price"), then immediately after such issue or sale, the Base
Price shall be reduced to an amount equal to the product of (x) the Base Price
or Maximum Base Price in effect immediately prior to such issue or sale and
(y) the quotient determined by dividing (1) the sum of (I) the product of the
Applicable Price and the number of shares of Common Stock Deemed Outstanding
(as defined below) immediately prior to such issue or sale, and (II) the
consideration, if any, received by the Corporation upon such issue or sale by
(2) the product of (I) the Applicable Price and (II) the number of shares of
Common Stock Deemed Outstanding immediately after such issuance or sale. For
purposes of determining the adjusted Base Price under this Subsection 5(f)(i),
the following shall be applicable:
(A)Issuance of Options. If the Corporation in any manner grants
any rights or options to subscribe for or to purchase
Common Stock (other than in connection with an Approved Issuance
or upon conversion of the Series A Convertible Preferred Stock)
or any stock or other securities convertible into or exchangeable
for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per
share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible
Securities is less than the Applicable Price, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Corporation for such price
per share. For purposes of this Subsection 5(f)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if any,
received or receivable by the Corporation as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment
of the Base Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Subsection 5(f)(i)(A) to the extent that such adjustment is
based solely on the fact that the Convertible Securities issuable
upon exercise of such Option are convertible into or exchangeable
for Common Stock at a price that varies with the market price of
the Common Stock.
(B)Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation for
such price per share. For the purposes of this Subsection 5(f)(i)(B),
the "price per share for which Common Stock is issuable upon such
conversion or exchange" is determined by dividing (I) the total
amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (II) the total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No adjustment of
the Base Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the
Base Price had been or are to be made pursuant to other provisions
of this Subsection 5(f)(i), no further adjustment of the Base
Price shall be made by reason of such issue or sale. Notwithstanding
the foregoing, no adjustment shall be made pursuant to this Subsection
5(f)(i)(B) to the extent that such adjustment is based solely on
the fact that such Convertible Securities are convertible into or
exchangeable for Common Stock at a price that varies with
the market price of the Common Stock.
(C)Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
change at any time, the Base Price in effect at the time of such
change shall be readjusted to the Base Price that would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold; provided
that no adjustment shall be made if such adjustment would result
in an increase of the Base Price then in effect.
(D)Certain Definitions. For purposes of determining the adjusted
Base Price under this Subsection 5(f)(i), the following terms
have meanings set forth below:
(I)"Approved Issuances" shall mean (i) the issuance of
securities upon exercise or conversion of the Corporation's options, warrants
or other convertible securities outstanding as of the date hereof, or (ii) the
grant of additional options or warrants, or the issuance of additional
securities, under any Corporation stock option plan, restricted stock plan,
stock purchase plan or other plan or written compensation contract for the
benefit of the Corporation's employees, directors or consultants in effect on
the date hereof.
(II)"Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock actually outstanding at such
time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Subsections 5(f)(i)(A) and 5(f)(i)(B) hereof regardless of whether
the Options or Convertible Securities are actually exercisable at such time,
but excluding any shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock.
(E)Effect on Base Price of Certain Events. For purposes of
determining the adjusted Base Price under this Section 5(f),
the following shall be applicable:
(I) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed
to be the amount received by the Corporation therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Corporation in connection with
such issuance or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the 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 arithmetic average of the Closing Bid Prices of
such security for the five consecutive trading days immediately preceding
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Corporation is the surviving entity the amount
of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or securities will be determined jointly by the Corporation and
the holders of sixty-six and two-thirds percent (66 %)) of the Series A
Convertible Preferred Stock then outstanding. If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48) hours of the tenth
(10th) day following the Valuation Event by an independent, reputable
appraiser selected by the Corporation. The determination of such appraiser
shall be deemed binding upon all parties absent manifest error.
(II)Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $0.01.
(III)Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by
or for the account of the Corporation, and the disposition of any shares so
owned or held will be considered an issue or sale of Common Stock.
(IV)Record Date. If the Corporation takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii)Adjustment of Base Price upon Subdivision or
Combination of Common Stock. If the Corporation at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Base Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Corporation at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Base
Price in effect immediately prior to such combination will be proportionately
increased.
(iii)Adjustment of Variable Conversion Price upon
Issuance of Convertible Securities. If the Corporation in any manner issues
or sells Convertible Securities that are convertible into Common Stock at a
price that varies with the market price of the Common Stock (the formulation
for such variable price being herein referred to as, the "Variable Price") and
such Variable Price is not calculated using the same formula used to calculate
the Variable Conversion Price in effect immediately prior to the time of such
issue or sale, the Corporation shall provide written notice thereof via
facsimile and overnight courier to each holder of the Series A Convertible
Preferred Stock ("Variable Notice") on the date of issuance of such
Convertible Securities. If the holders of Series A Convertible Preferred
Stock representing at least sixty-six and two-thirds percent (66 %)) of the
Series A Convertible Preferred Stock then outstanding provide written notice
via facsimile and overnight courier (the "Variable Price Election Notice") to
the Corporation within five (5) business days of receiving a Variable Notice
that such holders desire to replace the Variable Conversion Price then in
effect with the Variable Price described in such Variable Notice, then from
and after the date of the Corporation's receipt of the Variable Price Election
Notice, the Variable Conversion Price will automatically be replaced with the
Variable Price (together with such modifications to this Certificate of
Designations as may be required to give full effect to the substitution of the
Variable Price for the Variable Conversion Price). A holder's delivery of a
Variable Price Election Notice shall serve as the consent required to amend
this Certificate of Designation pursuant to Section 20 below. In the event
that a holder delivers a Conversion Notice at any time after the Corporation's
issuance of Convertible Securities with a Variable Price but before such
holder's receipt of the Corporation's Variable Notice, then such holder shall
have the option by written notice to the Corporation to rescind such
Conversion Notice or to have the Conversion Price be equal to such Variable
Price for the conversion effected by such Conversion Notice.
(iv)Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Corporation's
assets to another Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the
Corporation will make appropriate provision (in form and substance reasonably
satisfactory to the holders of sixty-six and two-thirds percent (66 %) of the
Series A Convertible Preferred Stock then outstanding) to insure that each of
the holders of the Series A Convertible Preferred Stock will thereafter have
the right to acquire and receive in lieu of or in addition to (as the case may
be) the shares of Common Stock otherwise acquirable and receivable upon the
conversion of such holder's Series A Convertible Preferred Stock, such shares
of stock, securities or assets as would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares of
Common Stock that would have been acquirable and receivable had all of such
holder's Series A Convertible Preferred Stock been converted into shares of
Common Stock immediately prior to such Organic Change (without taking into
account any limitations or restrictions on the timing or amount of
conversions). In any such case, the Corporation will make appropriate
provision (in form and substance reasonably satisfactory to the holders of
sixty-six and two-thirds percent (66 %) of the Series A Convertible Preferred
Stock then outstanding) with respect to such holders' rights and interests to
insure that the provisions of this Section 5(f) will thereafter be applicable
to the Series A Convertible Preferred Stock (including, in the case of any
such consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Corporation, an immediate adjustment of the Base
Price in accordance with Subsection 5(f)(i) using the value for the Common
Stock reflected by the terms of such consolidation, merger or sale, if the
value so reflected is less than the Base Price in effect immediately prior to
such consolidation, merger or sale). The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Corporation) resulting from consolidation
or merger or the entity purchasing such assets assumes, by written instrument
(in form and substance reasonably satisfactory to the holders of sixty-six and
two-thirds percent (66 %) of the Series A Convertible Preferred Stock then
outstanding), the obligation to deliver to each holder of Series A Convertible
Preferred Stock such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
"Person" shall mean an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(v)Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 5(f) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Corporation's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders
of the Series A Convertible Preferred Stock; provided, however, that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 5(f).
(g)Limitation on Number of Conversion Shares. Notwithstanding
any other provision herein, the Corporation shall not be obligated to issue
any shares of Common Stock upon conversion of the Series A Convertible
Preferred Stock if the issuance of such shares of Common Stock would exceed
635,668 shares (the "Exchange Cap") without breaching the Corporation's
obligations under the rules or regulations of the Nasdaq Stock Market, except
that such limitation shall not apply in the event that the Corporation (i)
obtains the approval of its stockholders as required by applicable rules and
regulations of the Nasdaq Stock Market for issuances of Common Stock in excess
of the Exchange Cap, or (ii) obtains a written opinion from outside counsel to
the Corporation that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of sixty-six and two-thirds percent
(66 %) of the shares of Series A Convertible Preferred Stock then
outstanding. Until such approval or written opinion is obtained or such
action has been taken by the required number of holders, no purchaser of
Series A Convertible Preferred Stock pursuant to the Securities Purchase
Agreement (the "Investors") shall be issued, upon conversion of Series A
Convertible Preferred Stock, shares of Common Stock in an amount greater than
the product of (x) the Exchange Cap amount multiplied by (y) a fraction, the
numerator of which is the number of shares of Series A Convertible Preferred
Stock issued to such Investor pursuant to the Securities Purchase Agreement
and the denominator of which is the aggregate amount of all the Series A
Convertible Preferred Stock issued to the Investors pursuant to the Securities
Purchase Agreement (the "Cap Allocation Amount"). In the event that any
Investor shall sell or otherwise transfer any of such Investor's Series A
Convertible Preferred Stock, the transferee shall be allocated a pro rata
portion of such Investor's Cap Allocation Amount. In the event that any
holder of Series A Convertible Preferred Stock shall convert all of such
holder's Series A Convertible Preferred Stock into a number of shares of
Common Stock that, in the aggregate, is less than such holder's Cap Allocation
Amount, then the difference between such holder's Cap Allocation Amount and
the number of shares of Common Stock actually issued to such holder shall be
allocated to the respective Cap Allocation Amounts of the remaining holders of
Series A Convertible Preferred Stock on a pro rata basis in proportion to the
number of Series A Convertible Preferred Stock then held by each such holder.
(h)Dispute Resolution. In the case of a dispute as to the
determination of the Closing Ask Price or Closing Bid Price of any security or
the arithmetic calculation of the Conversion Rate, the Corporation shall
promptly issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) business day of
receipt of such holder's Conversion Notice. If such holder and the
Corporation are unable to agree upon the determination of such Closing Ask
Price or Closing Bid Price, as the case may be, or arithmetic calculation of
the Conversion Rate within one (1) business day of such disputed determination
or arithmetic calculation being submitted to the holder, then the Corporation
shall within one (1) business day following such date of delivery submit via
facsimile (A) the disputed determination of the Closing Ask Price or Closing
Bid Price, as the case may be, to an independent, reputable investment bank
or (B) the disputed arithmetic calculation of the Conversion Rate to its
independent certified public accounting firm. The Corporation shall cause the
investment bank or the accounting firm, as the case may be, to perform the
determinations or calculations and notify the Corporation and the holder of
the results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or accounting
firm's determination or calculation, as the case may be, shall be binding upon
all parties absent manifest error.
(i)Mandatory Conversion at Maturity. If any shares of Series
A Convertible Preferred Stock remain outstanding on the Maturity Date (as
defined below), then all such shares shall be converted as of such date in
accordance with this Section 5 as if the holders of such shares had given the
Conversion Notice on the Maturity Date. All holders of shares of Series A
Convertible Preferred Stock shall thereupon surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Corporation. "Maturity
Date" means, with respect to any share of Series A Convertible Preferred
Stock, the date that is three (3) years after the Issuance Date thereof,
subject to extension pursuant to Section 3(u) of the Registration Rights
Agreement, which extension shall be equal to one day for each day in any
Allowable Grace Period (as defined in the Registration Rights Agreement).
(6)Redemption of Series A Convertible Preferred Stock.
(a)Intentionally Omitted.
(b)Mandatory Redemption.
(i)Holder's Option if Corporation Cannot Fully Convert
or Holder Cannot Sell Without Restriction. If (i) upon the Corporation's
receipt of a Conversion Notice, the Corporation fails to issue shares of
Common stock as contemplated by Subsection 5(d)(iii) or cannot issue shares of
Common Stock registered for resale under the Registration Statement (or which
are exempt from the registration requirements under the 1933 Act pursuant to
Rule 144(k) under the 1933 Act) for any reason, including, without limitation,
because the Corporation (X) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Corporation or its Securities, including without
limitation the Exchange Cap, from issuing all of the Common Stock which is to
be issued to a holder of Series A Convertible Preferred Stock pursuant to a
Conversion Notice or (z) fails to have a sufficient number of shares of Common
Stock registered for resale under the Registration Statement, or (ii) a
Registration Default (as defined in the Registration Rights Agreement) shall
have occurred and be continuing,then in the case of clause (i), the
Corporation shall issue as many shares of Common Stock as it is able to issue
in accordance with such holder's Conversion Notice (if the holder shall have
given such a Conversion Notice) and pursuant to Section 5(d), and with respect
to all or any part of its unconverted Series A Convertible Preferred Stock
held by such holder, the holder, solely at such holder's option, can elect to:
(A)require the Corporation to redeem from such holder all or any part
of its remaining shares of Series A Convertible Preferred Stock
("Mandatory Redemption") at a price per share of Series A Convertible
Preferred Stock equal to the greater of (I) the sum of: (a) $1,300 plus
(b)the Additional Amount and (II) the product of (a) the Conversion Rate
on the date of such holder's delivery of an Election Response Notice (as
defined below) and (b) the greater of (i) the 5 day closing average
Closing Ask Price of the Common Stock on the Trading Days immediately
preceding the event giving rise to Mandatory Redemption or (ii) the
Closing Ask Price of the Common Stock on the date of the holder's
delivery to the Company of a Notice of Mandatory Redemption or, if such
date of delivery is not a Trading Day, the next date on which the
exchange or market on which the Common Stock is traded is open (the
"Mandatory Redemption Price");
(B)if the Corporation's inability to fully convert Series A
Convertible Preferred Stock is pursuant to clause (i)(z) above of this
Section 6(b), require the Corporation to issue restricted shares of
Common Stock in accordance with such holder's Conversion Notice and
pursuant to Section 5(d);
(C)void its Conversion Notice and retain or have returned, as the
case may be, the nonconverted shares of Series A Convertible Preferred
Stock that were to be converted pursuant to such holder's Conversion
Notice (provided that a holder's voiding its Conversion Notice shall not
affect the Corporation's obligations to make any payments which have
accrued prior to the date of such notice); or
(D)if the Corporation's inability to fully convert Series A
Convertible Preferred Stock is pursuant to clause (i)(y) above of this
Section 6(b), require the Corporation to issue shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to Section
5(d) at a Conversion Price equal to the average of the Closing Bid
Prices of the Common Stock for the five consecutive trading days
preceding such holder's Election Response Notice or such other market
price that satisfies the applicable exchange or trading market.
(ii)Mechanics of Fulfilling Holder's Election. The
Corporation shall within one (1) business day send via facsimile to a holder
of Series A Convertible Preferred Stock, upon receipt of a facsimile copy of a
Conversion Notice from such holder that cannot be fully satisfied as described
in Section 6(d), a notice of the Corporation's inability to fully satisfy such
holder's Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the
Corporation is unable to fully satisfy such holder's Conversion Notice,
(ii) the number of shares of Series A Convertible Preferred Stock which cannot
be converted and (iii) the applicable Mandatory Redemption Price. Such holder
shall notify the Corporation of its election pursuant to Subsection 6(b)(i)
above by delivering written notice via facsimile to the Corporation ("Election
Response Notice").
(iii)Intentionally Omitted.
(iv)Payment of Mandatory Redemption Price. If such
holder shall elect to have its shares of Series A Convertible Preferred Stock
Redeemed pursuant to Subsection 6(b)(i)(A) or if the Corporation is required
to redeem a holder's shares of Series A Convertible Preferred Stock on the
Maturity Date, the Corporation shall pay the Mandatory Redemption Price to
such holder in cash by wire transfer of immediately available funds in
accordance with such holder's written wire transfer instructions within five
(5) days after the Corporation's receipt of the holder's Election Response
Notice or the Maturity Date, as the case may be. If the Corporation shall
fail to pay the applicable Mandatory Redemption Price to such holder within
such five (5) day period (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Mandatory Redemption
Price), in addition to any remedy such holder of Series A Convertible
Preferred Stock may have under any Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement, such unpaid amount
shall bear interest at the rate of 3.0% per month (prorated for partial
months) until paid in full. Until the Mandatory Redemption Price is paid in
full to such holder, such holder may void the Mandatory Redemption with
respect to those shares of Series A Convertible Preferred Stock for which the
full Mandatory Redemption Price has not been paid and receive back the
Preferred Stock Certificates representing such Series A Convertible Preferred
Stock. Notwithstanding the foregoing, if the Corporation fails to pay the
applicable Mandatory Redemption Price within such period of five (5) days due
to a dispute as to the determination of the Mandatory Redemption Price, such
dispute shall be resolved pursuant to Section 5(h) with the term "Mandatory
Redemption Price" being substituted for the term "Conversion Rate".
(v)Pro-rata Conversion and Redemption. If the
Corporation receives a Conversion Notice or Election Response Notice electing
Mandatory Redemption from more than one holder of Series A Convertible
Preferred Stock on the same day, and the Corporation can convert and/or redeem
some, but not all, of the Series A Convertible Preferred Stock pursuant to
this Section 6, the Corporation shall convert and/or redeem from each holder
of Series A Convertible Preferred Stock electing to have its Series A
Convertible Preferred Stock converted and redeemed at such time an amount
equal to such holder's pro-rata amount (based on the number of shares of
Series A Convertible Preferred Stock held by such holder relative to the
number of Series A Convertible Preferred Stock outstanding) of all Series A
Convertible Preferred Stock being converted and redeemed at such time.
8. Notices. In case at any time:
(i)the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other pro rata distribution to the
holders of its Common Stock; or
(ii)the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights; or
(iii)there shall be any Organic Change; or
(iv)there shall be a Liquidation Event;
then, in any one or more of such cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile or by recognized overnight
delivery service to non-U.S. residents, addressed to each holder of any shares
of Series A Convertible Preferred Stock at the address of such holder as
shown on the books of the Corporation, (i) at least twenty (20) Trading Days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
Organic Change or Liquidation Event and (ii) in the case of any such Organic
Change or Liquidation Event, at least twenty (20) Trading Days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders
of Common Stock shall be entitled thereto, and such notice in accordance with
clause (ii) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such Organic Change or Liquidation Event, as the
case may be.
9. Stock to be Reserved. The Corporation, upon the effective date
of this Certificate of Designations, has a sufficient number of shares of
Common Stock available to reserve for issuance upon the conversion of all
outstanding shares of Series A Convertible Preferred Stock, assuming immediate
conversion. The Corporation will at all times reserve and keep available out
of its authorized Common Stock, solely for the purpose of issuance upon the
conversion of Series A Convertible Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Series A Convertible Preferred Stock. The
Corporation covenants that all shares of Common Stock that shall be so issued
shall be duly and validly issued, fully paid and non-assessable. The
Corporation will take all such action as may be so taken without violation of
any applicable law or regulation to have a sufficient number of authorized but
unissued shares of Common Stock to issue upon conversion of the Series A
Convertible Preferred Stock. The Corporation will not take any action which
results in any adjustment of the conversion rights if the total number of
shares of Common Stock issued and issuable after such action upon conversion
of the Series A Convertible Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the Corporation's Certificate of
Incorporation.
10. No Reissuance of Series A Convertible Preferred Stock. Shares of
Series A Convertible Preferred Stock that are converted into shares of Common
Stock as provided herein shall not be reissued.
11. Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Series A Convertible Preferred Stock shall be made
without charge to the holder for any United States issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series A Convertible Preferred Stock which is being converted.
12. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion
of any shares of Series A Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series A Convertible Preferred
Stock, except as may otherwise be required to comply with applicable
securities laws.
13. Definitions. As used in this Certificate of Designations, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, $0.01 par value, as constituted on the date of filing of this
Certificate of Designations, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited
to a fixed sum or percentage of par value in respect of the rights of the
holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of
Common Stock receivable upon conversion of shares of Series A Convertible
Preferred Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization, reclassification, or stock split of the outstanding shares
thereof, the stock, securities or assets provided for in Sections 5(f) and
(g). Any capitalized terms used in this Certificate of Designations but not
defined herein shall have the meanings set forth in the Securities Purchase
Agreement, a copy of which will be provided to any stockholder of the
Corporation upon request to the Secretary of the Corporation, without charge.
14. Loss, Theft, Destruction of Preferred Stock Certificates. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of certificates representing shares of Series A
Convertible Preferred Stock and, in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (which shall not include the posting of any bond), or, in the case
of any such mutilation, upon surrender and cancellation of the Series A
Convertible Preferred Stock certificate, the Corporation shall make, issue and
deliver, in lieu of such lost, stolen, destroyed or mutilated certificates for
Series A Convertible Preferred Stock, new certificates for Series A
Convertible Preferred Stock of like tenor. The Series A Convertible Preferred
Stock shall be held and owned upon the express condition that the provisions
of this Section 13 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series A Convertible Preferred Stock and
shall preclude any and all other rights and remedies notwithstanding any law
or statue existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the
surrender thereof.
15. Record Owner. The Corporation may deem the person in whose name
the Series A Convertible Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series A Convertible Preferred Stock for the purpose of conversion of the
Series A Convertible Preferred Stock and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series A Convertible Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
16. Register. The Corporation shall maintain a transfer agent, which
may be the transfer agent for the Common Stock or the Corporation itself, for
the registration of the Series A Convertible Preferred Stock. Upon any
transfer of the Series A Convertible Preferred Stock in accordance with the
provisions hereof, the Corporation shall register or cause the transfer agent
to register such transfer on the Series A Convertible Preferred Stock
register.
17. Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Certificate of Designations. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation
of the Corporation (or the performance thereof). The Corporation acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm
to the holders of the Series A Convertible Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Corporation therefore
agrees that, in the event of any such breach or threatened breach, the holders
of the Series A Convertible Preferred Stock shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.
18. Construction. This Certificate of Designations shall be deemed to
be jointly drafted by the Corporation and the initial holders of the Series A
Convertible Preferred Stock and shall not be construed against any person as
the drafter hereof.
19. Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Series A Convertible Preferred Stock in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof (except
to the extent that such power, right or privilege must, in accordance with the
terms of this Certificate of Designations, be exercised within a specified
period of time and such period of time has lapsed without such power, right or
privilege being exercised), nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
20. Vote to Change the Terms of or Issue Series A Convertible
Preferred Stock. The affirmative vote at a meeting duly called for such
purpose, or the written consent without a meeting, of the holders of not less
than sixty-six and two-thirds percent (66 %) of the then outstanding shares
of Series A Convertible Preferred Stock shall be required for (i) any change
to this Certificate of Designations or the Corporation's Certificate of
Incorporation that would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series A Convertible Preferred
Stock, or (ii) any issuance of shares of Series A Convertible Preferred Stock
other than as contemplated by the Securities Purchase Agreement.
21. Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the
Series A Convertible Preferred Stock.
22. Headings. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
IN WITNESS WHEREOF, Monte Ross, Chief Executive Officer of the
Corporation, under penalties of perjury, does hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein are
true and accordingly has signed this Certificate of Designations as of
this _____ day of May, 2000.
ULTRADATA SYSTEMS, INC.
By:________________________________
Monte Ross
Chief Executive Officer
<PAGE>
EXHIBIT A
ULTRADATA SYSTEMS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock (the "Certificate of Designations"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series A Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Shares"), of Ultradata Systems,
Inc., a Delaware corporation (the "Company"), indicated below into shares of
Common Stock, par value $0.01 per share (the "Common Stock"), of the Company, by
tendering the stock certificate(s) representing the Preferred Shares specified
below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Applicable only if the Transfer Agent is a participant in the electronic book
entry transfer program:
Account Number:
(if electronic book entry transfer):
Transaction Code Number
(if electronic book entry transfer):
Participant Code:
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
EXHIBIT B
FINAL
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY
BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN
A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE
SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase [________] Shares of Common Stock of
Ultradata Systems, Incorporated
THIS CERTIFIES that, for value received, [_____________________] (the
"Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on May ___, 2003 (the
"Termination Date"), but not thereafter, to subscribe for and purchase from
Ultradata Systems, Incorporated, a corporation incorporated in Delaware (the
"Company"), up to [______________________________ (___________)] shares (the
"Warrant Shares") of Common Stock, $.01 par value, of the Company (the "Common
Stock"). The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be $5.00. The Exercise Price and the number
of shares for which the Warrant is exercisable shall be subject to adjustment
as provided herein. In the event of any conflict between the terms of this
Warrant and the Convertible Preferred Stock and Warrants Agreement, dated as
of May 10, 2000, between the Company and, among others, the initial Holder of
this Warrant (the "Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
1. Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant.
(a)Except as provided in Section 3(b) or Section 4
herein, exercise of the purchase rights represented by this Warrant may be
made at any time or times on or after the Initial Exercise Date, and before
the close of business on the Termination Date by the surrender of this Warrant
and the Notice of Exercise Form annexed hereto duly executed, at the office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the registered Holder hereof at the address of such
Holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank, the Holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the Exercise Price and all
taxes required to be paid by Holder, if any, pursuant to Section 5 prior to
the issuance of such shares, have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant.
(b)Anything in Section 3(a) to the contrary
notwithstanding, in no event shall Holder be entitled to exercise this Warrant
if, upon giving effect to such exercise, the Holder and its "affiliates" (as
defined in Rule 405 under the 1933 Act) would beneficially own an aggregate
number of shares of Common Stock that would exceed 9.99% of the outstanding
shares of the Common Stock following such exercise. For purposes of this
Section, the aggregate number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of the Warrants with respect to which the
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of any nonconverted Series A
Convertible Preferred Stock beneficially owned by the Holder and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company (including, without limitation,
any other Warrants or convertible preferred stock) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder and its affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 3(b), beneficial
ownership shall be calculated in accordance with Section 13(d) of the 1934
Act. For purposes of this Section, in determining the number of outstanding
shares Common Stock the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form
10-K, as the case may be, (2) a more recent public announcement by the Company
or (3) any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time,
upon the written or oral request of the Holder, the Company shall immediately
confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to conversions of Series
A Convertible Preferred Stock by the Holder since the date as of which such
number of outstanding shares of Common Stock was reported. To the extent that
the limitation contained in this Section 3(b) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by
the Holder) and of which shares of Series A Convertible Preferred Stock are
convertible shall be in the sole discretion of the Holder, and the exercise of
this Warrant shall be deemed to be the Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by the Holder)
and of which shares of Series A Convertible Preferred Stock are convertible,
in each case subject to such aggregate percentage limitation, and the Company
shall have no obligation or right to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to restrict the right
of the Holder to exercise this Warrant at such time as such exercise will not
violate the provisions of this Section. This Holder may waive the provisions
of this Section 3(b) as to itself (and solely as to itself) upon not less than
75 days' prior notice to the Company, and the provisions of this Section 3(b)
shall continue to apply until such 75th day (or such later date as may be
specified in such notice of waiver). No exercise in violation of this Section,
but otherwise in accordance with this Warrant, shall affect the status of the
Common Stock issued upon such exercise as validly issued, fully-paid and
nonassessable.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued
in the name of the Holder of this Warrant or in such name or names as may be
directed by the Holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the Holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
6. Closing of Books. The Company will not close its
shareholder books or records in any manner which prevents the timely exercise
of this Warrant.
7. Transfer, Division and Combination. (a) Subject to
compliance with any applicable securities laws, transfer of this Warrant and
all rights hereunder, in whole or in part, shall be registered on the books of
the Company to be maintained for such purpose, upon surrender of this Warrant
at the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new Holder for the purchase of shares
of Common Stock without having a new Warrant issued.
(b)This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
(c)The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d)The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such Holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a)Stock Splits, etc. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following. In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled to
receive had such Warrant been exercised in advance thereof. Upon each such
adjustment of the kind and number of Warrant Shares or other securities of the
Company which are purchasable hereunder, the Holder of this Warrant shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment made pursuant to this paragraph shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b)Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the number of shares
of common stock of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and Other Property receivable upon or
as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to such event. In
case of any such reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than
the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in this
Section 11. For purposes of this Section 11, "common stock of the successor
or acquiring corporation" shall include stock of such corporation of any
class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening
of a specified event and any warrants or other rights to subscribe for or
purchase any such stock. The foregoing provisions of this Section 11 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
12. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares
or number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the Holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made. Such notice, in the absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.
14. Notice of Corporate Action. If at any time:
(i)the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(ii)there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(iii)there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i)the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 16(d).
15. Authorized Shares.
(a)The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The
Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Principal
Market upon which the Common Stock may be listed.
(b)The Company shall not by any action, including, without
limitation, amending its certificate of incorporation 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 of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (ii) take all such action 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, and (iii) use its
best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
(c)Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
(d)Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
(e)Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a)Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of New York without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b)Restrictions. The Holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c)Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder, unless the Company prevails in such litigation in which
event it will be entitled its reasonable attorneys' fees and expenses.
(d)Notices. Any notice, request or other document required
or permitted to be given or delivered to the Holder hereof by the Company shall
be delivered in accordance with the notice provisions of the Purchase Agreement.
(e)Limitation of Liability. No provision hereof, in the
absence of affirmative action by Holder to purchase shares of Common Stock, and
no enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
(f)Remedies. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that
a remedy at law would be adequate.
(g)Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.
(h)Indemnification. The Company agrees to indemnify and
hold harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against Holder in any manner relating to or arising out of any failure
by the Company to perform or observe in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Warrant;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final non-appealable judgment by a court to have resulted from
Holder's negligence, bad faith or willful misconduct in its capacity as a
stockholder or warrantholder of the Company.
(i)Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
(j)Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k)Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May _____, 2000
ULTRADATA SYSTEMS, INC.
By:
Monte Ross
Chief Executive Officer
NOTICE OF EXERCISE
To:Ultradata Systems, Inc.
(1)The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of Ultradata Systems, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
(2)Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature:_____________________________
Holder's Address:_____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT C
FINAL
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May ___,
2000, by and among Ultradata Systems, Inc., a Delaware corporation, with
headquarters located at 9375 Dielman Industrial Drive, St. Louis, MO 63132 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A.In connection with the Convertible Preferred Stock and Warrant
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 of the Securities Purchase Agreement, to issue and
sell to the Buyers (i) shares of the Company's Series A Convertible Preferred
Stock (the "Preferred Shares"), which will be convertible into shares of the
Company's common stock, $0.01 par value per share (the "Common Stock") (as
converted, the "Conversion Shares") in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Series A
Convertible Preferred Stock (the "Certificate of Designations") and (ii)
warrants ("Warrants") to purchase shares of Common stock (as issued upon
exercise of the Warrants, the "Warrant Shares");
B.To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"),
and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1.DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b."Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c."Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d."Registrable Securities" means (i) the Conversion Shares issued
or issuable upon conversion of the Preferred Shares, respectively,(ii) the
Warrant Shares issued or issuable on exercise of the Warrants and (iii) any
shares of capital stock issued or issuable with respect to the Conversion
Shares, the Preferred Shares, the Warrant Shares or the Warrants as a result of
any stock split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitation on conversions of Preferred
Shares or exercise in the Warrants.
e."Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act.
2.REGISTRATION.
a.Mandatory Registration. The Company shall prepare, and, as
soon as practicable, but in no event later than the later of thirty (30) days
after the Closing Date (as defined in the Securities Purchase Agreement) (the
"Scheduled Filing Date"), file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form S-3 covering the resale of all
of the Registrable Securities. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2(e). The initial
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the product of (x) 2.0 and
(y) the number of Registrable Securities as of the date immediately preceding
the date the Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 3(b). The Company shall use its best efforts
to have the Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than ninety (90) days after the Closing Date
(the "Scheduled Effective Date"). The Company represents that no Person other
than the Investors has the right to include any securities of the Company in the
Registration Statement to be filed in accordance with this Section 2(a), except
Thornhill Group, Inc. and Influence Concept. L.L.C.
b.Piggy-Back Registrations. Unless a Registration Statement is
effective pursuant to 2(a) above, if at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company proposes to file with
the SEC a Registration Statement relating
<PAGE>
to an offering for its own account
or the account of others under the 1933 Act of any of its securities (other
than a Registration Statement on Form S-4 or Form S-8 (or their equivalents
at such time) relating to securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company
shall promptly send to each Investor written notice of the Company's
intention to file a Registration Statement and of such Investor's
rights under this Section 2(b) and, if within twenty (20) days after receipt of
such notice, such Investor shall so request in writing, the Company shall
include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, subject to the priorities
set forth in this Section 2(b) below. No right to registration of
Registrable Securities under this Section 2(b) shall be construed to limit
any registration required under Section 2(a). The obligations of the Company
under this Section 2(b) may be waived by Investors holding a majority of the
Registrable Securities. If an offering in connection with which an Investor
is entitled to registration under this Section 2(b) is an underwritten
offering, then each Investor whose Registrable Securities are included in
such Registration Statement shall, unless otherwise agreed to 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. If a registration pursuant to this
Section 2(b) is to be an underwritten public offering and the managing
underwriter(s) advise the Company in writing, that in their reasonable good
faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first,
all securities the Company proposes to sell for its own account, (2)
second, up to the full number of securities proposed to be registered for the
account of the holders of securities entitled to inclusion of their securities
in the Registration Statement by reason of demand registration rights, and (3)
third, the securities requested to be registered by the Investors and other
holders of securities entitled to participate in the registration, as of the
date hereof, drawn from them pro rata based on the number each has requested
to be included in such registration.
c.Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in 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 the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of
such Investor's Registrable Securities, each transferee shall be allocated a
pro rata portion of the then remaining number of Registrable Securities
included in such Registration Statement for such transferor. Any shares of
Common Stock included in a Registration Statement and which remain allocated
to any Person which ceases to hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors.
d.Legal Counsel. Subject to Section 5 hereof, the Buyers holding
a majority of the Registrable Securities shall have the right to select one
legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Snow Becker Krauss P.C. or such other
counsel as thereafter designated by the holders of a majority of Registrable
Securities. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations under this Agreement.
e.Ineligibility for Form S-3. In the event that Form S-3 is
unavailable for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
f.Sufficient Number of Shares Registered. If the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(c), the Company shall amend
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover at least 300%
of such Registrable Securities (based on the market price of the Common Stock),
in each case, as soon as practicable, but in any event not later than fifteen
(15) days after the necessity therefor arises (each such date, an "Additional
Scheduled Filing Date"). The Company shall use it best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof, but in no event later than sixty (60)
days after the Additional Scheduled Filing Date (each such date, an "Additional
Scheduled Effective Date"). For purposes of the foregoing provision, the number
of shares available under a Registration Statement shall be deemed "insufficient
to cover all of the Registrable Securities" if at any time the number of
Registrable Securities issued or issuable upon conversion of the Preferred
Shares covered by such Registration Statement is greater than the quotient
determined by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.5. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares shall be disregarded and such
calculation shall assume that the Preferred Shares are then convertible and
exercisable, respectively, into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Company's Certificate of Designations) and
the Warrants are exercisable at the then prevailing Exercise Price (as
defined in the Warrants).
3.RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(f),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a.The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after such Closing Date) for the registration of
Registrable Securities pursuant to Section 2(a) and use its best efforts to
cause such Registration Statements relating to the Registrable Securities to
become effective as soon as possible after such filing (but, in no event later
than ninety (90) days after such Closing Date). The Company shall not file
any other Registration Statement with respect to any of its securities
between the date hereof and the filing date of such Registration Statement
(other than a Registration Statement on Form S-8 (or its equivalent at such
time)). The Company shall keep the Registration Statement required to be
filed hereunder effective pursuant to Rule 415 at all times until the earlier
of (i) the date as of which the Investors may sell all of the Registrable
Securities covered by such Registration Statement without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto)
or (ii) the date on which (A) the Investors shall have sold all the
Registrable Securities covered by such Registration Statement and (B) none
of the Preferred Shares or Warrants is outstanding (the "Registration
Period"), which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading. The term
"best efforts" shall mean, among other things, that the Company shall submit to
the SEC, within three business days after the Company learns that no review of
a particular Registration Statement will be made by the staff of the SEC or that
the staff has no further comments on the Registration Statement, as the case may
be, a request for acceleration of effectiveness of such Registration Statement
to a time and date not later than 48 hours after the submission of such request.
b.The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration State-
ment, which prospectus is to be filed pursuant to Rule 424 promulgated under
the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such
period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Company shall file such amendments or supplements with the SEC on the same
day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement the Registration Statement.
c.The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Registration Statement at least seven (7) days prior to its
filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements to all Registration Statements within a reasonable
number of days prior to the their filing with the SEC and (b) not file any
document in a form to which Legal Counsel reasonably objects. The Company
shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without the
prior approval of Legal Counsel, which approval shall not be unreasonably
withheld. The Company shall furnish to Legal Counsel, without charge, (i)
any correspondence from the SEC or the staff of the SEC to the Company or
its representatives relating to any Registration Statement, (ii) promptly
after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including, upon
request by counsel to the Investors, financial statements and schedules, all
documents incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d.The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including, upon
request by counsel to the Investors, financial statements and schedules, all
documents incorporated therein by reference, all exhibits and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e.The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement under such
other securities or "blue sky" laws of such jurisdictions in the United States
as Legal Counsel or any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f.In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the offering,
the Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering; provided, however, that the Company shall have the right to consent to
the selection of such underwriter, which consent shall not be unreasonably
withheld.
g.As promptly as practicable after becoming aware of such event,
the Company shall notify Legal Counsel and each Investor in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h.The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify Legal Counsel and each Investor who holds
Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
i.At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
(i) if required by an underwriter, a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an under-
written public offering, addressed to the underwriters, and (ii) an opinion,
dated as of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters and the
Investors.
j.The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors and (v) one firm of attorneys retained
by such underwriters (collectively, the "Inspectors") all pertinent financial
and other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use
of any Records or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in any Registration Statement or is
otherwise required under the 1933 Act, (b) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a court
or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other
than by disclosure in violation of this or any other agreement of which the
Inspector has knowledge. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.
k.The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) dis-
closure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to
the public other than by disclosure in violation of this Agreement or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other
means, give prompt written notice to such Investor and allow such Investor,
at the Investor's expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
l.The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, (ii) secure the
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap Market, or (iii) secure the
inclusion for quotation on the over-the-counter market on the electronic
bulletin board for such Registrable Securities 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. The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(l).
m.The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, any managing under-
writer or underwriters, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or, if there is no managing
underwriter or underwriters, the Investors may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Investors may request.
n.The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
o.If requested by the managing underwriters or an Investor, the
Company shall (i) immediately incorporate in a prospectus supplement or post-
effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by an Investor or any underwriter of such Registrable Securities.
p.The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
q.The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
r.The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
s.Within two (2) business days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
t.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.
u.Notwithstanding anything to the contrary in Section 3(g), at
any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company and, in the opinion of counsel to the Company,
otherwise required (a "Grace Period"); provided, that the Company shall
promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period and the date on which
the Grace Period will begin, and (ii) notify the Investors in writing of
the date on which the Grace Period ends; and, provided further, that during
any consecutive 365 day period, there shall be only one Grace Period, such
Grace Period not to exceed 20 days in the aggregate (an "Allowable Grace
Period"). For purposes of determining the length of a Grace Period above,
the Grace Period shall begin on and include the date the Investors receive
the notice referred to in clause (i) above and shall end on and include the
date the Investors receive the notice referred to in clause (ii)
above. During the length of any Grace Period, the Investors will continue to be
able to convert their Preferred Shares into Common Shares pursuant to Section 5
of the Certificate of Designations but shall not be able to sell the Conversion
Shares. The provisions of Section 6(b) of the Certificate of Designations shall
not be applicable during the period of any Allowable Grace Period. Upon
expiration of the Allowable Grace Period, the Company shall again be bound
by the first sentence of Section 3(g) with respect to the information giving
rise thereto.
v.Each of the following events shall constitute a "Registration
Default" for purposes of this Agreement:
(i)the Company's failure to file a Registration Statement by the
Scheduled Filing Date or Additional Scheduled Filing Date thereof, as
appropriate;
(ii)the SEC's failure to declare a Registration Statement effective
on or before the Scheduled Effective Date or Additional Scheduled Effective Date
thereof, as appropriate, except where the failure to meet such deadline is the
result solely of actions by the holders of Registrable Securities;
(iii)the Company's failure to request acceleration of the
effectiveness of a Registration Statement within three (3) business days after
the SEC has notified the Company that it may file such an acceleration request
as required by Section 3(a) hereof;
(iv)the Investors' inability to sell all Registrable Securities
pursuant to an effective Registration Statement (whether because of a failure to
keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, to
register sufficient shares of Common Stock or otherwise); or
(v)the aggregate days of Grace Period exceed the Allowable Grace
Period.
Upon the occurrence of a Registration Default, the Company shall pay each
Investor an amount determined in accordance with the following formula for each
day of such Registration Default:
.0005 x P x N
where
P = the Closing Ask Price (as defined in the Certificate of Designations)
of the Company's Common Stock on such day; and
N = the number of Registrable Securities that such Investor holds or may
acquire pursuant to conversion of the Preferred Shares or exercise
of in-the-money Warrants on such day (without giving effect to
any limitations on conversion or exercise).
The Company shall pay such amount on demand by an Investor made at any time
during the continuance or after termination of such Registration Default. If the
Company does not remit payment of the amount due to such Investor, the Company
will pay the Investor's reasonable costs of collection, including attorneys'
fees. An Investor's right to demand such payment shall be in addition to any
other rights it may have under this Agreement, the Securities Purchase
Agreement, the Certificate of Designations, or otherwise, including its
rights of Mandatory Redemption under Section 6(b) of the Certificate of
Designations.
4.OBLIGATIONS OF THE INVESTORS.
a.At least seven (7) business days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b.Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c.In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2(b), each such Investor agrees
to enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, 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.
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(h) or
the first sentence of Section 3(g), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(h) or the
first sentence of Section 3(g).
e.No Investor may participate in any underwritten registration here-
under unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved
by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
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.
f.Each Investor agrees not to take any action to cause such
Investor to become a registered broker dealer as defined under the 1934 Act or
to effect any change to such Investor's status that would preclude the Company
from using Form S-3 for the Registration Statement.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than expenses incurred pursuant to
Section 3(j)(iv) and (v) and 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
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company, shall be paid by the Company.
<PAGE>
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a.To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the 1934 Act, and any underwriter (as defined
in the 1933 Act) for the Investors, and the directors and officers of, and
each Person, if any, who controls, any such underwriter within the meaning of
the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, attorneys' fees, amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency or body or the SEC, whether pending
or threatened, whether or not an indemnified party is or may be a party
thereto ("Indemnified Damages"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein 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, (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement or (iv) any material violation of this Agreement (the
matters in the foregoing clauses (i) through (iv) being, collectively,
"Violations"). The Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(d); (ii) with respect to any preliminary
prospectus, shall not inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in
the preliminary prospectus was corrected in the prospectus, as then amended
or supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised
in writing not to use the incorrect prospectus prior to the use giving rise
to a violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was
timely made available by the Company pursuant to Section 3(d); and (iv) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b.In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each Person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
or Indemnified Damages to which any of them may become subject, under the 1933
Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages
arise out of or are based upon any Violation, in each case to the extent, and
only to the extent, that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to
contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus and such prospectus was
provided to Investors as required, as then amended or supplemented.
c.The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d.Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and the
Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between
such Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding. The Company shall pay reasonable fees for only
one separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority of the issued or issuable
Registrable Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised
at all times as to the status of the defense or any settlement negotiations
with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent; provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying
party shall, without the consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or
other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.
e.The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
f.The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of fraudulent misrepresentation; and (ii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), during the
Registration Period, 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 6.5 or 6.14
of the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c.furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either retro-
actively or prospectively), only with the written consent of the Company and
Investors who then hold or have the right to acquire two-thirds ( ) of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. MISCELLANEOUS.
a.A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities or derivatives of Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company shall act upon the basis
of instructions, notice or election received from the registered owner of such
Registrable Securities.
b.Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, MO 63132
Telephone: (314) 997-2250
Facsimile: (314) 997-1281
Attention: Mr. Monte Ross
With a copy to:
Robert Brantl, Esquire
322 Fourth Street
Brooklyn, New York 11215
Telephone: 718-768-6045
Facsimile: 718-965-4042
If to the Investors:
As set forth on the signature pages to the Securities Purchase
Agreement.
With a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-1643
Telephone: 212-687-3860
Facsimile: 212-949-7052
Attention: Eric Honick, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness
of such change. Written confirmation of receipt (A) given by the recipient
of such notice, consent, waiver or other communication, (B) mechanically
generated by the sender's facsimile machine containing the time, date,
recipient facsimile number and an image of such transmission or (C) provided
by a courier or overnight courier service shall be rebuttable evidence of
personal service, overnight or courier delivery or transmission by facsimile
in accordance with clause (i), (ii) or (iii) above, respectively.
c.Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d.The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e.This Agreement, the Securities Purchase Agreement and the
Certificate of Designations 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 Certificate of Designations supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f.Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g.The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h.This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i.Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j.All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares then outstanding have been
converted into or exercised for Registrable Securities without regard to any
limitation on conversions of the Preferred Shares.
k.The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l.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.
* * * * * * * * * * *
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY BUYERS:
ULTRADATA SYSTEMS, INC. Investor: BH Capital Investments, L.P.
By: By: HB and Co., Inc. its General Partner
Name:Monte Ross By:
Its: Chief Executive Officer Name: Henry Brachfeld
Authorized Signatory
Investor: Excalibur Limited Partnership
By: Excalibur Capital Management, Inc.
its General Partner
By: Name: William Hechter
Authorized Signatory
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attn:
Re:Ultradata Systems, Inc.
Ladies and Gentlemen:
We are counsel to Ultradata Systems, Inc., a Delaware corporation (the
"Company"), which has entered into that certain Convertible Preferred Stock
and Warrants Purchase Agreement (the "Purchase Agreement") by and among the
Company and the buyers named therein (collectively, the "Holders") pursuant to
which the Company issued to the Holders shares of its Series A Convertible
Preferred Stock, $0.01 par value per share ( the "Preferred Shares"), each
convertible into shares of the Company's common stock, $0.001 par value per
share (the "Common Stock"), and Warrants to purchase Common Stock. Pursuant
to the Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the "Registration Rights Agreement")
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of the Preferred
Shares, under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 2000, the Company filed a Registration
Statement on Form S-3 (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating
to the Registrable Securities which names each of the Holders as a selling
stockholder thereunder.
<PAGE>
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc:[LIST NAMES OF HOLDER]
<PAGE>
EXHIBIT D
FINAL
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement"), dated as of May 10, 2000, by
and among Ultradata Systems, Inc., a Delaware corporation (the "Company"), the
investors signatory hereto (each an "Investor" and collectively, the
"Investors"), and Snow Becker Krauss P.C., (the "Escrow Agent"). Capitalized
terms used but not defined herein shall have the meanings set forth in the
Convertible Preferred Stock and Warrants Purchase Agreement referred to in the
first recital.
W I T N E S S E T H:
WHEREAS, the Investors will be purchasing from the Company $3,000,000
Stated Value of Series A Convertible Preferred Stock (the "Convertible
Preferred Stock") and Warrants to purchase shares of Common Stock, at the
purchase price set forth in the Convertible Preferred Stock and Warrants
Purchase Agreement (the "Purchase Agreement") dated the date hereof between
the Investors and the Company, which will be issued in accordance with the
terms contained herein and in the Purchase Agreement; and
WHEREAS, it is intended that the purchase of the securities be
consummated in accordance with the requirements set forth by Sections 4(2)
and/or 4(6) and/or Regulation D promulgated under the Securities Act of 1933,
as amended; and
WHEREAS, the Company and the Investors have requested that the Escrow
Agent hold the Purchase Price with respect to the Closing in escrow until the
Escrow Agent has received the certificates representing the Series A
Convertible Preferred Stock, the Warrants and certain other closing documents
specified herein;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
TERMS OF THE ESCROW
1.1 The parties hereby appoint Snow Becker Krauss P.C. as the
Escrow Agent (i) to hold the Purchase Price of the Convertible Preferred Stock
and the Warrants and the Transaction Documents and other instruments,
documents and agreements to be delivered by the parties in accordance with
section 2.1(d) of the Purchase Agreement and (ii) to deliver the Purchase
Price and such instruments, documents and agreements at each Closing as
contemplated by the Purchase Agreement.
1.2 Concurrently with the execution and delivery of this
Agreement, each Investor has transmitted by wire transfer of immediately
available funds to the Escrow Agent such Investor's pro rata share of the
Purchase Price as required by Section 2.1(b) of the Purchase Agreement, and
shall transmit by wire transfer of immediately available funds to the Escrow
Agent such Investor's pro rata share of the Purchase Price as required by
Section 2.1(e) of the Purchase Agreement no later than one (1) Trading Day
before the Second Closing Date together with copies of the Transaction
Documents executed by or on behalf of such Investor at each Closing (the
"Investors' Escrow Documents"). Upon Escrow Agent's confirmation of receipt
of the aggregate Purchase Price from the Investors for each Closing, it shall
telephonically advise the Company, or the Company's designated attorney or
agent, of the amount of funds it has received (the "Escrow Funds").
(b) Wire transfers to the Escrow Agent shall be made as
follows:
Snow Becker Krauss P.C.
Account Number: 03-133423-01
ABA Number: 026007773
Address: Sterling National Bank & Trust Company
500 Seventh Avenue, Tenth Floor
New York, NY 10018
Attention: Howard Appelbaum, Senior VP
1.3 Concurrently with the execution and delivery of this
Agreement, the Company has delivered to the Escrow Agent certificates
representing the proportionate number of shares of Convertible Preferred Stock
necessary for the Initial Closing Date, and, thereafter, the Company shall
deliver the proportionate number of shares of Convertible Preferred Stock
necessary for the Second Closing Date no later than one (1) Trading Day before
the Second Closing Date, registered in the name of each Investor in its pro
rata share of all shares of Convertible Preferred Stock to be issued at each
Closing under the Purchase Agreement (collectively, the "Stock Certificates")
and a proportionate number of Warrants necessary for the Initial Closing Date,
and, thereafter, the Company shall deliver the proportionate number of
Warrants necessary for the Second Closing Date no later than one (1) Trading
Day before the Second Closing Date, registered in the name of each such
Investor in its pro rata share of all Warrants to be issued at each Closing
under the Purchase Agreement (collectively, the "Warrants"), in each case duly
executed on behalf of the Company and as required by Section 2.1(c) of the
Purchase Agreement.
1.4 Upon receipt of each Escrow Agent's notice provided for in
Section 1.2, the Company shall deliver to the Escrow Agent the instruments,
documents and agreements required to be delivered by the Company under
Subsections 2.1(d)(ii)(A), (B), (D), (E), (J), (K), (L), (M), (N), (O), and
(P) (collectively with the Stock Certificates and Warrants, the "Company's
Escrow Documents"). The Escrow Agent shall notify the Investors of its
receipt of the Company's Escrow Documents not later than the close of business
on the day of such receipt if such day is a Trading Day (and if the Escrow
Agent receives such documents by 5:00 p.m. New York time on such Trading Day),
and by the close of business on the Trading Day after receipt if the day of
receipt is not a Trading Day or if the Escrow Agent receives the Company's
Escrow Documents after 5:00 p.m. New York time on a Trading Day.
1.5 At any time after the Investors' receipt of each Escrow
Agent's notice under Section 1.4, the Investors and the Company may give the
Escrow Agent a Release Notice in the form of Exhibit I executed on behalf of
all of them. Not later than the close of business on the Trading Day after
the day of its receipt of such Release Notice, the Escrow Agent shall:
(1)enter the Number of Shares, Exercise Price and Termination Date
specified in such Release Notice in the Warrants to be delivered to each
Investor;
(2)enter the date of the Release Notice as the date of issue on the
Stock Certificates;
(3)send the Investors' Escrow Documents to the Company by Federal
Express or other recognized overnight delivery service at its address
for notices specified in the Purchase Agreement;
(4)send the Company's Escrow Documents to the Investors as
appropriate by Federal Express or other recognized overnight delivery
service at their respective addresses for notices specified in the
Purchase Agreement;
(5)send $1,398,000 of the Escrow Funds to the Company by wire
transfer of immediately available funds in accordance with such written
wire transfer instructions as the Company shall deliver to the Escrow
Agent;
(6)send $25,000 of the Escrow Funds to or as directed by the Reichman
International Development Corporation by wire transfer of immediately
available funds in accordance with such written wire transfer
instructions as it shall deliver to the Escrow Agent; and
(7)send $177,000 of the Escrow Funds to or as directed by Thornhill
Group, Inc. by wire transfer of immediately available funds in
accordance with such written wire transfer instructions as it shall
deliver to the Escrow Agent.
1.6 If the Escrow Agent does not receive all of the Company's
Escrow Documents by the close of business on the fifth (5th) Trading Day after
the day on which it has given its notice under Section 1.2, the Escrow Agent
shall so notify the Investors by the close of business on the next Trading
Day. At any time after an Investor's receipt of the Escrow Agent's notice
under this Section 1.6 until such time as such Investor has received a notice
from the Escrow Agent that it has received all of the Company's Escrow
Documents for such Closing, such Investor may instruct the Escrow Agent to
send its pro rata share of the Purchase Price by wire transfer of immediately
available funds in accordance with such Investor's written instructions.
After receipt of such instructions, the Escrow Agent shall send such pro rata
share back to such Investor not later than the close of business on the next
Trading Day after the Escrow Agent's receipt of such Investor's instructions,
notwithstanding the Escrow Agent's receipt of all of the Company's Escrow
Documents in the interim.
ARTICLE 2
ESCROW AGENT PROVISIONS
2.1. The Escrow Agent may rely conclusively on, and shall be
protected in acting upon, any notice, request, consent, instruction, affidavit
or other instrument or document believed by it in good faith to be genuine and
containing what purports to be the signature of any of the parties hereto.
2.2. The Company and the Investors jointly and severally agree to
save harmless, defend and indemnify the Escrow Agent against all claims,
costs, damages, judgments, attorneys' fees, expenses, obligations, taxes,
assessments, liabilities, actions, suits or charges made against the Escrow
Agent by reason of any act or omission to act by it hereunder or in connection
with any of the transactions contemplated hereby and against any loss it may
sustain in carrying out the terms of this Agreement, other than as a result of
its gross negligence or willful misconduct.
2.3. The Escrow Agent shall have no duties or obligations under
this Agreement except as expressly set forth herein, shall be responsible only
for the performance of such duties and obligations, shall not be required to
take any action other than in accordance with the terms hereof and shall not
be in any manner liable or responsible for any loss or damage arising by
reason of any act or omission to act by it hereunder or in connection with any
of the transactions contemplated hereby, including, but not limited to, any
loss that may occur by reason of forgery, false representations, the exercise
of its discretion in any particular manner or for any other reason except for
its gross negligence or willful misconduct.
2.4. The Escrow Agent shall not be bound by any notice of, or
demand with respect to, any waiver, modification, amendment, termination,
cancellation, rescission or supersession of this Agreement, unless the same
shall be in writing and signed by the parties hereto. In the event of any
controversy or dispute arising hereunder or with respect to the construction
hereof or any action to be taken by the Escrow Agent hereunder, the Escrow
Agent shall incur no liability from any action or omission to act by it in
good faith. The Escrow Agent shall not be personally liable for any act the
Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting
in good faith, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law shall be conclusive evidence of
such good faith.
2.5. If the Escrow Agent receives a notice from any party that a
dispute exists with respect to the delivery and/or ownership or right of
possession of any Escrow Funds, the Investors' Escrow Documents or the
Company's Escrow Documents in its possession (collectively, the "Escrow
Property"), the Escrow Agent shall retain the Escrow Property in its
possession and shall deliver such Escrow Property in accordance with the
Company's and the Investors' joint written instructions or a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected. The Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings with
respect to any Escrow Property. The Escrow Agent may resign and be discharged
of its duties hereunder at any time by giving written notice to all of the
parties hereto. Such resignation shall take effect twenty (20) days after the
giving of such notice or upon the earlier receipt by the Escrow Agent of an
instrument of acceptance executed by a successor escrow agent and upon
delivery by the Escrow Agent of the Escrow Property to such successor. The
Escrow Agent shall also be discharged of its duties and obligations hereunder
upon deposit in a court of competent jurisdiction, as provided in Section 3.6
hereof, of the Escrow Property then held by it hereunder and any other
documents, instruments or funds then held by the Escrow Agent hereunder, and
all parties hereto submit to the personal jurisdiction of any such court and
waive all rights to contest jurisdiction.
2.6. The Escrow Agent shall be entitled to employ such legal
counsel and other experts as the Escrow Agent may deem necessary to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Investors, and may continue to act as legal counsel for the Investors, from
time to time, notwithstanding its duties as the Escrow Agent hereunder. The
Company consents to the Escrow Agent in such capacity as legal counsel for the
Investors and waives any claim that such representation represents a conflict
of interest on the part of the Escrow Agent. All parties hereto expressly
consent to the Escrow Agent's representation of the Investors as legal counsel
in any matter whatsoever, including, without limitation, any controversy or
dispute arising out of this Agreement, but, in the case of any such
controversy or dispute, the Escrow Agent may act as counsel only after the
Escrow Agent shall have resigned as such. The Company understands that the
Investors and the Escrow Agent are relying explicitly on the foregoing
provision in entering into this Escrow Agreement.
ARTICLE 3
MISCELLANEOUS
3.1 No waiver of any breach of any covenant or other
provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or act
shall be deemed any extension of the time for performance of any other
obligation or act.
3.2 All notices or other communications required or
permitted hereunder shall be in writing, and shall be sent as set forth in the
Purchase Agreement.
3.3 This Escrow Agreement shall be binding upon and shall
inure to the benefit of the permitted successors and permitted assigns of the
parties hereto.
3.4 This Escrow Agreement is the final expression of, and
contains the entire agreement between, the parties with respect to the
subject matter hereof and supersedes all prior understandings with respect
thereto. This Escrow Agreement may not be modified, changed, supplemented or
terminated, nor may any obligations hereunder be waived, except by written
instrument signed by the parties to be charged or by its agent duly authorized
in writing or as otherwise expressly permitted herein.
3.5 Whenever required by the context of this Escrow
Agreement, the singular shall include the plural and masculine shall include
the feminine. This Escrow Agreement shall not be construed as if it had been
prepared by one of the parties, but rather as if both parties had prepared the
same. Unless otherwise indicated, all references to Articles are to this
Escrow Agreement.
3.6 The parties hereto expressly agree that this Escrow
Agreement shall be governed by, interpreted under and construed and enforced
in accordance with the laws of the State of New York. Any action to enforce,
arising out of, or relating in any way to, any provisions of this Escrow
Agreement shall only be brought in a state or federal court sitting in New
York City.
3.7 The Escrow Agent's duties hereunder may be altered,
amended, modified or revoked only by a writing signed by the Company, each
Investor and the Escrow Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
ULTRADATA SYSTEMS, INC.
By:___________________________________
Monte Ross
Chief Executive Officer
Investor: BH Capital Investments, L.P.
By: HB and Co., Inc. its General Partner
By:
Name: Henry Brachfeld
Authorized Signatory
Investor: Excalibur Limited Partnership
By: Excalibur Capital Management, Inc.
its General Partner
By:
Name: William Hechter
Authorized Signatory
ESCROW AGENT:
SNOW BECKER KRAUSS P.C.
By:
Exhibit I to
Escrow Agreement
RELEASE NOTICE
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of May 10,
2000 among Ultradata Systems, Incorporated, the Investors signatory thereto
and Snow Becker Krauss P.C., as Escrow Agent (the "Escrow Agreement";
capitalized terms used herein and not defined shall have the meaning ascribed
to such terms in the Escrow Agreement), hereby notify the Escrow Agent that
each of the conditions precedent to the purchase and sale of the Company's
Series A Convertible Preferred Stock and Warrants set forth in the
Convertible Preferred Stock and Warrants Purchase Agreement have been
satisfied. The Company and the undersigned Investors hereby confirm that all
of their respective representations and warranties contained in the Purchase
Agreement remain true and correct and authorize the release by the Escrow
Agent of the funds and documents to be released at the Closing as described
in the Escrow Agreement. This Release Notice shall not be effective until
executed by the Company and the Investors.
The Warrants to be issued shall have an exercise price of $8.00 per
share and shall be issued to the Investors in the following amounts:
Investor Number of Warrants
This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release Notice to
be duly executed and delivered as of this __ day of May 2000.
Ultradata Systems, Incorporated
By: ______________________
INVESTOR:
By:_______________________
Name:
Title:
INVESTOR:
By:_______________________
Name:
Title:
<PAGE>
EXHIBIT F
FINAL
TRANSFER AGENT INSTRUCTIONS
ULTRADATA SYSTEMS, INCORPORATED
May __, 2000
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
Attention:
Ladies and Gentlemen:
Reference is made to that certain Convertible Preferred Stock and Warrants
Purchase Agreement, of even date herewith (the "Securities Purchase Agreement"),
by and among Ultradata Systems, Incorporated, a Delaware corporation, with
headquarters at 9375 Dielman Industrial Drive, St. Louis, MO 63132 (the
"Company"), and the investors listed on the Schedule of Buyers attached thereto
(collectively with their assigns, the "Buyers") pursuant to which the Company
is issuing to the Buyers an aggregate of 3,000 shares of preferred stock, par
value $0.01 per share, denominated Series A Convertible Preferred Stock, and
Warrants to purchase _______ shares of Common Stock, par value $0.01 per share
(the "Common Stock"). The Company has also agreed to issue 300 shares of Series
A Convertible Preferred Stock to Thornhill Group, Inc. ("Thornhill") and 20
shares of Series A Convertible Preferred Stock to Jose Luis Castro (the
"Finder"). In this letter, we refer to the Buyers, Thornhill and the Finder,
collectively, as the "Holders", and to the 3,320 shares of Series A Convertible
Preferred Stock as the "Preferred Shares". This letter shall serve as the
Company's irrevocable authorization and direction to you (provided that you are
the transfer agent of the Company at such time) to: (A) issue shares (the
"Conversion Shares") of Common Stock to or upon the order of a Holder from time
to time upon (i) surrender to you of a properly completed and duly executed
Conversion Notice, in the form attached hereto as Exhibit I, (ii) our written
confirmation to you that we have received certificates representing the
Preferred Shares being converted (or an indemnification undertaking by such
Holder and the Company with respect to such shares in the case of their loss,
theft or destruction) and as to the number of Conversion Shares to be issued,
and (iii) your previously having received an opinion of counsel regarding the
valid issuance of the Conversion Shares, and (B) issue shares (the "Warrant
Shares") of Common Stock to or upon the order of a Holder from time to time upon
(i) surrender to you of a properly completed and duly executed Exercise Notice,
in the form attached hereto as Exhibit II, (ii) our written confirmation to you
that we have received Warrant certificates representing the Warrant Shares to
be issued on exercise (or an indemnification undertaking by such Holder and the
Company with respect to such shares in the case of their loss, theft or
destruction) and as to the number of Warrant Shares to be issued, and (iii) your
previously having received an opinion of counsel regarding the valid issuance
of the Warrant Shares. Counsel for the Company has undertaken to advise you
when the Conversion Shares and the Warrant shares have been registered for
resale with the SEC, and to update his advice in that regard when appropriate
or upon request by you. Certificates representing the Conversion Shares or the
Warrant Shares shall not bear any legend restricting transfer of the Conversion
Shares or Warrant Shares thereby and should not be subject to any stop-transfer
restriction: provided, however, that if the Conversion Shares or Warrant Shares
are not registered for resale under the Securities Act of 1933, as amended, or
if the advice of counsel provided for herein has not been received by you, then
the certificates for the Conversion Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER'S COUNSEL, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
and, provided, further that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
in the event a registration statement covering the Conversion Shares or Warrant
Shares is subject to amendment for events then current.
* * * * *
Please be advised that the Holders are relying upon this letter as an
inducement to enter into the Securities Purchase Agreement and, accordingly,
each Holder is a third party beneficiary to these instructions.
Should you have any questions concerning this matter, please contact me
at (314) 997-2250.
Very truly yours,
ULTRADATA SYSTEMS, INC.
By:__________________________
Monte Ross
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
American Stock Transfer & Trust Company
By:
Title:
Date:May ___, 2000
Enclosure
cc:B.H. Capital Investment, L.P.
Excalibur Limited Partnership
<PAGE>
EXHIBIT I
ULTRADATA SYSTEMS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock (the "Certificate of Designations"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series A Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Shares"), of Ultradata Systems,
Inc., a Delaware corporation (the "Company"), indicated below into shares of
Common Stock, par value $0.01 per share (the "Common Stock"), of the Company,
by tendering the stock certificate(s) representing the Preferred Shares
specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Applicable only if the Transfer Agent is a participant in the electronic book
entry transfer program:
Account Number:
(if electronic book entry transfer):
Transaction Code Number
(if electronic book entry transfer):
Participant Code:
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
EXHIBIT II
ULTRADATA SYSTEMS, INC.
NOTICE OF EXERCISE
To:Ultradata Systems, Inc.
(1)The undersigned hereby elects to purchase ________ shares
of Common Stock (the "Common Stock"), of Ultradata Systems, Inc. pursuant to
the terms of the attached Warrant, and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.
(2)Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other
name as is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
<PAGE>
FINAL
EXHIBIT E
____________, 2000
BH Capital Investments, L.P.
175 Bloor Street East, 7th Floor
Toronto, Ontario Canada M4W 3R8
Excalibur Limited Partnership
33 Prince Arthur Avenue
Toronto, Ontario Canada M5R 1B2
Gentlemen:
I have acted as counsel to Ultradata Systems, Incorporated, a Delaware
corporation (the "Company"), in connection with the sale of Three Thousand
(3,000) shares (the "Shares") of the Company's Series A Convertible Preferred
Stock, par value $.01 per share (the "Preferred Stock"), on the date hereof
pursuant to a Convertible Preferred Stock and Warrants Purchase Agreement, dated
as of May 10, 2000 between you (the "Buyers") and the Company (the "Purchase
Agreement").
This opinion is furnished to the Buyers at the Company's request pursuant
to Subsection 2.1(d)(ii) of the Purchase Agreement. Except as otherwise defined
in this letter, capitalized terms used herein have the meanings ascribed to them
in the Purchase Agreement.
In connection with my opinions expressed in this letter, I have examined
executed copies of the Purchase Agreement, the Warrants the Registration Rights
Agreement, the Certificate of Designations, and the Irrevocable Transfer Agent
Instructions (collectively, the "Transaction Documents") and such corporate and
other records, documents, instruments, certificates, and other papers as I have
deemed necessary, relevant or appropriate to enable me to render the opinions
expressed herein. In such examination, I have assumed the genuineness of all
signatures and authenticity of all documents, instruments, records and
certificates submitted to me as originals, and the conformity to original
documents of all documents submitted to me as certified, photostatic or
facsimile copies. I also have assumed (i) that the Company and the Buyers have
complied in full with all of their respective covenants and agreements in the
Purchase Agreement, (ii) based exclusively on the Buyers' representations in the
Purchase Agreement, that each such Buyer is an "accredited investor" as such
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act, and (iii) that the Company has received all proceeds due and payable by
Buyers with respect to their purchase of the Shares. In rendering the
opinions set forth in paragraphs 5 and 8 with respect to the issuance of
the Conversion Shares upon conversion of the Preferred Shares and the Warrant
Shares upon exercise of the Warrants, I have assumed that there will be no
change of any fact or law relevant to my opinion since the date of this opinion.
With respect to matters in this letter that are stated to be "to my
knowledge", I have undertaken no independent investigation or verification of
such matters, but have relied upon representations of the Company set forth in
the Purchase Agreement or in certificates of or otherwise represented to me by
one or more officers or employees of the Company and on the certificates of
governmental officials referred to above, and in the course of my representation
of the Company, no information has come to my attention that (x) would give me
actual knowledge or actual notice that any such representation is not accurate
and complete, or (y) any information set forth in any of the foregoing
documents, certificates and information on which I have relied is not accurate
and complete.
Based upon and subject to such examination and assumptions and upon the
representations made to me, it is my opinion that:
1.The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to conduct its business and to own, lease and
operate its properties. The Company is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and in which
the failure to be so qualified or be in good standing could have a Material
Adverse Effect. The Company has no Subsidiaries except as set forth in the SEC
Documents.
2.The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Transactions Documents,
including the issuance of the Shares, the Conversion Shares, the Warrants and
the Warrant Shares in accordance with the terms thereof. The filing of the
Certificate of Designations and the execution and delivery of the Transaction
Documents by the Company, the performance of the obligations of the Company
thereunder and the consummation by it of the transactions contemplated therein
have been duly authorized by the Company's Board of Directors, and no further
consent, approval or authorization of the Company, its Board of Directors or its
stockholders is required therefor, except as set forth in Sections 4.2 and 6.15
of the Purchase Agreement. The Purchase Agreement, the Warrants, the
Registration Rights Agreement and the Irrevocable Transfer Agreement
Instructions have been duly executed and delivered by the Company. The
Certificate of Designations has been duly executed and filed by the Company with
the Secretary of State of Delaware in accordance with the Delaware General
Corporation Law and has become effective under the Delaware General Corporation
Law. Each of the Transaction Documents constitutes the valid and binding
agreement of the Company enforceable in accordance with its terms, except (A)
as such enforceability may be limited or affected by (i) bankruptcy, insolvency,
reorganization, moratorium, liquidation, arrangement, fraudulent transfer,
fraudulent conveyance and other similar laws (including, without limitation,
court decisions) now or hereafter in effect and affecting the rights and
remedies of creditors generally or providing for the relief of debtors, (ii) the
refusal of a particular court to grant equitable remedies, including, without
limitation, specific performance and injunctive relief, and (iii) general
principles of equity (regardless of whether such remedies are sought in a
proceeding in equity or at law).
3.The issuance and sale of the Preferred Shares and the Warrants has
been duly authorized and the Preferred Shares have been issued in accordance
with the terms of the Purchase Agreement. The Preferred Shares have been
validly issued and are fully paid and non-assessable and free of all taxes,
liens, charges, restrictions and preemptive rights. The issuance of the
Conversion Shares and the Warrant Shares pursuant to the terms and conditions
of the Transactions Documents has been duly authorized. The Company has
reserved for issuance _______ shares of Common Stock upon conversion of the
Preferred Shares and exercise of the Warrants in accordance with the
Transactions Documents. When issued in accordance with the Transactions
Documents, the Conversion Shares and the Warrant Shares will be validly issued,
fully paid and non-assessable and free of all taxes, liens, charges,
restrictions and preemptive rights. To the best of my knowledge, the execution
and delivery of the Registration Rights Agreement do not, and the performance
by the Company of its obligations thereunder will not, give rise to any rights
of any other person for the registration under the Securities Act of any shares
of Common Stock or other securities of the Company that have not been waived by
the holders of registration rights or permitted by the Registration Rights
Agreement.
4.As of the date hereof, prior to the issuance of the Preferred
Shares, the authorized capital stock of the Company consisted of (i) 10,000,000
shares of Common Stock, par value $.01 per share, of which 3,176,322 shares were
issued and outstanding and (b) 5,000,000 shares of Preferred Stock, par value
$.01 per share, none of which are issued and outstanding. None of such Common
Stock or such Preferred Stock is subject to preemptive rights or other rights
of the stockholders of the Company pursuant to the Certificate of Incorporation,
any Certificate of Designations, the Bylaws, or, to my knowledge, any agreement
to which the Company is a party or by which it is bound, or under the Delaware
General Corporation Law. To my knowledge there are no outstanding shares of
capital stock or other securities convertible into or exchangeable or
exercisable for shares of the capital stock of the Company except as disclosed
in the Disclosure Schedule. The rights, preferences and privileges of the
Preferred Shares are as stated in the Certificate of Designations.
5.The offering, sale and issuance of the Preferred Shares, the
Conversion Shares, the Warrants, and the Warrant Shares to the Buyers pursuant
to the Transaction Documents does not and will not require registration under
the Securities Act or the securities laws of any state. The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act. To my knowledge, the
Company has been since April 25, 2000 in full compliance with the reporting
requirements of the Exchange Act applicable to it.
6.No authorization, approval, consent, filing or other order of (i)
any federal or state governmental body, regulatory agency, or self-regulatory
organization, (ii) stock exchange or market, (iii) the stockholders of the
Company, (iv) any court, or (v) to my knowledge, any third party is required to
be obtained by the Company to enter into and perform its obligations under the
Transaction Documents or for the issuance and sale of the Preferred Shares, the
Conversion Shares the Warrants, or the Warrant Shares as contemplated by the
Transaction Documents, except as set forth in (A) Sections 4.2, 6.4, 6.9, 6.15
and 6.17 of the Purchase Agreement and (B) the Registration Rights Agreement.
7.To my knowledge and except as disclosed in the Disclosure Schedule,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board or body or any governmental agency or self-regulatory
organization pending or threatened against the Company or any of the properties
of the Company.
8.The execution, delivery and performance by the Company of the
Transaction Documents, the consummation by the Company of the transactions
contemplated thereby, including the offering, sale and issuance of the Preferred
Shares, the Conversion Shares, the Warrants, or the Warrant Shares, and
fulfillment and compliance with terms of the Transaction Documents, does not and
will not: (i) constitute a breach of or default (or an event which, with the
giving of notice or lapse of time or both, constitutes or could constitute a
default) under (a) the Certificate of Incorporation, any Certificate of
Designations, or the Bylaws of the Company, (b) any material agreement, note,
lease, mortgage, or deed or other material instrument of which I have knowledge
and to which the Company is a party or by which the Company or any of its assets
are bound (it being understood that I have knowledge of all exhibits to the SEC
Documents), (ii) result in any violation of any statute, law, rule or
regulation applicable to the Company, or (iii) to my knowledge, violate any
order, writ, injunction or decree applicable to the Company.
9.The Company is not, and as a result of the sale of the Preferred
Shares to the Buyers pursuant to the Purchase Agreement and application of the
net proceeds therefrom as described in Section 6.13 of the Purchase Agreement,
will not become, an "investment company" or any entity controlled by an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended.
In the process of my review of the SEC Documents and the representations
and warranties made by the Company in ARTICLE IV of the Purchase Agreement,
although I have not engaged in any independent investigation and do not assume
any responsibility for the accuracy or completeness of the information contained
therein, nothing has come to my attention that would lead me to believe that any
of such SEC Documents or the representations and warranties made by the Company
in ARTICLE IV of the Purchase Agreement contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading as of the date hereof. I have no actual knowledge of
any material breach of representations or warranties made by the Company in the
Transaction Documents. I do not assume any responsibility for the accuracy,
completeness or fairness of any representations or warranties contained in the
Transaction Documents, nor do I express any view as to the financial statements
and schedules and other financial data contained therein or in the SEC
Documents.
The opinions expressed herein are limited to federal securities laws of
the United States, the laws of the State of New York, and the General
Corporation Law of the State of Delaware, and I express no opinion as to the
effect on the matters covered of the laws of any other jurisdiction, including,
but not limited to, the "Blue Sky" laws and regulations of any state.
Specifically, without limiting the foregoing, I am not offering any opinion as
to the laws of Canada or the Province of Ontario, if they may be found relevant
to any portion of the transactions that are the subject of these opinions.
The opinions expressed herein are limited solely to those matters set
forth above, and I specifically do not render any opinions pertaining to any
matter not expressly stated herein. The information and opinions set forth in
this letter are as of this date, and I disclaim any undertaking to advise the
Buyers of changes that thereafter may be brought to my attention.
I have provided this letter to the Buyers as a legal opinion only and not
as a guaranty or warranty of the matters discussed herein, and I have rendered
this opinion as counsel to the Company solely for the benefit of the Buyers in
connection with the Purchase Agreement. Neither the Buyers nor any other person
may rely on this letter for any other purpose. This letter may not be provided
to, quoted to or relied upon by any person other than the Buyers. Further, I
have rendered this opinion solely for the benefit of the Buyers; no Buyer may
circulate it to any other person, nor may any other person rely upon this
letter.
Very truly yours,
Robert Brantl
