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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
__________
Date of Report (Date of earliest event reported): March 31, 1999
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
0-25898
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(Commission
File Number)
Delaware 04-2821358
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(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
18 Hartwell Avenue
Lexington, MA 02173
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 674-0009
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N/A
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(Former name or former address, if changed since last report.)
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Index to Form 8-K
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Section Page
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ITEM 5. OTHER EVENTS.................................................. 1
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.............................. 4
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EXHIBIT INDEX.......................................................... 6
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Item 5. Other Events
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I. Sale of Series B Preferred Stock and Warrant to an Institutional Investor
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On April 1, 1999, Number Nine Visual Technology Corporation (the "Company")
publicly disseminated a press release, which is attached hereto as Exhibit 99.1,
announcing, among other things, that, on March 31, 1999 (the "Closing Date"),
the Company was successful in raising $3,000,000 of capital pursuant to a
Convertible Preferred Stock Purchase Agreement (the "Agreement"), which is
attached hereto as Exhibit 4.1, with an institutional investor (the "Investor"),
whereby the Company agreed to issue and sell to the Investor and the Investor
agreed to purchase from the Company the following:
(1) Three hundred (300) shares of Series B Convertible Preferred Stock
of the Company (the "Series B Preferred");
(2) A Common Stock Purchase Warrant for the purchase of up to one hundred
ninety-five thousand (195,000) shares of the Company's Common Stock,
$.01 par value per share (the "Common Stock"), at an exercise price of
$3.45 per share, exercisable until March 31, 2002 (the "Warrant," the
Series B Preferred and the Warrant are referred to collectively as the
"Securities").
The Investor purchased the Securities from the Company for the aggregate
purchase price of three million dollars ($3,000,000). The net proceeds from the
sale of the Securities will be used for working capital purposes. The Company
issued the Securities to the Investor in reliance upon Regulation D under
Section 4(2) of the Securities Act of 1933, as amended.
Pursuant to the terms of the Agreement, the Company and the Investor
Registration Rights Agreement which is attached as Exhibit 4.2, whereby the
Company is obligated, among other things, to register the shares of Common Stock
underlying each of the Series B Preferred and the Warrant on a Registration
Statement on Form S-3 to be filed with the Securities and Exchange Commission
within 30 days of the Closing Date.
For consulting services rendered in connection with the transaction
consummated under the Agreement, the Company has agreed to issue a warrant to
Brighton Capital, Ltd. to purchase up to thirty thousand (30,000) shares of
Common Stock at an exercise price of $3.45 per share exercisable until March 31,
2002 (the "Brighton Warrant"). A form of the Brighton Warrant is attached
hereto as Exhibit 4.3.
A. Terms of the Series B Preferred
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The following summary of the terms of the Series B Preferred is qualified in
its entirety by reference to the Certificate of Designations, Preferences and
Rights of the Series B Convertible Preferred Stock of Number Nine Visual
Technology Corporation (the "Certificate of Designation"), which is attached
hereto as Exhibit 4.4.
Holders of the Series B Preferred (each a "Holder" or collectively, the
"Holders") are entitled to receive, when and as declared by the Board of
Directors out of funds legally available, and the Company shall pay, cumulative
dividends at the rate per share of four percent (4%) per annum (the "Series B
Dividend") payable on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year that such share is outstanding and on each day that a
Holder requests that his or her Series B Preferred be converted into Common
Stock (the "Conversion Date"), commencing on the earlier to occur of the
Conversion Date for such share and June 30, 1999. The Series B
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Dividend may be paid in cash or shares of Common Stock at the discretion of the
Company. Any Series B Dividend to be paid in cash that is not timely paid
accrues a late fee, which must be paid in cash, at the rate of eighteen percent
(18%) per annum. Under certain circumstances, the Company may not issue shares
of Common Stock in payment of a Series B Dividend. The Series B Preferred have
no voting rights.
Subject to certain volume restrictions, each share of the Series B Preferred
is convertible into shares of Common Stock at the option of the Holder on or
after June 28, 1999 at the Conversion Price. The Conversion Price for each
share of Series B Preferred in effect on any Conversion Date shall be the lesser
of (a) $4.14 or (b) 88% of the average of the ten (10) lowest per share market
values during the thirty (30) trading days immediately preceding the applicable
Conversion Date. The Conversion Price is subject to certain anti-dilution
protection.
Pursuant to the terms of the Series B Preferred, at the option of a Holder, up
to twenty-five percent (25%) of the Series B Preferred issued on the Closing
Date is convertible on or after July 28, 1999 (the "Initial Conversion Date").
On and after the first month anniversary of the Initial Conversion Date, a
Holder shall be entitled to convert up to fifty percent (50%) of the number of
shares of Series B Preferred issued to it on the Closing Date, on a cumulative
basis. On or after the second month anniversary of the Initial Conversion Date,
a Holder shall be entitled to convert up to seventy-five (75%) of the number of
shares of Series B Preferred, on a cumulative basis. On and after the third
month anniversary of the Initial Conversion Date, a Holder shall be entitled to
convert all of the shares of Series B Preferred on a cumulative basis. Subject
to certain restrictions, all of the Series B Preferred shall be automatically
converted on the third anniversary of the Closing Date.
The maximum number of shares that may be issued pursuant to the conversion of
the Series B Preferred, without the Company seeking shareholder approval for
such an issuance, is 19.9% of the shares of Common Stock issued and outstanding
on March 30, 1999, or 1,883,236 shares of Common Stock. If on the Conversion
Date, the aggregate number of shares of Common Stock owed to a Holder would
equal or exceed 1,883,236, the Holder shall have the option to require the
Company to either (1) obtain the appropriate shareholder approval needed for
such issuance or (2) redeem the shares submitted for conversion that exceed the
maximum amount.
If the Company fails to deliver to a Holder such Common Stock certificates as
required by the terms of the Series B Preferred, the Company shall pay to the
Holder, in cash, as liquidated damages, $5,000 for each trading day after such
third (3rd) trading day until such certificates are delivered.
The Company has the right to redeem all or any portion of the Series B
Preferred which have not been previously redeemed pursuant to certain
restrictions and terms set forth in Section 6 of the Certificate of Designation.
Upon the occurrence of certain triggering events, each Holder shall have the
right to require the Company to redeem all or any portion of the Series B
Preferred.
2
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B. Terms of the Warrant
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The Warrant issued by the Company to the Investor, which is attached hereto as
Exhibit 4.5, is exercisable to purchase up to one hundred ninety five thousand
(195,000) shares of the Company's Common Stock at an exercise price of $3.45 per
share, for an aggregate exercise price of six hundred seventy-two thousand seven
hundred fifty dollars ($672,750), if exercised in full. The Warrant also grants
the Investor certain "piggyback" registration rights and demand registration
rights with regard to the shares of Common Stock underlying the Warrant.
II. Financing with BankBoston, N.A.
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On March 31, 1999, the Company also entered into a Loan and Security Agreement
with BankBoston, N.A. (the "Loan Agreement"), which is attached hereto as
Exhibit 99.2, for a secured working capital line of credit. This line of credit
replaced the borrowing facility with Marine Midland Bank. Under the Loan
Agreement, the Company may borrow up to eighty percent (80%) of qualified
accounts receivable up to a maximum amount of fifteen million dollars
($15,000,000), at an annual interest rate of either the BankBoston, N.A. base
rate plus 1% or at the LIBOR rate plus 3.25%. The Company may lower the interest
rates by achieving certain financial objectives, which are described more fully
in the Loan Agreement. The Company incurs an unused line fee calculated at a
rate of .375% per annum on the unused portion of the maximum borrowing amount.
Amounts advanced pursuant to the Loan Agreement are secured by substantially all
the assets of the Company, and the Company is required to obtain approval from
BankBoston, N.A. for the payment of any dividends other than dividends on the
Series B Preferred. The Loan Agreement also contains certain financial
performance covenants, including among them, quarterly profitability targets for
the calendar fiscal quarters beginning June 30, 1999. The Loan Agreements
terminates on December 31, 2001.
Pursuant to the terms of the Loan Agreement, the Company also issued a warrant
to FSC Corp., a subsidiary of BankBoston, N.A., which is attached hereto as
Exhibit 4.6, which is exercisable to purchase up to two hundred eleven thousand
(211,000) shares of the Company's Common Stock at an exercise price of $2.86 per
share, for an aggregate exercise price of six hundred three thousand, four
hundred sixty dollars ($603,460), if exercised in full (the "Bank Warrant"). The
Bank Warrant also grants certain registration rights and anti-dilution
protection regarding the shares of Common Stock underlying the Bank Warrant.
3
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Item 7. Financial Statements and Exhibits
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(a) Financial statements of businesses acquired. Not applicable.
(b) Pro forma financial information. Not applicable.
(c ) Exhibits.
The following exhibits are filed as part of this report on Form 8-K
pursuant to Item 601 of Regulation S-K:
Exhibit No. Description
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4.1 Convertible Preferred Stock Purchase Agreement dated
March 31, 1999 by and between the Company and KA
Investments LDC
4.2 Registration Rights Agreement by and between the
Company and KA Investments LDC
4.3 Common Stock Purchase Warrant dated March 31, 1999
issued by the Company to Brighton Capital Ltd.
4.4 Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock of Number Nine
Visual Technology Corporation
4.5 Common Stock Purchase Warrant dated March 31, 1999
issued by the Company to KA Investments LDC
4.6 Common Stock Purchase Warrant dated March 31, 1999
issued by the Company to FSC Corp.
99.1 Press Release, dated April 1, 1999
99.2 Loan and Securities Agreement dated March 31, 1999 by
and between the Company and BankBoston, N.A.
99.3 Revolving Credit Note dated March 31, 1999 issued by
the Company to BankBoston, N.A.
4
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Number
Nine Visual Technology Corporation has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: April 12, 1999 NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By: /s/ Timothy Burns
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Timothy Burns
Acting Chief Financial Officer
5
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Exhibit Index
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The following is a list of exhibits filed as part of this Form 8-K:
Exhibit Number Description
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4.1 Convertible Preferred Stock Purchase Agreement dated
March 31, 1999 by and between the Company and
KA Investment LDC
4.2 Registration Rights Agreement by and between the
Company and KA Investments LDC
4.3 Common Stock Purchase Warrant dated March 31, 1999
issued by the Company to Brighton Capital Ltd.
4.4 Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock of
Number Nine Visual Technology Corporation
4.5 Common Stock Purchase Warrant dated March 31, 1999
issued by the Company to KA Investments LDC
4.6 Common Stock Purchase Warrant dated March 31, 1999
issued by the Company to FSC Corp.
99.1 Press Release, dated April 1, 1999
99.2 Loan and Securities Agreement dated March 31, 1999
by and between the Company and BankBoston, N.A.
99.3 Revolving Credit Note dated March 31, 1999 issued
by the Company to BankBoston, N.A.
6
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EXHIBIT 4.1
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CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
and
KA INVESTMENTS LDC
March 31, 1999
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<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as
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of March 31, 1999, between Number Nine Visual Technology Corporation, a Delaware
corporation (the "Company"), and KA Investments LDC, a Cayman Islands
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corporation (the "Purchaser").
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WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase from the Company, shares of the Company's 4% Series B Convertible
Preferred Stock, par value $.01 per share (the "Preferred Stock"), which are
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convertible into shares of the Company's common stock, par value $.01 per share
(the "Common Stock").
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IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration the receipt and adequacy are hereby
acknowledged, the Company and the Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
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(a) The Closing. (i) Subject to the terms and conditions set forth
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in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase 300 shares of Preferred Stock (the "Shares") for an
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aggregate purchase price of $3,000,000. The closing of the purchase and sale of
the Shares (the "Closing") shall take place at the offices of Robinson Silverman
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Pearce Aronsohn & Berman LLP ("Robinson Silverman"), 1290 Avenue of the
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Americas, New York, New York 10104, immediately following the execution hereof
or such later date as the parties shall agree. The date of the Closing is
hereinafter referred to as the "Closing Date."
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(ii) Prior to the Closing Date, the parties shall deliver or shall
cause to be delivered the following: (A) the Company shall deliver (1) stock
certificates representing the Shares, registered in the name of the Purchaser,
(2) a Common Stock purchase warrant, in the form of Exhibit D, registered in
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the name of the Purchaser, pursuant to which the Purchaser shall have the right
at any time and from time to time thereafter through the third anniversary of
the Closing Date to acquire 195,000 shares of Common Stock at an exercise price
per share (subject to adjustment as provided therein) of $3.45 (the "Warrant"),
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(3) the legal opinion of Mintz, Levin, Cohen, Ferris, Glovsky and Popeo, P.C.,
outside counsel to the Company, substantially in the form of Exhibit C, and (4)
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all other documents, instruments and writings required to have been delivered at
or prior to the Closing Date by the Company pursuant to this Agreement,
including an executed Registration Rights Agreement, dated the date hereof,
between the Company and the Purchaser, in the form of Exhibit B (the
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"Registration Rights Agreement"), and
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the Irrevocable Transfer Agent Instructions, in the form of Exhibit E, delivered
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to and acknowledged by the Company's transfer agent (the "Transfer Agent
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Instructions"); and (B) the Purchaser shall deliver (1) $3,000,000 in United
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States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Closing Date by the Purchaser pursuant to this Agreement, including, without
limitation, an executed Registration Rights Agreement.
1.2 Terms of Preferred Stock. The Preferred Stock shall have the
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rights preferences and privileges set forth in Exhibit A, and shall be
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incorporated into a Certificate of Designation (the "Certificate of
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Designation") which shall be filed on or prior to the Closing Date by the
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Company with the Secretary of State of the State of Delaware, in form and
substance mutually agreed to by the parties.
For purposes of this Agreement, "Conversion Price," "Original Issue
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Date" and "Trading Day" shall have the meanings set forth in Exhibit A;
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"Business Day" shall mean any day except Saturday, Sunday and any day which
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shall be a federal legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
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Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a corporation duly
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incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to (i) own and use
its properties and assets, (ii) carry on its business as currently conducted,
and (iii) enter into and perform the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights Agreement,
the Warrant and the Transfer Agent Instructions (collectively, the "Transaction
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Documents"). The Company has no subsidiaries other than as set forth in
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Schedule 2.1(a) (collectively the "Subsidiaries"). Each of the Subsidiaries is
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an entity, duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of the
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Transaction Documents, (y) have or result in a material adverse effect on the
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
any of the Transaction Documents (any of (x), (y) or (z), a "Material Adverse
----------------
Effect").
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(b) Authorization; Enforcement. The Company has the requisite
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corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed
by the Company and, when delivered (or filed, as the case may be) in accordance
with the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. Neither
the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and outstanding
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capital stock of the Company is set forth in Schedule 2.1(c). No shares of
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Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as a result of the purchase and sale of the Shares and the
Warrant and except as disclosed in Schedule 2.1(c), there are no outstanding
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options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the actual
knowledge of the Company, except as specifically disclosed in the SEC Documents
(as defined below) or Schedule 2.1(c), no Person or group of related Persons
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beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), or has the
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right to acquire by agreement with or by obligation binding upon the Company, in
excess of 5% of the Common Stock. A "Person" means an individual or
------
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Shares and the Warrant. The Shares and the
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Warrant are duly authorized and, when issued and paid for in accordance with the
terms hereof, will be duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "Liens"). The Company has on the date hereof an adequate
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reserve of duly authorized shares of Common Stock, reserved for issuance to the
holders of the Shares and the Warrant, to enable it to perform its conversion,
exercise and other
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<PAGE>
obligations under this Agreement, the Certificate of Designation and the
Warrant. Such number of reserved and available shares of Common Stock is not
less than the sum of (i) 200% of the number of shares of Common Stock which
would be issuable upon conversion in full of the Shares, assuming such
conversion occurred on the Original Issue Date, (ii) the number of shares of
Common Stock issuable upon exercise of the Warrant, and (iii) the number of
shares Common Stock which would be issuable upon payment of dividends on the
Shares, assuming each Share is outstanding for three years and all dividends are
paid in shares of Common Stock, subject, however, to the limitations on the
Company's obligation to issue shares of Common Stock pursuant to Section
5(a)(iii)(B) of the Certificate of Designation (such number of shares of Common
Stock, the "Initial Minimum"). All such authorized shares of Common Stock shall
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be duly reserved for issuance to the holders of the Shares and the Warrant. The
shares of Common Stock issuable upon conversion of the Shares, as payment of
dividends thereon and upon exercise of the Warrant are collectively referred to
herein as the "Underlying Shares." The Shares, the Warrant and the Underlying
-----------------
Shares are collectively referred to herein as, the "Securities." When issued in
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accordance with the Certificate of Designation and the Warrant, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument
(evidencing a Company debt or otherwise) to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor any
-------------------------------
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Designation with the Secretary of State of Delaware, (ii) the filings required
pursuant to Section
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<PAGE>
3.10, (iii) the filing of the Underlying Securities Registration Statement with
the Securities and Exchange Commission (the "Commission") meeting the
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requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchaser, (iv) if permitted by
applicable rules, regulations and interpretations of the Nasdaq Stock Market,
Inc. to be filed or obtained after the issuance of the Shares, (x) the
application(s) to the Nasdaq National Market ("NASDAQ") for the listing of the
------
Underlying Shares for trading on the NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed) and (y)
obtaining approvals required to validly issue the Shares and Underlying Shares
in accordance herewith and the Certificate of Designation, (v) applicable Blue
Sky filings and (vi) in all other cases where the failure to obtain such
consent, waiver, authorization or order, or to give such notice or make such
filing or registration could not have or result in, individually or in the
aggregate, a Material Adverse Effect (collectively, the "Required Approvals").
------------------
(g) Litigation; Proceedings. Except as specifically disclosed in the
-----------------------
SEC Documents and as set forth in Schedule 2.1(g), there is no action, suit,
---------------
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) No Default or Violation. Except as set forth in Schedule 2.1(h),
----------------------- ---------------
neither the Company nor any Subsidiary (i) is in default under or in violation
of (and no event has occurred which has not been waived which, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, have or result in a
Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
----------------
and warranties of the Purchaser set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on
--------------
its behalf has taken any action that could subject the offering, issuance or
sale of the Securities to the registration requirements of the Securities Act.
(j) SEC Documents; Financial Statements. The Company has filed all
-----------------------------------
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d)
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<PAGE>
thereof, for the three years preceding the date hereof (or such shorter period
as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Documents" and,
-------------
together with the Schedules to this Agreement the "Disclosure Materials") on a
--------------------
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. The financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial statements or
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the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since September 30, 1998, except as specifically
disclosed in the SEC Documents, (a) there has been no event, occurrence or
development that has or that could result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock. The Company last filed audited financial statements with the
Commission on March 27, 1998, and has not received any comments from the
Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an Affiliate
------------------
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable by the Company to
------------
Brighton Capital Ltd., no fees or commissions will be payable by the Company to
any broker, financial advisor or consultant, finder, placement agent, investment
banker, or bank with respect to the transactions contemplated by this Agreement.
The Purchaser shall have no obligation with
-6-
<PAGE>
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchaser, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person acting
----------------------
on the Company's behalf has solicited any offer to buy or sell the Securities
by means of any form of general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
--------------------
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) Seniority. No class of equity securities of the Company is senior
---------
to the Shares in right of payment, whether upon liquidation or dissolution, or
otherwise, except the Company's Series A Convertible Preferred Stock.
(p) Listing and Maintenance Requirements Compliance. Except as set
-----------------------------------------------
forth in Schedule 2(p), the Company has not, in the two years preceding the date
-------------
hereof, received notice (written or oral) from the NASDAQ or any other stock
exchange, market or trading facility on which the Common Stock is or has been
listed (or on which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such exchange or
market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such maintenance
requirements.
(q) Patents and Trademarks. The Company has, or has rights to use,
----------------------
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary or material for use in
-----------------------------
connection with its business, and which the failure to so have would have a
Material Adverse Effect. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and, except as specifically
disclosed in Schedule 2.1(q), there is no existing infringement by another
---------------
Person of any of the Intellectual Property Rights.
(r) Registration Rights; Rights of Participation. Except as set forth
--------------------------------------------
on Schedule 6(c) to the Registration Rights Agreement, the Company has not
-------------
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
-7-
<PAGE>
(s) 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 as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("Material Permits"), and neither the Company nor
----------------
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(t) Title. Neither the Company nor any of the Subsidiaries own any
-----
real property. The Company and the Subsidiaries have good and marketable title
to all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(u) Disclosure. The Company confirms that it has not provided the
----------
Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby
-----------------------------------------------
represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation duly
-----------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by the Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement and
the Registration Rights Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms.
-8-
<PAGE>
(b) Investment Intent. The Purchaser is acquiring the Securities for
-----------------
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) Purchaser Status. At the time the Purchaser was offered the
----------------
Shares and the Warrant, it was, and at the date hereof it is, and at each
exercise date under the Warrant, it will be, an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(d) Experience of the Purchaser. The Purchaser, either alone or
---------------------------
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of the Purchaser to Bear Risk of Investment. The
---------------------------------------------------
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges that it has
---------------------
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.
(g) General Solicitation. The Purchaser is not purchasing the
--------------------
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) Reliance. The Purchaser understands and acknowledges that (i)
---------
the Securities are being offered and sold to it without registration under the
Securities Act in a
-9-
<PAGE>
private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption, depends in part on,
and the Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
---------------------
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by the Purchaser to
an Affiliate of the Purchaser or to one or more funds under common management
with the Purchaser, and any transfer among any such Affiliates or one or more
funds, provided that the transferee certifies to the Company that it is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and
that it is acquiring the Securities solely for investment purposes. Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of the Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO,
-10-
<PAGE>
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above nor any
other legend if the conversion of Shares, the payment of dividends thereon, and
exercise of the Warrant or other issuances of Underlying Shares as contemplated
hereby, by the Certificate of Designation or the Warrant occurs at any time
while an Underlying Securities Registration Statement is effective under the
Securities Act or, in the event there is not an effective Underlying Securities
Registration Statement, at such time, in the opinion of counsel to the Company,
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Securities Registration Statement is declared
effective by the Commission. The Company agrees that, in the event any
Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three (3) Trading Days after request therefor by the
Purchaser, provide the Purchaser with a certificate or certificates representing
such Underlying Shares, free from such legend at such time as such legend would
not have been required under this Section 3.1(b) had such issuance occurred on
the date of such request. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
--------------------------
issuance of the Underlying Shares upon (i) conversion of the Shares and payment
of dividends thereon in accordance with the terms of the Certificate of
Designation, and (ii) exercise of the Warrant in accordance with its terms, will
result in dilution of the outstanding shares of Common Stock, which dilution may
be substantial under certain market conditions. The Company further
acknowledges that its obligation to issue Underlying Shares upon (x) conversion
of the Shares and payment of dividends thereon in accordance with the terms of
the Certificate of Designation, and (y) exercise of the Warrant in accordance
with its terms, is unconditional and absolute, subject to the limitations set
forth herein in the Certificate of Designation or pursuant to the Warrant,
regardless of the effect of any such dilution, subject to stockholder approval
requirements of the NASDAQ that are not required to be obtained prior to the
issuance of the Shares.
3.3 Furnishing of Information. As long as the Purchaser owns Securities,
-------------------------
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchaser and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for the
Purchaser to sell the Securities under Rule 144 promulgated under the Securities
Act. The Company further
-11-
<PAGE>
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell Underlying Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act, including the legal opinion referenced above in this
Section. Upon the request of any such Person, the Company shall deliver to such
Person a written certification of a duly authorized officer as to whether it has
complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts to
-----------
ensure that, no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
3.5 Increase in Authorized Shares. If on any date the Company would be,
-----------------------------
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) issuing 200% of the number of Underlying Shares
as would then be issuable upon a conversion in full of the Shares and as payment
of any accrued and unpaid dividends in respect thereof in shares of Common
Stock, or (b) issuing the number of Underlying Shares upon exercise in full of
the Warrant, subject to the limitations on the Company's obligation to issue
shares of Common Stock pursuant to Sections 5(a)(iii)(B) and (C) of the
Certificate of Designation (the "Current Required Minimum"), in either case, due
------------------------
to the unavailability of a sufficient number of authorized but unissued or
reserved shares of Common Stock, then the Board of Directors of the Company
shall promptly (and in any case, within 45 Business Days from such date) prepare
and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's Certificate of Incorporation to increase
the number of shares of Common Stock which the Company is authorized to issue to
at least such number of shares as reasonably requested by the Purchaser in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its issuance, conversion exercise and
reservation of shares obligations as set forth in this Agreement, the
Certificate of Designation and the Warrant (the sum of (x) the number of shares
of Common Stock then outstanding plus all shares of Common Stock issuable upon
exercise of all outstanding options, warrants and convertible instruments, and
(y) the Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the 60/th/ day after delivery
of the proxy materials relating to such meeting) and (c) within five (5)
Business Days of obtaining such stockholder authorization, file an appropriate
amendment to the Company's Certificate of Incorporation to evidence such
increase.
3.6 Reservation and Listing of Underlying Shares. (a) The Company shall
--------------------------------------------
(i) not later than the fifth (5th)Business Day following the Closing Date
prepare and file with the
-12-
<PAGE>
NASDAQ (and such other national securities exchange or market or trading or
quotation facility on which the Common Stock is then listed) an additional
shares listing application covering a number of shares of Common Stock which is
not less than the Initial Minimum, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing in the NASDAQ (as well as on
any such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchaser evidence of such listing, and the
Company shall maintain the listing of its Common Stock thereon. If the number of
Underlying Shares issuable upon conversion in full of the then outstanding
Shares, as payment of dividends thereon, and upon exercise of the then
unexercised portion of the Warrant exceeds 85% of the number of Underlying
Shares previously listed on account thereof with NASDAQ (and any such other
required exchanges), then the Company shall take the necessary actions to
immediately list a number of Underlying Shares as equals no less than the then
Current Required Minimum.
(b) The Company shall maintain a reserve of shares of Common Stock
for issuance upon conversion of the Shares and for payment of dividends
thereupon in shares of Common Stock and upon exercise in full of the Warrant in
accordance with this Agreement, the Certificate of Designation and the Warrant,
respectively, in such amount as may be required to fulfill its obligations in
full under the Transaction Documents, which reserve shall equal no less than the
then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent Instructions,
----------------------------------
Conversion Notice (as defined in Exhibit A) and Notice of Exercise under the
----------
Warrant set forth the totality of the procedures with respect to the conversion
of the Shares and exercise of the Warrant, including the form of legal opinion,
if necessary, that shall be rendered to the Company's transfer agent and such
other information and instructions as may be reasonably necessary to enable the
Purchaser to convert its Shares and exercise the Warrant as contemplated in the
Certificate of Designation and the Warrant (as applicable).
3.8 Notice of Breaches. Each of the Company and the Purchaser shall give
------------------
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained therein to be incorrect or breached as of
the Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
3.9 Conversion and Exercise Obligations of the Company. The Company shall
--------------------------------------------------
honor conversions of the Shares and exercises of the Warrant and shall deliver
Underlying Shares in accordance with the respective terms, conditions and time
periods set forth in the Certificate of Designation and the Warrant.
-13-
<PAGE>
3.10 Right of First Refusal; Subsequent Registrations. (a) The
------------------------------------------------
Company shall not, directly or indirectly, without the prior written consent of
the Purchaser, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or a transaction intended to be exempt or not subject to registration
under the Securities Act (a "Subsequent Placement") for a period of 180 days
--------------------
after the Closing Date, except (i) the granting of options or warrants to
employees, consultants, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) options or warrants to be granted
to BankBoston N.A., Brighton Capital Ltd. and S3 Incorporated as referenced in
the Transaction Documents or options or warrants to be issued to any bona fide
joint venture or similar corporate partner, (iii) shares of Common Stock
issuable upon exercise of any currently outstanding warrants and upon conversion
of any currently outstanding convertible securities of the Company, in each case
disclosed in Schedule 2.1(c), (iv) shares of Common Stock issuable upon
---------------
conversion of Preferred Stock and as payment of dividends thereon and upon
exercise of the Warrant in accordance with the Certificate of Designation or the
Warrant, and (v) shares of Common Stock issuable in any primary public offering
of the Company (other than offerings resulting from "equity lines of credit")
respectively, unless (A) the Company delivers to the Purchaser a written notice
(the "Subsequent Placement Notice") of its intention to effect such Subsequent
---------------------------
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (B) the Purchaser shall not have notified the Company by
5:00 p.m. (New York City time) on the tenth (10/th/) Trading Day after its
receipt of the Subsequent Placement Notice of its willingness to cause the
Purchaser to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Placement Notice. If the
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Placement Notice; provided, that the
--------
Company shall provide the Purchaser with a second Subsequent Placement Notice,
and the Purchaser shall again have the right of first refusal set forth above in
this paragraph (a), if the Subsequent Placement subject to the initial
Subsequent Placement Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Placement Notice within thirty (30)
Trading Days after the date of the initial Subsequent Placement Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Placement
Notice. Notwithstanding anything to the contrary contained herein, the right of
first refusal granted hereunder shall be junior and subject to the right of
first refusal held by the holders of the Company's Series A Convertible
Preferred Stock, as such rights exist on the Closing Date.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the
-14-
<PAGE>
Company permitted pursuant to Schedule 6(c) of the Registration's Rights
-------------
Agreement to be registered, in the Underlying Securities Registration Statement
in accordance with the Registration Rights Agreement, and (z) Common Stock
permitted to be issued pursuant to paragraph (a)(i) - (v) of Section 3.10(a),
the Company shall not, without the prior written consent of the Purchaser (i)
issue or sell any of its or any of its Affiliates' equity or equity-equivalent
securities pursuant to Regulation S promulgated under the Securities Act, or
(ii) register for resale any securities of the Company for a period of not less
than 90 Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that a Purchaser is
unable to sell Underlying Shares under the Underlying Securities Registration
Statement shall be added to such 90 Trading Day period for the purposes of (i)
and (ii) above.
3.11 Certain Securities Laws Disclosures; Publicity. The Company shall:
----------------------------------------------
(i) issue a press release acceptable to the Purchaser disclosing the
transactions contemplated hereby on the Closing Date, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within twelve (12) Business Days after the Closing Date, and (iii) timely file
with the Commission a Form D promulgated under the Securities Act as required
under Regulation D promulgated under the Securities Act and provide a copy
thereof to the Purchaser promptly after the filing thereof. The Company shall,
no less than two (2) Business Days prior to the filing of any disclosure
required by clauses (ii) and (iii) above, provide a copy thereof to the
Purchaser. No such filing or disclosure may be made that mentions the Purchaser
by name without the prior consent of the Purchaser. Such filings shall be
subject to Section 4.11 hereof.
3.12 Transfer of Intellectual Property Rights. Except in connection with
----------------------------------------
the sale of all or substantially all of the assets of the Company or a bona fide
licensing arrangement in the ordinary course of business, the Company shall not
transfer, sell or otherwise dispose of any Intellectual Property Rights, or
allow any of the Intellectual Property Rights to become subject to any Liens, or
fail to renew such Intellectual Property Rights (if renewable and it would
otherwise lapse if not renewed), without the prior written consent of the
Purchaser.
3.13 Use of Proceeds. The Company shall use the net proceeds from the
----------------
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt or to redeem any Company equity or
equity-equivalent securities. Company debt shall not include accounts payable or
any debt owed to BankBoston, N.A. (the "Bank") pursuant to the Company's Loan
----
and Security Agreement, dated the date hereof with the Bank. Pending application
of the proceeds of this placement in the manner permitted hereby, the Company
will invest such proceeds in interest bearing accounts and/or short-term,
investment grade interest bearing securities.
3.14 Reimbursement. If the Purchaser, other than by reason of its gross
--------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
-15-
<PAGE>
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchaser and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchaser and
any such Affiliate and any such Person. The Company also agrees that neither
the Purchaser nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the Purchaser
or entity in connection with the transactions contemplated by this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall pay $20,000
-----------------
to Robinson Silverman in connection with the preparation and negotiation of the
Transaction Documents. Other than the amount contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all U.S. stamp and other
taxes and duties levied in connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents,
----------------------------
together with the Exhibits and Schedules thereto, and the Transfer Agent
Instructions contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day
-16-
<PAGE>
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: Number Nine Visual Technology Corporation
18 Hartwell Avenue
Lexington, MA
Facsimile No.:
Attn: Acting Chief Financial Officer
With copies to: Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Neil H. Aronson, Esq.
Facsimile No.: (617) 542-2241
If to the Purchaser: KA Investments LDC
c/o Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen. Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
-------------------
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
-17-
<PAGE>
4.5 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any of the rights
or obligations hereunder (other than to an Affiliate of the Purchaser) without
the consent of the Company. This provision shall not limit the Purchaser's
right to transfer securities or transfer or assign rights hereunder or under the
Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. 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 and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), 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 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 in effect for 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.
4.9 Survival. The representations, warranties, agreements and
--------
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares and the Warrant.
4.10 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
-18-
<PAGE>
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Publicity. The Company and the Purchaser shall consult with
---------
each other in issuing any press releases or otherwise making public statements
or filings and other communications with the Commission or any regulatory
agency or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement, filing
or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser, or include the name of the
Purchaser in any filing with the Commission, or any regulatory agency, trading
facility or stock market without the prior written consent of the Purchaser,
except to the extent such disclosure (but not any disclosure as to the
controlling Persons thereof) is required by law, in which case the Company shall
provide the Purchaser with prior notice of such disclosure.
4.12 Severability. In case any one or more of the provisions of this
------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
--------
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
NUMBER NINE VISUAL TECHNOLOGY
CORPORATION
By: /s/ William L. Ralph
---------------------------
Name: WILLIAM L. RALPH
Title: General Manager/Assistant
Treasurer
KA INVESTMENTS LDC
By:___________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
NUMBER NINE VISUAL TECHNOLOGY
CORPORATION
By:___________________________
Name:
Title:
KA INVESTMENTS LDC
By: /s/ Gary Sobczak
---------------------------
Name: GARY SOBCZAK
Title: Secretary
<PAGE>
COMPANY DISCLOSURE SCHEDULES
----------------------------
NOTES TO SCHEDULES
1. Capitalized terms used in these Company Disclosure Schedules but not
defined herein shall have the meanings ascribed to such terms in the
Convertible Preferred Stock Purchase Agreement, dated as of March 31, 1999,
by and between Number Nine Visual Technology Corporation ("the Company")
and KA Investments LDC (the "Agreement").
2. Headings and captions in these Company Disclosure Schedules are for
convenience of reference only and shall in no way modify or affect, or be
considered in construing or interpreting any information provided herein.
3. The information contained in these Company Disclosure Schedules is as of
the date of the Agreement.
4. Items, information, and other matters disclosed on one Schedule shall be
deemed to be disclosed for matters to which such Schedule should have
reasonably have been expected to relate under these Company Disclosure
Schedule; provided that the Company shall make a good faith effort to
include any disclosure (by cross reference or by repeating the disclosure)
that is required by more than one representation and warranty in each
applicable portion of the Company Disclosure Schedules. Cross references
are for the convenience of reference only and shall not limit the
provisions hereof.
<PAGE>
SCHEDULE 2.1(a)
---------------
SUBSIDIARIES
1. Number Nine Visual Technology Vertiebs GmbH
2. Number Nine International, Ltd.
2
<PAGE>
SCHEDULE 2.1(c)
---------------
CAPITALIZATION
1. The Company is authorized to issue 20,000,000 shares of common stock, $.01
par value per share ("Common Stock").
2. The Company is authorized to issue 5,000,000 shares of preferred stock,
$.01 par value per share and has designated 3,700,000 shares as Series A
Convertible Preferred Stock.
3. The Company has issued one warrant to Silicon Graphics, Inc. ("SGI"), which
entitles SGI to purchase for a period of three (3) years commencing August
11, 1998 at an exercise price of $2.75 per share that number of shares of
Series A Preferred Stock equal to 3% of the Company's then issued and
outstanding Common Stock at that time of exercise, as calculated on a fully
diluted basis.
4. Pursuant to the terms of a certain Loan and Security Agreement and a
Warrant Purchase Agreement by and between the Company and BankBoston dated
March 31, 1999, the Company will issue a warrant to BankBoston for the
purchase of up to 211,000 shares of Common Stock at an exercise price equal
to the average closing price of the thirty (30) day period immediately
prior to the loan closing (the "BankBoston Warrant"). The BankBoston
Warrant will have a ten (10) year term and will be void after 5:00 p.m.,
eastern standard time on March 31, 2009.
5. In connection with this financing, the Company has agreed to issue to
Brighton Capital Ltd. a warrant to purchase for a period of three (3) years
up to 30,000 shares of Common Stock at an exercise price of 125% of the
then average of the closing price of the ten (10) day period immediately
prior to the date of the Brighton Warrant in consideration for consulting
services provided to the Company.
6. In connection with certain monies to be received by the Company in
consideration for certain non-recurring engineering costs to be performed
by the Company for S3 Incorporated ("S3"), the Company has agreed to issue
to S3 a two year warrant to purchase up to 300,000 shares of Common Stock
at an exercise price equal to the average closing price of the ten (10) day
period immediately prior to the date of the S3 Warrant.
7. The outstanding securities of the Company are shown in the table below:
<TABLE>
<CAPTION>
TYPE OF SECURITY NUMBER OF SHARES
---------------- ----------------
<S> <C>
Common Stock 9,416,187
Series A Convertible Preferred Stock 3,350,894
</TABLE>
3
<PAGE>
WARRANTS
--------
See items ## 3, 4, 5 and 6 above
STOCK OPTIONS
-------------
<TABLE>
<CAPTION>
STOCK PLAN NUMBER OF OPTIONS
---------- -----------------
<S> <C>
1989 Employee Stock Plan 79,900
1994 Employee Stock Plan 1,012,404
1996 Employee Stock Plan 707,300
---------
TOTAL 1,799,604
</TABLE>
4
<PAGE>
SCHEDULE 2.1(g)
---------------
LITIGATION
1. On June 11, 1996, a complaint was filed in the United States District Court
for the District of Massachusetts by named plaintiff RBI, an Alaskan limited
partnership, against the Company, Andrew Najda and Stanley W. Bialek (the
"Selling Stockholders") and the managing underwriters of the Company's initial
public offering, Robertson, Stephens & Company, Cowen & Company and Unterberg
Harris (the "Managing Underwriters"). On or about July 17, 1996, a complaint was
filed in the United States District Court for the District of Massachusetts by
named plaintiff John Foley against the Company, each member of the Company's
Board of Directors, (Andrew Najda, Stanley W. Bialek, Gill Cogan, Dr. Paul R.
Low, Dr. Fouad H. Nader and William H. Thalheimer), Kevin M. Hanks, former Chief
Financial Officer and Treasurer of the Company, and the Managing Underwriters.
On or about October 16, 1996, an additional complaint was filed in the United
States District Court for the District of Massachusetts by named plaintiff
Robert Schoenhofer against the Company, each member of the Company's Board of
Directors, Mr. Hanks, and the Managing Underwriters. Each of the plaintiffs
purports to represent a class of purchasers of the Common Stock of the Company
between and including May 26, 1995 through January 31, 1996. Each complaint
alleges that the named defendants violated the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, by, among other
things, issuing to the investing public false and misleading statements
regarding the Company's business, products, sales and earnings during the class
period in question. The plaintiffs seek unspecified damages, interest, costs and
fees. By order of the District Court, these actions have been consolidated into
a single action. It is possible that other claims may be made against the
Company or that there may be other consequences from the lawsuits. The
defendants deny any liability, believe they have meritorious defenses, and
intend to vigorously defend these and any similar lawsuits that may be filed,
although the ultimate outcome of these matters cannot yet be determined. If the
lawsuits are not resolved satisfactorily for the Company, there could be a
material adverse effect on the Company's future financial condition and results
of operations and, accordingly, income (loss). The Company does not believe that
the ultimate liability, if any, is estimable or probable, and therefore no
provision for any liability that may result from the actions has been recognized
in the Company's consolidated financial statements.
2. Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P has sent the Company
a letter, dated March 17, 1998, that alleges that the use of the Company's
monitors with certain on-screen displays infringes upon the patents referenced
therein.
3. The Company has received demand letters from Micron, Dell, and Unisys in
connection with a countersuit filed by Hakan Lans against Micron which has filed
a complaint for declaratory judgment of patent, invalidity and non-infringement
against Hakan Lans. A motion to amend the complaint in the countersuit has been
filed by counsel to Hakan Lans to include the Company as an additional
defendant.
5
<PAGE>
SCHEDULE 2.1(h)
---------------
OTHER LOAN ARRANGEMENTS
On March 31, 1999, contingent upon the closing of this financing, the
Company established a revolving line of credit with BankBoston, N.A. from which
the Company paid down and replaced a borrowing facility with Marine Midland Bank
("Marine Midland") which, at the time, was subject to a forbearance agreement
pursuant to which Marine Midland waived certain default provisions relating to
the borrowing facility up to and through March 31, 1999.
6
<PAGE>
SCHEDULE 2.1(p)
---------------
NOTICE OF LISTING OR MAINTAINANCE REQUIREMENTS
The Company received a letter from David A. Donahoe, Jr., counsel to NASDAQ
dated June 29, 1998 with regard to the delisting of the Company on the NASDAQ
National Market System with respect to meeting net tangible assets measurements
required by the NASD. The Company responded to counsel to NASDAQ with
information that Silicon Graphics, Inc. converted its secured subordinated
convertible promissory notes in the aggregate amount of $9 million plus accrued
interest into 3,350,894 shares of Series A Preferred Stock (the "Series A
Preferred Stock"). Due to the conversion of Silicon Graphic, Inc.'s secured
subordinated convertible promissory notes into Series A Preferred Stock, the
Company was not delisted.
7
<PAGE>
SCHEDULE 2.1(q)
---------------
PATENTS AND TRADEMARKS DISPUTES
1. Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P has sent the Company
a letter, dated March 17, 1998, that alleges that the use of the Company's
monitors with certain on-screen displays infringes upon the patents
referenced therein.
2. The Company has received demand letters from Micron, Dell, and Unisys in
connection with a countersuit filed by Hakan Lans against Micron which has
filed a complaint for declaratory judgment of patent, invalidity and non-
infringement against Hakan Lans. A motion to amend the complaint in the
countersuit has been filed by counsel to Hakan Lans to include the Company
as an additional defendant.
8
<PAGE>
EXHIBIT A
Term of Preferred Stock
Section 1. Designation, Amount and Par Value. The series of
---------------------------------
preferred stock shall be designated as 4% Series B Convertible Preferred Stock
(the "Preferred Stock") and the number of shares so designated shall be 300
---------------
(which shall not be subject to increase without the consent of the holders of
the Preferred Stock (each, a "Holder" and collectively, the "Holders")). Each
------ -------
share of Preferred Stock shall have a par value of $.01 and a stated value of
$10,000 (the "Stated Value").
------------
Section 2. Dividends.
---------
(a) Holders shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) of 4% per annum, payable, subject to the provisions of
this Section 2(a), on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year while such share is outstanding (each a "Dividend
--------
Payment Date") and on each Conversion Date (as defined herein) for such share,
- ------------
commencing on the earlier to occur of the Conversion Date for such share and
June 30, 1999, in cash or shares of Common Stock (as defined in Section 8).
Subject to the terms and conditions herein, the decision whether to pay
dividends hereunder in Common Stock or cash shall be at the discretion of the
Company. Dividends on the Preferred Stock shall be calculated on the basis of a
360-day year, shall accrue daily commencing on the Original Issue Date (as
defined in Section 8), and shall be deemed to accrue from such date whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Company legally available for the payment of dividends, unless the
Company provides the Holder with an unqualified legal opinion of its outside
counsel (both of which legal opinion and counsel are acceptable to the Holder)
that the accrual of any such dividend (as opposed to payment) is not permitted
at such time under the General Corporation Law of the State of Delaware. A party
that holds shares of Preferred Stock on the record date with respect to a
Dividend Payment Date will be entitled to receive such dividend payment and any
other accrued and unpaid dividends which accrued prior to such Dividend Payment
Date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date. Except as otherwise provided herein,
if at any time the Company pays less than the total amount of dividends then
accrued on account of the Preferred Stock, such payment shall be distributed
ratably among the Holders based upon the number of shares of Preferred Stock
held by each Holder. If the Company is permitted hereunder to pay dividends in
shares of Common Stock, then the number of shares of Common Stock issuable on
account of such dividend shall equal the cash amount of such dividend on either
the Dividend Payment Date or the Conversion Date, as applicable, divided by the
Conversion Price (as defined herein) on such date. Any dividends to be paid in
cash hereunder that are not paid within three (3) Trading Days (as defined in
Section 8) following a Conversion Date or Dividend Payment Date, as applicable,
shall continue to accrue and shall entail a late fee, which must be paid in
cash, at the rate of 18% per annum (such fees to accrue daily, from the date
such dividend is due hereunder through and including the date of payment). The
Company shall provide the Holders written notice of its intention to pay
dividends in cash or shares of Common Stock not less than ten (10) days prior to
any Dividend Payment Date for so long as shares of Preferred Stock are
outstanding (the Company may indicate in such notice the maximum amount of cash
dividends that it intends to pay during such period). Failure to timely provide
such notice shall be deemed an election by the Company to pay dividends for such
period in shares of Common Stock pursuant to the terms hereof.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not
<PAGE>
issue shares of Common Stock in payment of dividends on the Preferred Stock (and
must deliver cash in respect thereof, subject to the provisions of Section 2(a)
with respect to applicable law) if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) after the Dividend Effectiveness Date (as defined in
Section 8), such shares (x) are not registered for resale pursuant to an
effective Underlying Securities Registration Statement (as defined in Section
8), or (y) may not be sold without volume restrictions pursuant to Rule 144
promulgated under the Securities Act (as defined in Section 8), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the applicable
Holder and such transfer agent (if the Company is permitted and elects to pay
dividends in shares of Common Stock under this clause (ii) prior to the Dividend
Effectiveness Date and thereafter an Underlying Securities Registration
Statement shall be declared effective by the Commission (as defined in Section
8), the Company shall, within three (3) Trading Days after the date of such
declaration of effectiveness, exchange such shares for shares of Common Stock
that are free of restrictive legends of any kind);
(iii) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(iv) the issuance of such shares would result in a violation of
Section 5(a)(iii) or the rules of the Nasdaq Stock Market, Inc. or any other
rules and regulations governing any Subsequent Market (as defined in Section 8)
on which the Common Stock is then listed or quoted for trading.
(c) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 8),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5
or dividends due and paid in the ordinary course on preferred stock of the
Company at such times when the Company is in compliance with its payment and
other obligations hereunder) upon, nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied to
the purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein and
-------------
as otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the Holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise pari passu with the Preferred Stock, (c)
amend its certificate of incorporation or other charter documents so as to
affect adversely any rights of the Holders, (d) increase the authorized number
of shares of Preferred Stock, or (e) enter into any agreement with respect to
the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
-----------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
-----------
the Holders shall be entitled, subject to the rights of the holders of the
Company's Series A Convertible Preferred Stock to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an
2
<PAGE>
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record Holder.
Section 5. Conversion.
----------
(a)(i) Conversions at Option of Holder. Each share of Preferred Stock
-------------------------------
shall be convertible into shares of Common Stock (subject to the limitations set
forth in Section 5(a)(iii)), at the Conversion Ratio (as defined in Section 8),
at the option of the Holder at any time and from time to time from and after
July 28, 1999 (the "Initial Conversion Date"); provided, that, (A) on and after
----------------------- --------
the Initial Conversion Date, a Holder shall only be entitled to convert up to
25% of the number of shares of Preferred Stock issued to it on the Original
Issue Date, (B) on and after the first month anniversary of the Initial
Conversion Date, a Holder shall only be entitled to convert up to 50% of the
number of shares of Preferred Stock issued to it on the Original Issue Date, on
a cumulative basis, (C) on and after the second month anniversary of the Initial
Conversion Date, a Holder shall only be entitled to convert up to 75% of the
number of shares of Preferred Stock issued to it on the Original Issue Date, on
a cumulative basis and (D) on and after the third month anniversary of the
Initial Conversion Date, a Holder shall be entitled to convert all of the shares
of Preferred Stock originally issued to it on the Original Issue Date. Holders
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Compnay,
together with the form of conversion notice attached hereto as Exhibit A (a
---------
"Conversion Notice"). Each Conversion Notice shall specify the number of shares
-----------------
of Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder delivers such
Conversion Notice by fascimile (the "Conversion Date"). If no Conversion Date
---------------
is specified in a Conversion Notice, the Conversion Date shall be the date that
the Conversion Notice is deemed delivered hereunder. If the Holder is converting
less than all shares of Preferred Stock represented by the certificate or
certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate representing the number of shares of
Preferred Stock as have not been converted.
(ii) Automatic Conversion. Subject to the provisions in this
--------------------
paragraph, all outstanding shares of Preferred Stock for which conversion
notices have not previously been received or for which redemption has not been
made or required hereunder shall be automatically converted on the third
anniversary of the Original Issue Date for such shares. The conversion
contemplated by this paragraph shall not occur at such time as (a) (1) an
Underlying Securities Registration Statement is not then effective or (2) the
Holder is not permitted to resell Underlying Shares (as defined in Section 8)
pursuant to Rule 144(k) promulgated under the Securities Act, without volume
restrictions, as evidenced by an opinion letter of counsel acceptable to the
Holder and the transfer agent for the Common Stock; (b) there are not sufficient
shares of Common Stock authorized and reserved for issuance upon such
conversion; or (c) the Company is then in default of its covenants and
obligations hereunder or under the Purchase Agreement or Registration Rights
Agreement. Notwithstanding the foregoing, the three-year period for conversion
under this Section shall be extended (on a day-for-day
3
<PAGE>
basis) for any Trading Days after the date that the Commission declares
effective an Underlying Securities Registration Statement that the Purchaser is
unable to resell Underlying Shares under an Underlying Securities Registration
Statement due to (a) the Common Stock not being listed for trading on the Nasdaq
National Market (the "NASDAQ") or any Subsequent Market, (b) the failure of such
------
Underlying Securities Registration Statement to remain effective during the
Effectiveness Period (as defined in the Registration Rights Agreement) as to all
Underlying Shares, or (c) the suspension of the Holder's ability to resell
Underlying Shares thereunder. The provisions of Sections 5(a)(iii)(A)(1) and (2)
shall not apply to any automatic conversion pursuant to this Section 5(a)(ii).
(iii) Certain Conversion Restrictions.
-------------------------------
(A)(1) A Holder may not convert shares of Preferred Stock or
receive shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares insuable upon
conversion of dividends on, the shares of Preferred Stock held by such Holder
after application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which shares of
Preferred Stock are convertible shall be in the sole discretion of the Holder.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 75 days prior notice to the
Company, Other Holders shall be unaffected by any such waiver.
(2) A Holder may not convert shares of Preferred Stock or
received shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act (as defined in Section 8) and the rules thereunder) in excess of
9.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of, and payment of dividends on, the shares of
Preferred Stock held by such Holder after application of this Section. The
Holder shall have the sole authority and obligation to determine whether the
restriction contained in this Section applies and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which shares of Preferred Stock are convertible shall be in the
sole discretion of the Holder. The provisions of this Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon not less than 75
days prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(B) Notwithstanding anything to the contrary set forth herein,
the Company shall not be obligated to issue in excess of 1,883,237 shares of
Common Stock upon conversion of Preferred Stock and payment of dividends
hereunder, which number of shares shall be subject to adjustment pursuant to
Sections 5(c)(ii), (iii), and (v) (such number of shares, the "Issuable
--------
Maximum"). The Issuable Maximum equals 19.99% of the number of shares of Common
- -------
Stock outstanding immediately prior to the Closing. Shares of Common Stock
issued in respect of liquidated damages hereunder shall not count towards the
1,883,237 share limit set forth in this paragraph and shall be paid in cash as
provided herein unless otherwise agreed to by the Holders. If on any Conversion
Date (A) the Conversion Price then in effect is such that the aggregate number
of shares of Common Stock that would then be issuable upon conversion in full of
all then outstanding shares of Preferred Stock and as payment of dividends
thereon in shares of Common Stock, together with any shares of Common Stock
previously issued upon conversion of shares of Preferred Stock and as payment of
dividends thereon, would equal or exceed the Issuable Maximum, and (B) the
Company shall not have previously obtained the vote of
4
<PAGE>
shareholders (the "Shareholder Approval"), if any, as may be required by the
--------------------
applicable rules and regulations of the Nasdaq Stock Market or other exchange or
market on which the Common Stock is then listed or quoted for trading to approve
the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Company shall issue to the Holder so
requesting a conversion a number of shares of Common Stock equal to its pro-rata
share of the Issuable Maximum (determined by reference to the number of shares
of Preferred Stock issued to all Holders on the Original Issue Date) and, with
respect to the remainder of the aggregate Stated Value of the shares of
Preferred Stock then held by such Holder for which a conversion in accordance
with the Conversion Price would result in an issuance of shares of Common Stock
in excess of the Issuable Maximum (the "Excess Stated Value"), the converting
-------------------
Holder shall have the option to require the Company to either (1) obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 75th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Mandatory Redemption Amount (as
defined in Section 8) for the Excess Stated Value. If the Company fails to pay
the Mandatory Redemption Amount in full pursuant to this Section within seven
(7) days after the date payable, the Company will pay interest thereon at a rate
of 18% per annum to the converting Holder, accruing daily from the Conversion
Date until such amount, plus all such interest thereon, is paid in full. If the
Company has been requested by the Holders to obtain, and fails to obtain, the
Shareholder Approval by the 75/th/ day after such request, then the Holders
shall have the right to require the Company to perform under, at the sole option
of such Holder, clause (3) of this Section 5(a)(iii)(B). The Company and the
Holders understand and agree that shares of Common Stock issued to and then held
by Holders as a result of conversions of Preferred Stock and as payment of
dividends thereon shall not be entitled to cast votes on any resolution to
obtain Shareholder Approval pursuant hereto.
(b)(i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock (subject to the limitations set forth in Section 5(a)(iii)
hereof), (ii) one or more certificates representing the number of shares of
Preferred Stock not converted, (iii) a bank check in the amount of accrued and
unpaid dividends (if the Company has elected to pay accrued dividends in cash),
and (iv) if the Company has elected and is permitted hereunder to pay accrued
dividends in shares of Common Stock, certificates, which shall be free of
restrictive legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement), representing such shares of Common
Stock, provided, however, that the Company shall not be obligated to issue
-------- -------
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Preferred Stock until certificates evidencing such shares of
Preferred Stock are delivered for conversion to the Company, or the Holder of
such Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates, including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, are not delivered to or as directed by the
applicable Holder by the third (3/rd/) Trading Day after the Conversion Date,
the Holder shall be entitled by written notice of the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
5
<PAGE>
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
third (3rd) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Preferred Stock or as payment of dividends thereon by the third
(3rd) Trading Day after the Conversion Date, the Holder may, by notice to the
Company, require the Company to issue shares of Common Stock pursuant to Section
5(c), except that for such purpose the Conversion Price applicable thereto shall
be the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provision of this Section.
(iii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the third (3rd) Trading Day after the Conversion Date,
and if after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall (A) pay in
-------
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either return
the shares of Preferred Stock for which such conversion was not honored or
deliver to such Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of shares of Preferred Stock with respect to which the
market price of the Underlying Shares on the date of Conversion totaled $10,000,
under clause (A) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 5(b)(ii) in respect of the certificates resulting in such Buy-In.
(c)(i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
----------------
$4,2703 (the "Fixed Conversion Price") or (b) 88% of the average of the ten (10)
----------------------
lowest Per Share Market Values during the thirty (30) Trading Days immediately
preceding the applicable Conversion Date (which, at the Holder's option, may
include Trading Days prior to the Initial Conversion Date), provided, that such
--------
thirty (30) Trading Day period shall be extended for the number of Trading Days,
if any, during such period in which (A) trading in the Common Stock is suspended
from the NASDAQ or a Subsequent Market on which it is listed for trading
6
<PAGE>
prior to such suspension, or (B) after the date declared effective by the
Commission, the Underlying Securities Registration Statement is now effective,
or (C) after the date declared effective by the Commission, the Prospectus
included in the Underlying Securities Registration Statement may not be used by
the Holder for the resale of Underlying Shares.
If (a) the Underlying Securities Registration Statement is not filed
on or prior to the Filing Date (if the Company files such Underlying Securities
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the Registration Rights
Agreement, the Company shall not be deemed to have satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or not
subject to further review or comment, or (c) the Underlying Securities
Registration Statement is not declared effective by the Commission on or prior
to the Effectiveness Date, or (d) such Underlying Securities Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective as to all Registrable Securities (as defined in the
Registration Rights Agreement) at any time prior to the expiration of the
Effectiveness Period without being succeeded within ten (10) days by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission, or (e) trading in the Common Stock shall be
suspended from the NASDAQ or a Subsequent Market for more than three (3)
Business Days (which need not be consecutive days), (f) the conversion rights of
the Holders are suspended for any reason or (g) an amendment to the Underlying
Securities Registration Statement is not filed by the Company with the
Commission within ten (10) days of the Commission's notifying the Company that
such amendment is required in order for the Underlying Securities Registration
Statement to be declared effective (if the Company files such amendment
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) of the Registration Rights Agreement, the Company
shall not be deemed to have satisfied this clause (g)) (any such failure or
breach being referred to as an "Event" and for purposes of clauses (a), (c), (f)
-----
the date on which such Event occurs, or for purposes of clause (b) the date on
which such five (5) day period is exceeded, or for purposes of clauses (d) and
(g) the date which such 10 day-period is exceeded, or for purposes of clause (e)
the date on which such three (3) Business Day-period is exceeded, being referred
to as "Event Date"), then, on the Event Date and on each monthly anniversary
----------
thereof until such time as the applicable Event is cured, the Company shall pay
to the Holder 2.5% of the aggregate Stated Value of all of the shares of
Preferred Stock purchased by such Holder under the Purchase Agreement in cash,
as liquidated damages and not as a penalty. The provisions of this Section are
not exclusive and shall in no way limit the Company's obligations hereunder.
(ii) If the Company, at any time while any shares of Preferred Stock
are outstanding, shall (a) pay a stock dividend or otherwise make a distribution
or distributions of shares of its Junior Securities or pari passu securities
payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification and
exchange of the Common Stock any shares of capital stock of the Company, then
the Fixed Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
7
<PAGE>
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Fixed Conversion Price shall be multiplied
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration shall be recomputed and effective immediately upon such expiration
shall be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the adjustment
of the Conversion Price made upon the issuance of such rights, warrants, or
options been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights, warrants or options actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), at any time while
any shares of Preferred Stock are outstanding, shall issue shares of Common
Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
------------
Equivalents"), other than issuances pursuant to any (a) stockholder approved
- -----------
stock option or stock purchase program solely to employees of the Company, (b)
any acquisition, licensing joint venture or strategic partnership not primarily
for the purpose of raising capital, or (c) conversion of any options, warrants
or other convertible securities outstanding on the Original Issue Date,
entitling any Person to acquire shares of Common Stock at a price per share less
than the Conversion Price, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Common Stock or such
Common Stock Equivalents plus the number of shares of Common Stock which the
offering price for such shares of Common Stock or Common Stock Equivalents would
purchase at the Conversion Price, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock so issued or issuable,
provided, that for purposes hereof, all shares of Common Stock that are issuable
- --------
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued.
(v) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii)-(iv) above), then in each such case the Fixed Conversion Price at which
each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Fixed Conversion Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per
8
<PAGE>
Share Market Value on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding shares of Common Stock as determined
by the Board of Directors in good faith; provided, however, that in the event of
-------- -------
a distribution exceeding ten percent (10%) of the net assets of the Company, if
the Holders of a majority in interest of the Preferred Stock dispute such
valuation, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
---------
good faith by the Holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
-------- -------
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the Holders
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant
to Section 5(o)(ii), (iii), (iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock,
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Preferred
Stock then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) If (a) the Company shall declare a dividend (or any
other distribution) on the Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (c) the
Company shall authorize the granting to all holders of Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (d) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of any compulsory share
of exchange whereby the Common Stock is converted into other securities, cash or
property, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of Preferred Stock, and shall cause to be mailed to the
Holders at their last addresses as they shall appear upon the stock books of the
Company, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a
9
<PAGE>
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange. Holders are entitled to
convert shares of Preferred Stock during the 20-day period commencing the date
of such notice to the effective date of the event triggering such notice.
(x) In case of any (1) merger or consolidated of the Company with or
into another Person that would constitute a Change of Control Transaction, or
(2) sale by the Company of more than one-half of the assets of the Company (on
an as valued basis) in one or a series of related transactions, or (3) tender
or other offer or exchange (whether by the Company or another Person) pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, stock, cash or property of the Company or another
Person; then, if a Holder has not exercised its rights of redemption, if any,
under Section 7 hereof, such Holder shall have the right thereafter to (A) if
permitted under Section 7 hereof, exercise its rights of redemption under
Section 7 with respect to such event, (B) convert its shares of Preferred Stock
into the shares of stock and other securities, cash and property receivable upon
or deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and property
as the shares of Common Stock into which such shares of Preferred Stock could
have been converted immediately prior to such merger, consolidation or sales
would have been entitled, (C) in the case of a merger or consolidation, (x)
require the surviving entity to issue shares of convertible preferred stock or
convertible debentures with such aggregate stated value or in such face amount,
as the case may be, equal to the Stated Value of the shares of Preferred Stock
then held by such Holder, plus all accrued and unpaid dividends and other
amounts owing thereon, which newly issued shares of preferred stock or
debentures shall have terms identical (including with respect to conversion) to
the terms of the Preferred Stock (except, in the case of debentures, as may be
required to reflect the differences between debt and equity) and shall be
entitled to all of the rights and privileges of a Holder of Preferred Stock set
forth herein and the agreements pursuant to which the Preferred Stock was issued
(including, without limitation, as such rights relate to the acquisition,
transferability, registration and listing of such shares of stock other
securities issuable upon conversion thereof), and (y) simultaneously with the
issuance of such convertible preferred stock or convertible debentures, shall
have the right to convert such instrument only into shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger or consolidation, or (D) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section, tender or exchange its shares of Preferred Stock for such securities,
stock, cash and other property receivable upon or deemed to be held by holders
of Common Stock that have tendered or exchanged their shares of Common Stock
following such tender or exchange, and such Holder shall be entitled upon such
exchange or tender to receive such amount of securities, cash and property as
the shares of Common Stock into which shares of Preferred Stock could have been
converted (taking into account all then accrued and unpaid dividends)
immediately prior to such tender or exchange would have been entitled as would
have been issued. In the case of clause (C), the conversion price applicable for
the newly issued shares of convertible preferred stock or convertible debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction, the Conversion Ratio
immediately prior to the effectiveness or closing date for such transaction and
the Conversion Price stated herein. The terms of any such merger, sale,
consolidation, tender or exchange shall include such terms so as to continue to
give the Holders of Preferred Stock the right to receive the securities, cash
and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
10
<PAGE>
events.
(d) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(e) The issuance of certificates for Common Stock on conversion of
Preferred Stock and as payment of dividends in shares of Common Stock shall be
made without charge to the Holders thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company 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 such certificate upon conversion in a name other than that of the Holder
of such shares of Preferred Stock so converted.
(f) Shares of Preferred Stock converted into Common Stock or redeemed
in accordance with the terms hereof shall be canceled and may not be reissued.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Financial Officer of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
8:00 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 8:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Optional Redemption.
-------------------
(a) Subject to the provisions of this Section 6, the Company shall
have the right, exercisable upon five (5) Trading Days' notice (an "Optional
--------
Redemption Notice") to the Holders to redeem all or any portion of the shares of
- -----------------
Preferred Stock which have not previously been redeemed, at a price equal to the
Optional Redemption Price (as defined below); provided, that, in order to be
valid an Optional Redemption Notice must have been delivered either (1) Within
three (3) Trading Days after any 90 consecutive Trading Day period during which
the average Per Share Market Value was less than the Fixed Conversion Price or
(ii) within one Trading Day after the Per Share Market Value for two (2)
consecutive Trading Days was less than $1.60. The Company shall not be entitled
to deliver an Optional Redemption Notice after the Effectiveness Date if: (i)
the number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes is insufficient to satisfy the Company's
11
<PAGE>
conversion obligations of all shares of Preferred Stock then outstanding, or
(ii) the Underlying Shares then outstanding are not registered for resale
pursuant to an effective Underlying Securities Registration Statement, or (iii)
the Common Stock is not then listed for trading on the NASDAQ, on a Subsequent
Market or the OTC Bulletin Board. The entire Optional Redemption Price shall be
paid in cash. A Holder may convert (and the Company shall honor such conversions
in accordance with the terms hereof) up to 25% of its shares of Preferred Stock
subject to an Optional Redemption Notice given after the Effectiveness Date,
provided that the Conversion Notice for such shares is delivered within 24 hours
following the receipt by such Holder of such an Optional Redemption Notice.
(b) Failure by the Company to pay any portion of the Optional
Redemption Price by the 6th Trading Day following the date of an Optional
Redemption Notice shall result in the invalidation ab initio if the unpaid
---------
portion of such optional redemption, and, notwithstanding anything herein to the
contrary, the Company shall thereafter have no further rights to optionally
redeem any shares of Preferred Stock. In such event, the Company shall, at the
option of the Holder, either, (i) not later than three (3) Trading Days from
receipt of Holder's request for such election, return to the Holder all of the
shares of Preferred Stock for which such Optional Redemption Price has not been
paid in full (the "Unpaid Redemption Shares") or (ii) convert of all or any
------------------------
portion of the Unpaid Redemption Shares in which event the Per Share Market
Value for such shares shall be the lower of the Per Share Market Value
calculated on the date the Optional Redemption Price was originally due and the
Per Share Market Value as of the Holder's written demand for conversion. If the
Holder elects option (ii) above, the Company shall within three (3) Trading Days
of its receipt of such election deliver to the Holder the shares of Common Stock
issuable upon conversion of the Unpaid Redemption Shares subject to such Holder
conversion demand and otherwise perform its obligations hereunder with respect
thereto.
(c) The "Optional Redemption Price" shall equal the sum of (i) the
-------------------------
Applicable Percentage (as defined below) multiplied by the aggregate Stated
Value of the shares of Preferred Stock to be redeemed, (ii) all then accrued and
unpaid dividends in respect of such shares of Preferred Stock and (iii) all
other amounts, costs, expenses and liquidated damages due in respect of such
shares of Preferred Stock. For the purposes hereof, "Applicable Percentage"
shall mean (x)(l) for optional redemptions not satisfying the requirements of
clause (y) of this paragraph, but for which the Optional Redemption Notice meets
the requirements of clause (1) of the first sentence of Section 6(a) and such
notice is given by October 31, 1999. 110%; and (2) for optional redemptions not
satisfying the requirements of clause (y) of this paragraph, but for which the
Optional Redemption Notice meets the requirements of clause (1) of the first
sentence of Section 6(a) and such notice is given after October 31, 1999,118%
and (y)(1) if the Optional Redemption Notice is given by October 31, 1999 and is
given within two (2) Trading Days after the second consecutive Trading Day on
which the Conversion Price is less than $1.60. 110%, and (2) if the Optional
Redemption NOtice is given after October 31, 1999 and is given within two (2)
Trading Days after the second consecutive Day on which the Conversion Price is
less than $1.60, 118%.
Section 7. Redemption Upon Triggering Events.
---------------------------------
Upon the occurrence of a Triggering Event, each Holder shall (in addition
to all other rights may have hereunder or under applicable law), have the right,
exercisable at the sole option of such Holder, to require the Company to redeem
all or a portion of the Preferred Stock then held by such Holder for a
redemption price, in cash, equal to the sum of (i) the Mandatory Redemption
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions or as payment of dividends hereunder and then held by the
Holder and (B) the Per Share Market Value on the date such redemption is
demanded or the date the redemption price hereunder is paid in full, whichever
is greater (such sum, "Redemption Price"). The Redemption Price shall be due and
----------------
payable within (10) days of
12
<PAGE>
the date on which the notice for the payment therefor is provided by a Holder.
If the Company fails to pay the redemption price hereunder in full pursuant to
this Section on the date such amount is due in accordance with this Section, the
Company will pay interest thereon at a rate of 18% per annum, accruing daily
from such date until the redemption price, plus all such interest thereon, is
paid in full. For purposes of this Section, a share of Preferred Stock is
outstanding until such date as the Holder shall have received Underlying Shares
upon a conversion (or attempted conversion) thereof that meets the requirements
hereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness of
the Underlying Securities Registration Statement lapses for any reason for more
than an aggregate of three (3) Trading Days, or the Holder shall not be
permitted to resell Registrable Securities under the Underlying Securities
Registration Statement for more than an aggregate of three (3) Trading Days
(which need not be consecutive Trading Days);
(iii) the failure of the Common Stock to be listed for trading
on the NASDAQ or on a Subsequent Market or the suspension of the Common Stock
from trading on the NASDAQ or an a Subsequent Market, in either case, for more
than three (3) Trading Days (which need not be consecutive Trading Days);
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof.
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the satisfaction of
the Holders prior to the expiration of sixty (60) days from the Event Date
relating thereto (other than an Event under Sections 5(c)(i)(c) and (c) hereof);
(vii) the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-in within seven (7) days after notice
therefor is delivered hereunder; or
(viii) the Company shall not have received at least $1,500,000
either in a bona fide equity financing from any Person or in non-recurring
engineering fees from S3 Incorporated, in either case, by April 2, 1999.
13
<PAGE>
Section 8. Definitions. For the purposes hereof, the following
-----------
terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of (i) an
------------------------------
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(i) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity, consolidation or sale of all or substantially all of the assets
of the Company in one or a series of related transactions, or (iv) the execution
by the Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means at any time, a fraction, the numerator of
----------------
which is Stated Value plus accrued but unpaid dividends but only to the extent
not paid in Common Stock in accordance with the terms hereof, and the
denominator of which is the Conversion Price at such time.
"Dividend Effectiveness Date" means the earlier to occur of (x) the
---------------------------
Effectiveness Date (as defined in the Registration Rights Agreement) for the
Preferred Stock and (y) the date that an Underlying Securities Registration
Statement relating to the Preferred Stock is declared effective by the
Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Junior Securities" means the Common Stock and all other equity
-----------------
securities of the Company which are junior in rights and liquidation preference
to the Preferred Stock.
"Mandatory Redemption Amount" for each share of Preferred Stock means
---------------------------
the sum of (i) the greater of (A) the Stated Value and all accrued dividends
with respect to such share and (B) the product of (a) the Per Share Market Value
on the Trading Day immediately preceding (x) the date of the Triggering Event or
the Conversion Date, as the case may be, or (y) the date of payment in full by
the Company of the applicable redemption price, whichever is greater, and (b)
the Conversion Ratio calculated on the date of the Triggering Event, or the
Conversion Date, as the case may be, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such share of Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
-------------------
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
14
<PAGE>
"Per Share Market Value" means on any particular date (a) the closing
----------------------
bid price per share of Common Stock on such date on the NASDAQ or on the
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or on a Subsequent
Market, the closing bid price for a shares of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock are not
then publicly traded the fair market value of a Common Share as determined by an
Appraiser selected in good faith by the Holders of a majority of the shares of
the Preferred Stock.
"Person" means a corporation, in association, a partnership,
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
------------------
Agreement, dated the Original Issue Date, between the Company and the original
Holder.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated the Original Issue Date, between the Company and the original
Holder.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Subsequent Market" means any of the New York Stock Exchange, American
-----------------
Stock Exchange or Nasdaq SmallCap Market.
"Trading Day" means (a) a day on which the Common Stock is traded on
-----------
the NASDAQ or on the Subacquent Market on which the Common Stock is then listed
or quoted, as the case may be, or (b) if the Common Stock is not listed on the
NASDAQ or on a Subacquent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
-------- -------
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Securities Registration Statement" means a registration
--------------------------------------------
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Underlying Shares by the recipient thereof, who
shall be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common Stock
-----------------
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof.
15
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 4% Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "Common Stock"), of Number Nine Visual Technology
------------
Corporation (the "Company") according to the conditions hereof, as of the date
-------
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion except for such transfer taxes, if any.
Conversion calculations: _____________________________________________________
Date to Effect Conversion
_____________________________________________________
Number of shares of Preferred Stock to be Converted
_____________________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________________
Applicable Conversion Price
_____________________________________________________
Signature
_____________________________________________________
Name
_____________________________________________________
Address
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of March 31, 1999, between Number Nine Visual Technology
Corporation, a Delaware corporation (the "Company"), and KA Investments LDC, a
-------
Cayman Islands corporation (the "Purchaser ").
----------
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof between the Company and the
Purchaser (the "Purchase Agreement").
------------------
The Company and the Purchaser hereby agree as follows:
1. Definitions
-----------
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
-------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
---------- ----------- ----------
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Certificate of Designation" shall have the meaning set forth in the
--------------------------
Purchase Agreement.
"Closing Date" shall have the meaning set forth in the Purchase
------------
Agreement.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's common stock, par value $.01 per
------------
share.
<PAGE>
"Effectiveness Date" means the 90/th/ day following the Closing Date.
------------------
"Effectiveness Period" shall have the meaning set forth in Section
--------------------
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Filing Date" means the 30/th/ day following the Closing Date.
-----------
"Holder" or "Holders" means the holder or holders, as the case may be,
------ -------
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
-----------------
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
------------------
"Losses" shall have the meaning set forth in Section 5(a).
------
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's shares of 4% Series B
---------------
Convertible Preferred Stock, $.01 par value, to be issued to the Purchaser
pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable (i)
----------------------
upon conversion in full of the Preferred Stock, (ii) as payment of dividends in
respect of the Preferred Stock, assuming all dividends are paid in shares of
Common Stock and that all shares of Preferred Stock remain outstanding for three
years, and (iii) upon exercise of the Warrants; provided, that in order to
--------
account for the fact that the number of shares of Common Stock
<PAGE>
issuable upon conversion of the shares of Preferred Stock (and as the payment of
dividends thereon) is determined in part upon the market price of the Common
Stock prior to the time of conversion, Registrable Securities contemplated by
clauses (i) and (ii) above shall include (but not be limited to) a number of
shares of Common Stock equal to no less than 200% of the number of shares of
Common Stock into which the shares of Preferred Stock (together with the payment
of dividends thereon) are convertible, assuming such conversion occurred on the
Closing Date, the Filing Date or the date the Company files an acceleration
request with the Commission relating to the Registration Statement, whichever
yields the lowest Conversion Price (as defined in the Purchase Agreement),
provided, however, that in no event shall the number of Registrable Securities
- -------- -------
exceed the number of shares of Common Stock that the Company is obligated to
issue upon conversion of the Preferred Stock (and as payment of dividends
thereon) pursuant to Sections 5(a)(iii)(B) and (C) of the Certificate of
Designation.
"Registration Statement" means the registration statement and any
----------------------
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder..
"Special Counsel" means one special counsel to the Holders, for which
---------------
the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means, collectively, the Common Stock purchase warrant
--------
issued to the Purchaser pursuant to the Purchase Agreement and the Common Stock
purchase warrant issued to Brighton Capital Ltd. in connection with consulting
services provided to the Company.
-3-
<PAGE>
2. Shelf Registration
------------------
(a) On or prior to the Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by the Holders of Registrable Securities). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities Act
until the date which is three years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "Effectiveness
-------------
Period"), provided, however, that the Company shall not be deemed to have used
- ------ -------- -------
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering subject to the Company's right to approve
such underwriter (which may not be reasonably withheld or delayed). No Holder
may participate in any Underwritten Offering hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
-4-
<PAGE>
3. Registration Procedures
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by the Holders of Registrable Securities) which shall contain
the "Plan of Distribution" attached hereto as Annex A (except if otherwise
-------
directed by the Holders), and cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not
-------- -------
less than five (5) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall, (i) furnish to the Holders, their
Special Counsel and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Holders,
their Special Counsel and such managing underwriters, and (ii) cause its
officers and directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the
-5-
<PAGE>
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) File additional Registration Statements if the number of
Registrable Securities at any time exceeds the number of shares of Common Stock
then registered in a Registration Statement. The Company shall have 30 days to
file such additional Registration Statements after its receipt of notice of the
requirement thereof which the Holders may give at any time when the Registrable
Securities exceeds 85% of the number of shares of Common Stock then registered
in a Registration Statement hereunder. In such event, the Registration
Statement required to be filed by the Company shall include no less than a
number of shares of Common Stock equal to, subject to the limitations on the
Company's obligation to issue shares of Common Stock pursuant to Sections
5(a)(iii)(B) and (C) of the Certificate of Designation, no less than 200% of the
number of shares of Common Stock into which all then outstanding shares of
Preferred Stock are convertible (assuming such conversion occurred on the Filing
Date for such Registration Statement or the date of the filing of the final
acceleration request therefor, whichever date yields a lower Conversion Price)
and any other Registrable Securities not then registered in a Registration
Statement.
(d) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than five (5) days prior to such
filing) and (if requested by any such Person) confirm such notice in writing no
later than one (1) Business Day following the day (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) when the Commission notifies the Company
whether there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any
-6-
<PAGE>
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.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
-------- -------
shall not be required to take any action pursuant to this Section 3(f) that
would, in the opinion of counsel for the Company, violate applicable law or be
materially detrimental to the business prospects of the Company.
(g) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(h) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(i) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
reasonably requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
-------- -------
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take
-7-
<PAGE>
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(j) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request.
(k) Upon the occurrence of any event contemplated by Section 3(d)(vi),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an 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.
(l) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the Nasdaq National Market
("NASDAQ") or on any other stock market or trading facility on which the shares
------
of Common Stock are traded, listed or quoted (each a "Subsequent Market") as and
-----------------
when required pursuant to the Purchase Agreement.
(m) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(ii) in the case of an Underwritten Offering obtain and deliver copies thereof
to each Holder and the managing underwriters, if any, of opinions of counsel to
the Company and updates thereof addressed to each Holder and each such
underwriter, in form, scope and substance reasonably satisfactory to any such
managing underwriters and Special Counsel to the selling Holders covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, use its best reasonable
efforts to obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary
-8-
<PAGE>
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the under writers, if
any, than those set forth in Section 5 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reason ably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to Section 3(m)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(n) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
-------- -------
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not bound by a
confidentiality agreement with the Company.
(o) Comply with all applicable rules and regulations of the
Commission.
(p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement and as shall be
reasonably required to effect the registration of their Registrable Securities,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any
-9-
<PAGE>
similar Federal statute then in force) the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(h) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(d) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Sections 3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or
3(d)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(k), or until it is advised in writing (the "Advice")
------
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Registration Expenses
---------------------
-10-
<PAGE>
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, reasonable fees and
expenses (A) with respect to filings required to be made with the NASDAQ and any
Subsequent Market on which the Common Stock is then listed for trading, and (B)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders up to an aggregate of $7,500, (v) Securities Act liability insurance, if
the Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts and the costs
of printing prospectuses) and their legal counsel and accountants. By way of
illustration which is not intended to diminish from the provisions of Section
4(a), the Holders shall not be responsible for, and the Company shall be
required to pay the fees or disbursements incurred by the Company (including by
its legal counsel and accountants) in connection with, the preparation and
filing of a Registration Statement and related Prospectus for such offering, the
maintenance of such Registration Statement in accordance with the terms hereof,
the listing of the Registrable Securities in accordance with the requirements
hereof, and printing expenses incurred to comply with the requirements hereof.
5. Indemnification
---------------
-11-
<PAGE>
(a) Indemnification by the Company. The Company shall,
------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
------
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein, or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
--------------------------
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by counsel
designated by the Holders to review such Registration Statement expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus,
or in any amendment or supplement thereto. In no event shall the liability of
any selling Holder hereunder be greater in
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<PAGE>
amount than the dollar amount of the net proceeds (net of brokerage commissions)
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
--------------------------------------
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
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<PAGE>
(d) Contribution. If a claim for indemnification under Section 5(a)
------------
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
--- ----
allocation or by any other method of allo cation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
-14-
<PAGE>
6. Miscellaneous
-------------
(a) Transferability. Registrable Securities may only be disposed of
---------------
pursuant to an effective Registration Statement, to the Company or pursuant to
an available exemption from or in a transaction not subject to, the registration
requirements of the Securities Act. Notwithstanding anything herein to the
contrary, the Registrable Securities may be transferred to an Affiliate (as
defined in Rule 405 under the Securities Act) of the Purchaser or to one or more
funds under common management with the Purchaser, and among any such Affiliates
or one or more funds, provided that any such transferee certifies to the Company
that it is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and that it is acquiring the Securities solely for investment
purposes. Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of the Purchaser under this Agreement.
In addition, the Company shall cooperate reasonably with the Purchaser and such
assignee or transferee in connection with such assignment or transfer in order
to permit such assignee or transferee to resell Registrable Securities under a
Registration Statement.
(b) Remedies. In the event of a breach by the Company or by a Holder,
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(c) No Inconsistent Agreements. Neither the Company nor any of its
--------------------------
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 6(c) hereto, neither the
-------------
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(d) No Piggyback on Registrations. Except as and to the extent
-----------------------------
specified in Schedule 6(c) hereto, neither the Company nor any of its security
-------------
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
-15-
<PAGE>
(e) Piggy-Back Registrations. If at any time when there is not an
------------------------
effective Registration Statement covering all of the Registrable Securities the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered; provided, however, that the Company shall not
-------- -------
be required to register any Registrable Securities pursuant to this Section 7(d)
that are eligible for sale pursuant to Rule 144(k) of the Commission.
In connection with any offering by the Company involving an
underwriting of shares of Common Stock to be issued for the account of a
stockholder of the Company other than a Holder, if such offering is one in which
a Holder has elected to participate pursuant to this Section 6(e) and the
managing underwriter has imposed a limitation on the number of shares of Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution
of the shares of Common Stock and to maintain a stable market for the securities
of the Company, then the Company may cut-back the number of Registrable
Securities to be included in such registration statement on the following basis:
if the registration statement is for the account of a selling stockholder other
than a Holder, then all classes of the Company's stock other than the initiating
securityholder for whom such registration is intended shall first be cut-back,
provided, that all classes of the Company's stock other than the Series A
Convertible Preferred Stock and the Registrable Securities shall be cut back in
full prior to any cut-back to the Series A Preferred and the Registrable
Securities and, thereafter, the holders of the Series A Convertible Preferred
Stock and the Registrable Securities hereunder shall be cut-back pro rata, based
upon the number of shares of Common Stock and the Registrable Securities then
held by such participating securityholder. The Holders will not be subject to
any underwriter cutback in the event of any underwritten offering of Common
Stock by the Company on a primary basis.
(f) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
-------- -------
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided,
--------
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<PAGE>
however, that the provisions of this sentence may not be amended, modified, or
- -------
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(g) Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Number Nine Visual Technology Corporation
18 Hartwell Avenue
Lexington, MA
Facsimile No.:
Attn: Chief Financial Officer
With copies to: Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Neil H. Aronson, Esq.
Facsimile No.: (617) 542-2241
If to the Purchaser: KA Investments LDC
c/o Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen, Esq.
-17-
<PAGE>
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer books of
the Company or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
(h) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(i) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law. 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 and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), 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 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 in effect for 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.
(k) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
-18-
<PAGE>
(l) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
---------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By:
-------------------------------------
Name:
Title:
KA INVESTMENTS LDC
By:
-------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By:_____________________________________
Name:
Title:
KA INVESTMENTS LDC
By:/s/ [SIGNATURE ILLEGIBLE]
-------------------------------------
Name: [SIGNATURE ILLEGIBLE]
Title:[ILLEGIBLE]
<PAGE>
Annex A
-------
PLAN OF DISTRIBUTION
--------------------
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
. block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
. an exchange distribution in accordance with the rules of the applicable
exchange;
. privately negotiated transactions;
. short sales;
. broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a Selling Stockholder defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not
22
<PAGE>
expect these commissions and discounts to exceed what is customary in the types
of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
23
<PAGE>
SCHEDULE 6(C) TO THE REGISTRATION RIGHTS AGREEMENT
--------------------------------------------------
Silicon Graphics, Inc. ("SGI") currently owns 3,350,894 shares of Series A
Preferred Stock, $.01 par value per share, (the "Series A Preferred") and a
warrant to purchase for a period of three years commencing on August 11, 1998 at
an exercise price of $2.75 per share up to that number of shares of Series A
Preferred Stock equal to 3% of the Company's then issued and outstanding Common
Stock at the time of exercise (the shares underlying the Warrant together with
the Series A Preferred, "the SGI Shares"). The Company and SGI have entered into
the following agreements regarding the SGI Shares:
1. An Investor Rights Agreement dated August 11, 1998 by and between the
Company and SGI.
2. A Registration Rights Agreement by and between the Company and SGI dated
March 31, 1999 attached to Schedule 6(c) hereto.
9
<PAGE>
EXHIBIT C
FORM OF LEGAL OPINION
1. Each of the Company and its Subsidiaries is a corporation, duly
incorporated, validly existing and in corporate good standing under the laws of
the jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than the
Subsidiaries. Each of the Company and the Subsidiaries is duly qualified to do
business and is in corporate good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary or where the failure to so qualify would
not have a materially adverse effect on the Company and/or its Subsidiaries.
2. The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution
and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. Each of the
Transaction Documents has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited as stated in this opinion.
3. Except as set forth in the Disclosure Schedules to the Purchase
Agreement, no shares of common stock of the Company, par value $.01 per share
("Common Stock"), are entitled to preemptive or similar rights.
------------
4. The Shares and the Warrant have been duly authorized and, when paid
for and issued in accordance with the terms of the Purchase Agreement shall have
been validly issued, fully paid and nonassessable.
5. The Company has duly authorized (subject to shareholder approval as
contemplated by Section 5 of the Certificate of Designation) and reserved for
issuance the Initial Minimum as required pursuant to the terms of the Purchase
Agreement, the Certificate of Designation and the Warrant, respectively. When
issued by the Company in accordance with the terms of the Purchase Agreement,
the Certificate of Designation and the Warrant (as the case may be), such
Underlying Shares will be validly issued, fully paid and nonassessable.
6. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated by such agreements do not and will not (i) conflict with or violate
any provision of its Certificate of Incorporation or Bylaws, (ii)(A) except as
set forth in the Disclosure Schedule to the Purchase
<PAGE>
Agreement, conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or other written instrument relating to indebtedness of the
Company or instrument to which the Company is a party and filed by the Company
with the Securities and Exchange Commission since January 1, 1997, or (B) to our
knowledge, conflict with, or constitute a default under any other material
agreements to which the Company is a party, or (iii) result in (a) a violation
of any law, rule or regulation (other than state and foreign blue sky laws), or
(b) any order, judgment, injunction, decree or other restriction, to our
knowledge, of any court or governmental authority to which the Company is
subject, or by which any property or asset of the Company is bound or affected
or any other restriction of which we have knowledge. To our knowledge, the
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, the violation of which
would have a materially adverse effect on the Company.
7. Other than the Required Approvals, neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other Federal, state,
local or other governmental authority or other person in connection with the
execution, delivery and performance by the Company of the Transaction Documents.
Notwithstanding the foregoing, no opinion is provided hereunder as to whether
the issuance of the Shares or the Warrant to the Purchasers requires a filing
with the U.S. Department of Justice in accordance with the provisions of the
Hart-Scott-Rodino Act.
8. To our knowledge, the Company has filed all reports required to be
filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (collectively, the "SEC Documents") on a timely
basis, or has received a valid extension of such time of filing and made such
filing within the applicable grace period. As of their respective dates, the SEC
Documents complied in all material respects as to form with the requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
9. Assuming the accuracy of the representations and warranties of the
Company set forth in Section 2.1 of the Purchase Agreement and of the Purchaser
set forth in Section 2.2 of the Purchase Agreement, the offer, issuance and sale
of the Shares and the Warrant and the offer, issuance and sale of the Underlying
Shares to the Purchasers pursuant to the Purchase Agreement, the Certificate of
Designation and the Warrant are exempt from the registration requirements of the
Securities Act.
<PAGE>
EXHIBIT D
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
WARRANT
-------
Dated: March 31, 1999
Number Nine Visual Technology Corporation, a Delaware corporation (the
"Company"), hereby certifies that, for value received, KA Investments LDC, or
its registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 195,000 shares of Common
Stock, $.01 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $3.45 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including March 31, 2002 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
<PAGE>
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Transfer
Agent or to the Company at the office specified in or pursuant to Section 3(b).
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 8:00 P.M., New York City time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
8:00 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except (i) either in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated
-2-
<PAGE>
by the Holder to receive Warrant Shares shall be deemed to have become holder of
record of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the Effectiveness Period
-----------------------------
(as defined in the Registration Rights Agreement, of even date herewith, between
the Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 20 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of this
--------------------------
Warrant when the Warrant Shares are not registered pursuant to an effective
registration statement, the Holder may make a written request for the
registration under the Securities Act (a "Demand Registration"), of all of the
Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 5 shall be
limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all of its registration expenses in
-3-
<PAGE>
connection therewith. A Demand Registration shall not be counted as a Demand
Registration hereunder until the registration statement filed pursuant to the
Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
360 day period.
6. Payment of Taxes. The Company will pay all U.S. documentary
----------------
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant
-4-
<PAGE>
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of
-5-
<PAGE>
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Company's independent certified public accountants that
regularly examines the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock for a consideration per
share less than the Exercise Price then in effect, other than issuances pursuant
to any (a) stockholder approved stock option or stock purchase program solely to
employees of the Company, (b) any acquisition, licensing joint venture or
strategic partnership not primarily for the purpose of raising capital, or (c)
conversion of any options, warrants or other convertible securities outstanding
on the date hereof, then, forthwith upon such issue or sale, the Exercise Price
shall be reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance, and (ii) the number
of shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise or conversion in full of such rights, warrants and
convertible securities) for the issuance of such additional shares of Common
Stock would purchase at the Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall 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) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
-6-
<PAGE>
(g) Whenever the Exercise Price is adjusted pursuant to Section
9(c) above, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case the adjustment shall be
equal to the average of the adjustments recommended by each of the Appraiser and
such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(h) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which
the Company is a party, any sale or transfer of
all or substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
-7-
<PAGE>
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately
-------------
available funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant
-----------------
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the
Common Stock for the five (5) trading days immediately
prior to (but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant
-8-
<PAGE>
so presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 11, be issuable on the exercise of this Warrant, the
Company shall pay an amount in cash equal to the Exercise Price multiplied by
such fraction.
12. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
18 Hartwell Avenue, Lexington, MA 02421-3141, Attention: Chief Financial
Officer, or to facsimile no. (781) 869-7190, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 12.
13. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
-9-
<PAGE>
(c) 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 Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
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.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By:
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Number Nine Visual Technology Corporation:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of Number
Nine Visual Technology Corporation and , if such Holder is not utilizing the
cashless exercise provisions set forth in this Warrant, encloses herewith
$________ in cash, certified or official bank check or checks, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR
TAX IDENTIFICATION NUMBER
_____________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:______, _____ Name of Holder:
(Print)___________________________
(By:)_____________________________
(Name:)
(Title:)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Number Nine Visual
Technology Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Number Nine
Visual Technology Corporation with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
EXHIBIT E
TRANSFER AGENT INSTRUCTIONS
Ladies and Gentlemen:
Reference is made to that certain Convertible Preferred Stock Purchase
Agreement (the "PURCHASE AGREEMENT") between Number Nine Visual Technology
Corporation, a Delaware corporation (the "COMPANY"), and the buyer named
therein (the "HOLDER") pursuant to which the Company is issuing to the Holder
its shares of 4% Series B Convertible Preferred Stock, par value $.01 per
share (the "PREFERRED SHARES"), and a Common Stock purchase warrant
(the "WARRANT") which shall be convertible and exercisable, respectively,
into shares of the Common Stock issuable upon conversion of the Preferred
Shares, payment of dividends thereon, and upon exercise of the Warrant are
collectively referred to herein as "UNDERLYING SHARES."
This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent for the Company with respect to
its Common Stock at such time) to issue Underlying Shares from time to time
upon notice from the Company to issue such Underlying Shares. So long as you
have previously received (x) an opinion of the Company's outside counsel
substantially in the form of EXHIBIT 1 attached hereto (which the Company shall
direct be delivered to you by such outside counsel upon the effectiveness of the
registration statement covering resales of Underlying Shares) stating that a
registration statement covering resales of Underlying Shares has been declared
effective by the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and that Underlying Shares may be issued (or reissued
if they have been issued at a time when there was not such an effective
registration statement) or resold without any restrictive legend
(the "OPINION") and (y) a copy of such registration statement, then certificates
representing Underlying Shares shall not bear any legend restricting transfer
of Underlying Shares thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received a
copy of the Opinion and such registration statement, then the certificates
representing Underlying Shares shall bear the following legend.
-1-
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
and, provided, further, that the Company may, from time to time, notify you to
place stop-transfer restrictions on the certificates for Underlying Shares in
the event, but only in the event, a registration statement covering Underlying
Shares is subject to amendment for events then current.
Please be advised that the Holder has relied upon this instruction letter
as an inducement to enter into the Purchase Agreement and, accordingly, the
Holder is a third party beneficiary to these instructions, provided, that any
rights the Holder may have may only be exercised against the Company.
-2-
<PAGE>
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at (781) 869-7120.
Very truly yours,
Number Nine Visual Technology
Corporation
By:______________________________
Name:____________________________
Title:___________________________
ACKNOWLEDGED:
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
-3-
<PAGE>
EXHIBIT I
[FORM OF OUTSIDE COUNSEL OPINION]
[ADDRESSEE]
[ADDRESS]
To Whom It May Concern:
The Registration Statement on Form S-3 (File No. 333-__________) of Number
Nine Visual Technology Corporation (the "Registration Statement") was declared
effective at ___:_____ __.M. Eastern Time on ___________, 1999. Upon issuance of
the Underlying Shares referred to in the Company's instruction letter attached,
you are authorized to issue certificates for the Company's common stock without
restrictive legends.
Very truly yours,
-4-
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of March 31, 1999, between Number Nine Visual Technology
Corporation, a Delaware corporation (the "Company"), and KA Investments LDC, a
-------
Cayman Islands corporation (the "Purchaser ").
----------
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof between the Company and the
Purchaser (the "Purchase Agreement").
------------------
The Company and the Purchaser hereby agree as follows:
1. Definitions
-----------
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
-------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
---------- ----------- ----------
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Certificate of Designation" shall have the meaning set forth in the
--------------------------
Purchase Agreement.
"Closing Date" shall have the meaning set forth in the Purchase
------------
Agreement.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's common stock, par value $.01 per
------------
share.
<PAGE>
"Effectiveness Date" means the 90/th/ day following the Closing Date.
------------------
"Effectiveness Period" shall have the meaning set forth in Section
--------------------
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Filing Date" means the 30/th/ day following the Closing Date.
-----------
"Holder" or "Holders" means the holder or holders, as the case may be,
------ -------
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
-----------------
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
------------------
"Losses" shall have the meaning set forth in Section 5(a).
------
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's shares of 4% Series B
---------------
Convertible Preferred Stock, $.01 par value, to be issued to the Purchaser
pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable (i)
----------------------
upon conversion in full of the Preferred Stock, (ii) as payment of dividends in
respect of the Preferred Stock, assuming all dividends are paid in shares of
Common Stock and that all shares of Preferred Stock remain outstanding for three
years, and (iii) upon exercise of the Warrants; provided, that in order to
--------
account for the fact that the number of shares of Common Stock
<PAGE>
issuable upon conversion of the shares of Preferred Stock (and as the payment of
dividends thereon) is determined in part upon the market price of the Common
Stock prior to the time of conversion, Registrable Securities contemplated by
clauses (i) and (ii) above shall include (but not be limited to) a number of
shares of Common Stock equal to no less than 200% of the number of shares of
Common Stock into which the shares of Preferred Stock (together with the payment
of dividends thereon) are convertible, assuming such conversion occurred on the
Closing Date, the Filing Date or the date the Company files an acceleration
request with the Commission relating to the Registration Statement, whichever
yields the lowest Conversion Price (as defined in the Purchase Agreement),
provided, however, that in no event shall the number of Registrable Securities
- -------- -------
exceed the number of shares of Common Stock that the Company is obligated to
issue upon conversion of the Preferred Stock (and as payment of dividends
thereon) pursuant to Sections 5(a)(iii)(B) and (C) of the Certificate of
Designation.
"Registration Statement" means the registration statement and any
----------------------
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder..
"Special Counsel" means one special counsel to the Holders, for which
---------------
the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means, collectively, the Common Stock purchase warrant
--------
issued to the Purchaser pursuant to the Purchase Agreement and the Common Stock
purchase warrant issued to Brighton Capital Ltd. in connection with consulting
services provided to the Company.
-3-
<PAGE>
2. Shelf Registration
------------------
(a) On or prior to the Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (or if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by the Holders of Registrable Securities). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities Act
until the date which is three years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "Effectiveness
-------------
Period"), provided, however, that the Company shall not be deemed to have used
- ------ -------- -------
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering subject to the Company's right to approve
such underwriter (which may not be reasonably withheld or delayed). No Holder
may participate in any Underwritten Offering hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
-4-
<PAGE>
3. Registration Procedures
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by the Holders of Registrable Securities) which shall contain
the "Plan of Distribution" attached hereto as Annex A (except if otherwise
-------
directed by the Holders), and cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not
-------- -------
less than five (5) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall, (i) furnish to the Holders, their
Special Counsel and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Holders,
their Special Counsel and such managing underwriters, and (ii) cause its
officers and directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the
-5-
<PAGE>
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) File additional Registration Statements if the number of
Registrable Securities at any time exceeds the number of shares of Common Stock
then registered in a Registration Statement. The Company shall have 30 days to
file such additional Registration Statements after its receipt of notice of the
requirement thereof which the Holders may give at any time when the Registrable
Securities exceeds 85% of the number of shares of Common Stock then registered
in a Registration Statement hereunder. In such event, the Registration
Statement required to be filed by the Company shall include no less than a
number of shares of Common Stock equal to, subject to the limitations on the
Company's obligation to issue shares of Common Stock pursuant to Sections
5(a)(iii)(B) and (C) of the Certificate of Designation, no less than 200% of the
number of shares of Common Stock into which all then outstanding shares of
Preferred Stock are convertible (assuming such conversion occurred on the Filing
Date for such Registration Statement or the date of the filing of the final
acceleration request therefor, whichever date yields a lower Conversion Price)
and any other Registrable Securities not then registered in a Registration
Statement.
(d) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than five (5) days prior to such
filing) and (if requested by any such Person) confirm such notice in writing no
later than one (1) Business Day following the day (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) when the Commission notifies the Company
whether there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any
-6-
<PAGE>
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.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
-------- -------
shall not be required to take any action pursuant to this Section 3(f) that
would, in the opinion of counsel for the Company, violate applicable law or be
materially detrimental to the business prospects of the Company.
(g) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(h) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(i) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
reasonably requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
-------- -------
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take
-7-
<PAGE>
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(j) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request.
(k) Upon the occurrence of any event contemplated by Section 3(d)(vi),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an 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.
(l) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the Nasdaq National Market
("NASDAQ") or on any other stock market or trading facility on which the shares
------
of Common Stock are traded, listed or quoted (each a "Subsequent Market") as and
-----------------
when required pursuant to the Purchase Agreement.
(m) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(ii) in the case of an Underwritten Offering obtain and deliver copies thereof
to each Holder and the managing underwriters, if any, of opinions of counsel to
the Company and updates thereof addressed to each Holder and each such
underwriter, in form, scope and substance reasonably satisfactory to any such
managing underwriters and Special Counsel to the selling Holders covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, use its best reasonable
efforts to obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary
-8-
<PAGE>
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the under writers, if
any, than those set forth in Section 5 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reason ably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to Section 3(m)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(n) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
-------- -------
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not bound by a
confidentiality agreement with the Company.
(o) Comply with all applicable rules and regulations of the
Commission.
(p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement and as shall be
reasonably required to effect the registration of their Registrable Securities,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any
-9-
<PAGE>
similar Federal statute then in force) the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(h) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(d) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Sections 3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or
3(d)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(k), or until it is advised in writing (the "Advice")
------
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Registration Expenses
---------------------
-10-
<PAGE>
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, reasonable fees and
expenses (A) with respect to filings required to be made with the NASDAQ and any
Subsequent Market on which the Common Stock is then listed for trading, and (B)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders up to an aggregate of $7,500, (v) Securities Act liability insurance, if
the Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts and the costs
of printing prospectuses) and their legal counsel and accountants. By way of
illustration which is not intended to diminish from the provisions of Section
4(a), the Holders shall not be responsible for, and the Company shall be
required to pay the fees or disbursements incurred by the Company (including by
its legal counsel and accountants) in connection with, the preparation and
filing of a Registration Statement and related Prospectus for such offering, the
maintenance of such Registration Statement in accordance with the terms hereof,
the listing of the Registrable Securities in accordance with the requirements
hereof, and printing expenses incurred to comply with the requirements hereof.
5. Indemnification
---------------
-11-
<PAGE>
(a) Indemnification by the Company. The Company shall,
------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
------
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein, or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
--------------------------
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by counsel
designated by the Holders to review such Registration Statement expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus,
or in any amendment or supplement thereto. In no event shall the liability of
any selling Holder hereunder be greater in
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<PAGE>
amount than the dollar amount of the net proceeds (net of brokerage commissions)
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
--------------------------------------
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
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<PAGE>
(d) Contribution. If a claim for indemnification under Section 5(a)
------------
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
--- ----
allocation or by any other method of allo cation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
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<PAGE>
6. Miscellaneous
-------------
(a) Transferability. Registrable Securities may only be disposed of
---------------
pursuant to an effective Registration Statement, to the Company or pursuant to
an available exemption from or in a transaction not subject to, the registration
requirements of the Securities Act. Notwithstanding anything herein to the
contrary, the Registrable Securities may be transferred to an Affiliate (as
defined in Rule 405 under the Securities Act) of the Purchaser or to one or more
funds under common management with the Purchaser, and among any such Affiliates
or one or more funds, provided that any such transferee certifies to the Company
that it is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and that it is acquiring the Securities solely for investment
purposes. Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of the Purchaser under this Agreement.
In addition, the Company shall cooperate reasonably with the Purchaser and such
assignee or transferee in connection with such assignment or transfer in order
to permit such assignee or transferee to resell Registrable Securities under a
Registration Statement.
(b) Remedies. In the event of a breach by the Company or by a Holder,
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(c) No Inconsistent Agreements. Neither the Company nor any of its
--------------------------
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 6(c) hereto, neither the
-------------
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(d) No Piggyback on Registrations. Except as and to the extent
-----------------------------
specified in Schedule 6(c) hereto, neither the Company nor any of its security
-------------
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
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<PAGE>
(e) Piggy-Back Registrations. If at any time when there is not an
------------------------
effective Registration Statement covering all of the Registrable Securities the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered; provided, however, that the Company shall not
-------- -------
be required to register any Registrable Securities pursuant to this Section 7(d)
that are eligible for sale pursuant to Rule 144(k) of the Commission.
In connection with any offering by the Company involving an
underwriting of shares of Common Stock to be issued for the account of a
stockholder of the Company other than a Holder, if such offering is one in which
a Holder has elected to participate pursuant to this Section 6(e) and the
managing underwriter has imposed a limitation on the number of shares of Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution
of the shares of Common Stock and to maintain a stable market for the securities
of the Company, then the Company may cut-back the number of Registrable
Securities to be included in such registration statement on the following basis:
if the registration statement is for the account of a selling stockholder other
than a Holder, then all classes of the Company's stock other than the initiating
securityholder for whom such registration is intended shall first be cut-back,
provided, that all classes of the Company's stock other than the Series A
Convertible Preferred Stock and the Registrable Securities shall be cut back in
full prior to any cut-back to the Series A Preferred and the Registrable
Securities and, thereafter, the holders of the Series A Convertible Preferred
Stock and the Registrable Securities hereunder shall be cut-back pro rata, based
upon the number of shares of Common Stock and the Registrable Securities then
held by such participating securityholder. The Holders will not be subject to
any underwriter cutback in the event of any underwritten offering of Common
Stock by the Company on a primary basis.
(f) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
-------- -------
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided,
--------
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<PAGE>
however, that the provisions of this sentence may not be amended, modified, or
- -------
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(g) Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Number Nine Visual Technology Corporation
18 Hartwell Avenue
Lexington, MA
Facsimile No.:
Attn: Chief Financial Officer
With copies to: Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Neil H. Aronson, Esq.
Facsimile No.: (617) 542-2241
If to the Purchaser: KA Investments LDC
c/o Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen, Esq.
-17-
<PAGE>
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer books of
the Company or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
(h) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(i) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law. 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 and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), 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 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 in effect for 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.
(k) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
-18-
<PAGE>
(l) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
---------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By:/s/
-------------------------------------
Name:
Title:
KA INVESTMENTS LDC
By:_____________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By:_____________________________________
Name:
Title:
KA INVESTMENTS LDC
By:/s/
-------------------------------------
Name:
Title:
<PAGE>
Annex A
-------
PLAN OF DISTRIBUTION
--------------------
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
. block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
. an exchange distribution in accordance with the rules of the applicable
exchange;
. privately negotiated transactions;
. short sales;
. broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a Selling Stockholder defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not
22
<PAGE>
expect these commissions and discounts to exceed what is customary in the types
of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
23
<PAGE>
SCHEDULE 6(C) TO THE REGISTRATION RIGHTS AGREEMENT
--------------------------------------------------
Silicon Graphics, Inc. ("SGI") currently owns 3,350,894 shares of Series A
Preferred Stock, $.01 par value per share, (the "Series A Preferred") and a
warrant to purchase for a period of three years commencing on August 11, 1998 at
an exercise price of $2.75 per share up to that number of shares of Series A
Preferred Stock equal to 3% of the Company's then issued and outstanding Common
Stock at the time of exercise (the shares underlying the Warrant together with
the Series A Preferred, "the SGI Shares"). The Company and SGI have entered into
the following agreements regarding the SGI Shares:
1. An Investor Rights Agreement dated August 11, 1998 by and between the
Company and SGI.
2. A Registration Rights Agreement by and between the Company and SGI dated
March 31, 1999 attached to Schedule 6(c) hereto.
9
<PAGE>
EXHIBIT 4.3
DRAFT
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE
EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER PROVISIONS OF THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS;
AND IN THE CASE OF ANY EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE WARRANT OR THE OTHER SECURITIES.
WARRANT TO PURCHASE THIRTY THOUSAND (30,000) SHARES OF COMMON STOCK OF
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
Warrant No. BL-1 Void After March 31, 2002
-------------------------------------
THIS CERTIFIES THAT, for value received, Brighton Capital Ltd. ("Brighton")
or assigns (Brighton, or such assigns who may be the registered holder or
holders hereof, are hereinafter referred to as the "Holder") is entitled to
subscribe for and purchase Thirty Thousand (30,000) shares of the fully paid and
nonassessable Common Stock (as adjusted pursuant to Section 7 hereof,
hereinafter, the "Warrant Shares") of Number Nine Visual Technology Corporation,
---------------
a Delaware corporation (hereinafter, the "Company"), at a purchase price of
---------
$3.45, per share (such price and such other price as shall result, from time to
time, from the adjustments specified in Section 7 hereof is herein referred to
as the "Exercise Price"), subject to the provisions and upon the terms and
----------------
conditions hereinafter set forth. As used herein, the term "Common Stock" shall
mean the Company's presently authorized Common Stock, $.01 par value per share,
and any stock into which such Common Stock may hereafter be exchanged.
1. Registration of Warrant. The Company shall register this Warrant, upon
--------------- -------
records to be maintained by the Company for that purpose (the "Warrant
-------
Register"), in the name of the record Holder hereof from time to time. The
- ----------
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
<PAGE>
2. Registration of Transfers and Exchanges.
--------------- -----------------------
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
-------------
this Warrant so transferred shall be issued to the transferee (a "Transferee")
-----------
and a New Warrant evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Warrant by the Transferee thereof shall be deemed the acceptance of
such Transferee of all of the rights and obligations of a holder of a Warrant,
including the obligations with regard to a mandatory conversion as set forth
herein.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration, Exercise of Warrants and Redemption.
--------------------- ------------ ----------
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:00 P.M., Eastern Standard time, at any time and from time
to time on or after March 31, 1999 to and including 5:00 P.M. Boston time on
March 31, 2002 (the "Expiration Date"). At 5:00 P.M., Eastern Standard time on
the Expiration Date, the portion of this Warrant not exercised prior thereto
shall be and become void and of no value.
(b) Subject to Sections 2(b), 5 and 9, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its office at 18 Hartwell Avenue, Lexington, Massachusetts
02173, Attention: Assistant Treasurer, or at such other address as the Company
may specify in writing to the then registered Holder, and upon payment of the
Exercise Price multiplied by the number of Warrant Shares that the Holder
intends to purchase hereunder, in lawful money of the United States of America,
by certified or official bank check or checks or wire transfer, all as specified
by the Holder in the Form of Election to Purchase, the Company shall promptly
(but in no event later than five (5) business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends other than legends which the Company may reasonably
deem necessary to comply with applicable state and federal securities laws for
the issuance of such securities and any legends placed on all registered shares
of the Company relating to the then current agreement between the Company and
its transfer agent relating to the issuance of "rights" to all holders of the
Company's Common Stock. Any person so designated by the Holder to receive
Warrant Shares shall be deemed to have become holder of record of such Warrant
Shares as of the Date of Exercise of this Warrant.
2
<PAGE>
A "Date of Exercise" means the date on which the Company shall have
------- --------
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all of
the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
(d) In the event of a sale of substantially all the assets of the
Company or a merger or consolidation of the Company with or into any other
entity (other than a merger the sole purpose of which is to change the state of
incorporation of the Company) or a dissolution or the adoption of a plan of
liquidation of the Company, this Warrant shall terminate on the effective date
of such sale, merger, consolidation, dissolution or adoption (the "Effective
---------
Date") and become null and void, provided, however, that if this Warrant shall
- ----- --------- -------
not have otherwise terminated or expired, the Registered Holder hereof shall
have the right until 5:00 p.m. Eastern Standard time on the day immediately
prior to the Effective Date to exercise its rights hereunder.
4. Payment of Taxes. The Company will pay all documentary stamp taxes
----------------
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
----------------------
destroyed, the Company may in its discretion issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company covenants that it will at
-------------- --------------
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the
3
<PAGE>
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 7). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
7. Certain Adjustments. The Exercise Price and number of Warrant Shares
-------------------
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 7. Upon each such adjustment of the Exercise
Price pursuant to this Section 7, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below), (ii) subdivide outstanding shares
of Common Stock into a larger number of shares, or (iii) combine outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, then the
Holder shall have the right thereafter to exercise this Warrant only into the
shares of stock and other securities of the Company and property receivable upon
or deemed to be held by holders of Common Stock following such reclassification,
and the Holder shall be entitled upon such event to receive such amount of
securities or property equal to the amount of Warrant Shares such Holder would
have been entitled to had such Holder exercised this Warrant immediately prior
to such reclassification. The terms of any such reclassification shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification.
(c) For the purposes of this Section 7, the following clauses shall
also be applicable:
(i) Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities
4
<PAGE>
convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall
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) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held
by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 7 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on its Common Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights; or
(iv) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common
Stock of the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property of the Company or any third party; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close; provided, however, that the failure to mail such notice or any defect
--------- -------
5
<PAGE>
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.
8. Fractional Shares. The Company shall not be required to issue or cause
-----------------
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 8, be issuable on
the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
9. Notices. Any and all notices or other communications or deliveries
-------
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern Standard Time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:30 p.m. (Eastern Standard Time) on any date and earlier
than 11:59 p.m. (Eastern Standard Time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (1) if to
the Company, to Number Nine Visual Technology, Inc., 18 Hartwell Avenue,
Lexington, MA 02173, Attention: Assistant Treasurer (or to facsimile no. (781)
674-0009) with a copy to Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., One
Financial Center, Boston, MA 02111, Attention: Neil H. Aronson, Esquire (or
facsimile no. (617) 542-2241) or (ii) if to the Holder, to the Holder at the
address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section 10.
10. Warrant Agent.
-------------
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent (the "New Warrant Agent").
-------------------
(b) Any corporation into which any New Warrant Agent may be merged or
any corporation resulting from any consolidation to which any New Warrant Agent
shall be a party or any corporation to which any New Warrant Agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
6
<PAGE>
11. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 11(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Massachusetts without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f) Nothing contained in this Warrant shall be construed as conferring
upon the holder hereof the right to vote or to consent as stockholders in
respect of the meetings of stockholders or the election of members of the Board
of Directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company. Notwithstanding the foregoing,
the Company will furnish to each holder of any Warrants, promptly upon their
becoming available, copies of all financial statements, reports, notices and
proxy statements sent or made available generally by the Company to its
stockholders or otherwise filed pursuant to the provisions of the Securities Act
or the Exchange Act.
[THIS SPACE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its duly authorized officer on the date first written above.
NUMBER NINE VISUAL TECHNOLOGY, INC.
By:
------------------------------
ATTEST:
- -------------------------
[Seal]
8
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
Number Nine Visual Technology, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase
-------------
shares of Common Stock, .01 par value ("Common Stock"), of Number Nine Visual
--------------
Technology, Inc. and encloses herewith $ in cash or certified or
---------
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER
-------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:
--------------, ------ -------------------------------------------------
(Signature)
(Print)
------------------------------------------
(By:)
--------------------------------------------
(Name:)
------------------------------------------
(Title:)
-----------------------------------------
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)
9
<PAGE>
FORM OF ELECTION TO TRANSFER
----------------------------
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the right represented by the within
-----------------------------------
Warrant to purchase shares of Common Stock of Number Nine Visual
-------------
Technology Corporation to which the within Warrant relates and appoints
attorney to transfer said right on the books of Number Nine
- -----------------
Visual Technology Corporation with full power of substitution in the premises.
Dated:
- -------------------, ------
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
--------------------------------------------------
Address of Transferee
--------------------------------------------------
--------------------------------------------------
In the presence of:
- ------------------------------
10
<PAGE>
EXHIBIT 4.4
State of Delaware
Office of the Secretary of State Page 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "NUMBER NINE VISUAL TECHNOLOGY CORPORATION", FILED IN THIS OFFICE
ON THE THIRTIETH DAY OF MARCH, A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State
2463735 8100 AUTHENTICATION: 9659376
991123300 DATE: 03-30-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/30/1999
991123300 - 2463735
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
NUMBER NINE VISUAL TECHNOLOGY CORPORATION, a Delaware corporation (the
"Coporation"), does hereby certify that, pursuant to authority conferred on the
Board of Directors of the Corporation by the Certificate of Incorporation of the
Corporation, as amended, and pursuant to the provisions of Section 151 of Title
8 of the Delaware Code, the Board of Directors, by unanimous Consent of the
Board of Directors dated March 29, 1999 adopted a resolution providing for the
designation, preferences and relative, participating, optional or other rights,
and qualifications, limitations or restrictions thereof, of Three Hundred (300)
shares of the Coporation's Preferred Stock, par value $.01 per share, which
resolution is as follows:
RESOLVED: That the Board hereby designates a series of Preferred Stock of the
Corporation, par value $.01 per share (the "Preffered Stock"),
consisting of 300 shares of the authorized unissued Preferred Stock as
Series B Convertible Preferred Stock (the "Series B Preferred Stock"),
and that William L. Ralph, Assistant Treasurer of the Corporation, and
the other officers of the Corporation, each acting singly, are hereby
authorized, empowered and directed to file with the Secretary of State
of the State of Delaware a Certificate of Designation, Preferences and
Rights of the Series B Convertible Preferred Stock (the "Certificate
of Designation") in substantially the form attached hereto as Exhibit
C as such officer or officers shall deem necessary or advisable to
carry out the purposes of this Resolution.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer this 29th day of March,
1999.
NUMBER NINE VISUAL
TECHNOLOGY CORPORATION
By: /s/ William L. Ralph
------------------------
Name: William L. Ralph
Title: Assistant Treasurer
Attest:
/s/ Neil H. Aronson
- --------------------------------
Neil H. Aronson, Secretary
1
<PAGE>
Term of Preferred Stock
Section 1. Designation, Amount and Par Value. The series of
---------------------------------
preferred stock shall be designated as 4% Series B Convertible Preferred Stock
(the "Preferred Stock") and the number of shares so designated shall be 300
---------------
(which shall not be subject to increase without the consent of the holders of
the Preferred Stock (each, a "Holder" and collectively, the "Holders")). Each
------ -------
share of Preferred Stock shall have a par value of $.01 and a stated value of
$10,000 (the "Stated Value").
------------
Section 2. Dividends.
---------
(a) Holders shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) of 4% per annum, payable, subject to the provisions of
this Section 2(a), on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year while such share is outstanding (each a "Dividend
--------
Payment Date") and on each Conversion Date (as defined herein) for such share,
- ------------
commencing on the earlier to occur of the Conversion Date for such share and
June 30, 1999, in cash or shares of Common Stock (as defined in Section 8).
Subject to the terms and conditions herein, the decision whether to pay
dividends hereunder in Common Stock or cash shall be at the discretion of the
Company. Dividends on the Preferred Stock shall be calculated on the basis of a
360-day year, shall accrue daily commencing on the Original Issue Date (as
defined in Section 8), and shall be deemed to accrue from such date whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Company legally available for the payment of dividends, unless the
Company provides the Holder with an unqualified legal opinion of its outside
counsel (both of which legal opinion and counsel are acceptable to the Holder)
that the accrual of any such dividend (as opposed to payment) is not permitted
at such time under the General Corporation Law of the State of Delaware. A party
that holds shares of Preferred Stock on the record date with respect to a
Dividend Payment Date will be entitled to receive such dividend payment and any
other accrued and unpaid dividends which accrued prior to such Dividend Payment
Date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date. Except as otherwise provided herein,
if at any time the Company pays less than the total amount of dividends then
accrued on account of the Preferred Stock, such payment shall be distributed
ratably among the Holders based upon the number of shares of Preferred Stock
held by each Holder. If the Company is permitted hereunder to pay dividends in
shares of Common Stock, then the number of shares of Common Stock issuable on
account of such dividend shall equal the cash amount of such dividend on either
the Dividend Payment Date or the Conversion Date, as applicable, divided by the
Conversion Price (as defined herein) on such date. Any dividends to be paid in
cash hereunder that are not paid within three (3) Trading Days (as defined in
Section 8) following a Conversion Date or Dividend Payment Date, as applicable,
shall continue to accrue and shall entail a late fee, which must be paid in
cash, at the rate of 18% per annum (such fees to accrue daily, from the date
such dividend is due hereunder through and including the date of payment). The
Company shall provide the Holders written notice of its intention to pay
dividends in cash or shares of Common Stock not less than ten (10) days prior to
any Dividend Payment Date for so long as shares of Preferred Stock are
outstanding (the Company may indicate in such notice the maximum amount of cash
dividends that it intends to pay during such period). Failure to timely provide
such notice shall be deemed an election by the Company to pay dividends for such
period in shares of Common Stock pursuant to the terms hereof.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not
<PAGE>
issue shares of Common Stock in payment of dividends on the Preferred Stock (and
must deliver cash in respect thereof, subject to the provisions of Section 2(a)
with respect to applicable law) if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) after the Dividend Effectiveness Date (as defined in
Section 8), such shares (x) are not registered for resale pursuant to an
effective Underlying Securities Registration Statement (as defined in Section
8), or (y) may not be sold without volume restrictions pursuant to Rule 144
promulgated under the Securities Act (as defined in Section 8), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the applicable
Holder and such transfer agent (if the Company is permitted and elects to pay
dividends in shares of Common Stock under this clause (ii) prior to the Dividend
Effectiveness Date and thereafter an Underlying Securities Registration
Statement shall be declared effective by the Commission (as defined in Section
8), the Company shall, within three (3) Trading Days after the date of such
declaration of effectiveness, exchange such shares for shares of Common Stock
that are free of restrictive legends of any kind);
(iii) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(iv) the issuance of such shares would result in a violation of
Section 5(a)(iii) or the rules of the Nasdaq Stock Market, Inc. or any other
rules and regulations governing any Subsequent Market (as defined in Section 8)
on which the Common Stock is then listed or quoted for trading.
(c) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 8),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5
or dividends due and paid in the ordinary course on preferred stock of the
Company at such times when the Company is in compliance with its payment and
other obligations hereunder) upon, nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied to
the purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein and
-------------
as otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the Holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise pari passu with the Preferred Stock, (c)
amend its certificate of incorporation or other charter documents so as to
affect adversely any rights of the Holders, (d) increase the authorized number
of shares of Preferred Stock, or (e) enter into any agreement with respect to
the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
-----------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
-----------
the Holders shall be entitled, subject to the rights of the holders of the
Company's Series A Convertible Preferred Stock to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an
2
<PAGE>
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record Holder.
Section 5. Conversion.
----------
(a)(i) Conversions at Option of Holder. Each share of Preferred Stock
-------------------------------
shall be convertible into shares of Common Stock (subject to the limitations set
forth in Section 5(a)(iii)), at the Conversion Ratio (as defined in Section 8),
at the option of the Holder at any time and from time to time from and after
July 28, 1999 (the "Initial Conversion Date"); provided, that, (A) on and after
----------------------- --------
the Initial Conversion Date, a Holder shall only be entitled to convert up to
25% of the number of shares of Preferred Stock issued to it on the Original
Issue Date, (B) on and after the first month anniversary of the Initial
Conversion Date, a Holder shall only be entitled to convert up to 50% of the
number of shares of Preferred Stock issued to it on the Original Issue Date, on
a cumulative basis, (C) on and after the second month anniversary of the Initial
Conversion Date, a Holder shall only be entitled to convert up to 75% of the
number of shares of Preferred Stock issued to it on the Original Issue Date, on
a cumulative basis and (D) on and after the third month anniversary of the
Initial Conversion Date, a Holder shall be entitled to convert all of the shares
of Preferred Stock originally issued to it on the Original Issue Date. Holders
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Compnay,
together with the form of conversion notice attached hereto as Exhibit A (a
---------
"Conversion Notice"). Each Conversion Notice shall specify the number of shares
-----------------
of Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder delivers such
Conversion Notice by fascimile (the "Conversion Date"). If no Conversion Date
---------------
is specified in a Conversion Notice, the Conversion Date shall be the date that
the Conversion Notice is deemed delivered hereunder. If the Holder is converting
less than all shares of Preferred Stock represented by the certificate or
certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate representing the number of shares of
Preferred Stock as have not been converted.
(ii) Automatic Conversion. Subject to the provisions in this
--------------------
paragraph, all outstanding shares of Preferred Stock for which conversion
notices have not previously been received or for which redemption has not been
made or required hereunder shall be automatically converted on the third
anniversary of the Original Issue Date for such shares. The conversion
contemplated by this paragraph shall not occur at such time as (a) (1) an
Underlying Securities Registration Statement is not then effective or (2) the
Holder is not permitted to resell Underlying Shares (as defined in Section 8)
pursuant to Rule 144(k) promulgated under the Securities Act, without volume
restrictions, as evidenced by an opinion letter of counsel acceptable to the
Holder and the transfer agent for the Common Stock; (b) there are not sufficient
shares of Common Stock authorized and reserved for issuance upon such
conversion; or (c) the Company is then in default of its covenants and
obligations hereunder or under the Purchase Agreement or Registration Rights
Agreement. Notwithstanding the foregoing, the three-year period for conversion
under this Section shall be extended (on a day-for-day
3
<PAGE>
basis) for any Trading Days after the date that the Commission declares
effective an Underlying Securities Registration Statement that the Purchaser is
unable to resell Underlying Shares under an Underlying Securities Registration
Statement due to (a) the Common Stock not being listed for trading on the Nasdaq
National Market (the "NASDAQ") or any Subsequent Market, (b) the failure of such
------
Underlying Securities Registration Statement to remain effective during the
Effectiveness Period (as defined in the Registration Rights Agreement) as to all
Underlying Shares, or (c) the suspension of the Holder's ability to resell
Underlying Shares thereunder. The provisions of Sections 5(a)(iii)(A)(1) and (2)
shall not apply to any automatic conversion pursuant to this Section 5(a)(ii).
(iii) Certain Conversion Restrictions.
-------------------------------
(A)(1) A Holder may not convert shares of Preferred Stock or
receive shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares insuable upon
conversion of dividends on, the shares of Preferred Stock held by such Holder
after application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which shares of
Preferred Stock are convertible shall be in the sole discretion of the Holder.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 75 days prior notice to the
Company, Other Holders shall be unaffected by any such waiver.
(2) A Holder may not convert shares of Preferred Stock or
received shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act (as defined in Section 8) and the rules thereunder) in excess of
9.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon conversion of, and payment of dividends on, the shares of
Preferred Stock held by such Holder after application of this Section. The
Holder shall have the sole authority and obligation to determine whether the
restriction contained in this Section applies and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which shares of Preferred Stock are convertible shall be in the
sole discretion of the Holder. The provisions of this Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon not less than 75
days prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(B) Notwithstanding anything to the contrary set forth herein,
the Company shall not be obligated to issue in excess of 1,883,237 shares of
Common Stock upon conversion of Preferred Stock and payment of dividends
hereunder, which number of shares shall be subject to adjustment pursuant to
Sections 5(c)(ii), (iii), and (v) (such number of shares, the "Issuable
--------
Maximum"). The Issuable Maximum equals 19.99% of the number of shares of Common
- -------
Stock outstanding immediately prior to the Closing. Shares of Common Stock
issued in respect of liquidated damages hereunder shall not count towards the
1,883,237 share limit set forth in this paragraph and shall be paid in cash as
provided herein unless otherwise agreed to by the Holders. If on any Conversion
Date (A) the Conversion Price then in effect is such that the aggregate number
of shares of Common Stock that would then be issuable upon conversion in full of
all then outstanding shares of Preferred Stock and as payment of dividends
thereon in shares of Common Stock, together with any shares of Common Stock
previously issued upon conversion of shares of Preferred Stock and as payment of
dividends thereon, would equal or exceed the Issuable Maximum, and (B) the
Company shall not have previously obtained the vote of
4
<PAGE>
shareholders (the "Shareholder Approval"), if any, as may be required by the
--------------------
applicable rules and regulations of the Nasdaq Stock Market or other exchange or
market on which the Common Stock is then listed or quoted for trading to approve
the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Company shall issue to the Holder so
requesting a conversion a number of shares of Common Stock equal to its pro-rata
share of the Issuable Maximum (determined by reference to the number of shares
of Preferred Stock issued to all Holders on the Original Issue Date) and, with
respect to the remainder of the aggregate Stated Value of the shares of
Preferred Stock then held by such Holder for which a conversion in accordance
with the Conversion Price would result in an issuance of shares of Common Stock
in excess of the Issuable Maximum (the "Excess Stated Value"), the converting
-------------------
Holder shall have the option to require the Company to either (1) obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 75th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Mandatory Redemption Amount (as
defined in Section 8) for the Excess Stated Value. If the Company fails to pay
the Mandatory Redemption Amount in full pursuant to this Section within seven
(7) days after the date payable, the Company will pay interest thereon at a rate
of 18% per annum to the converting Holder, accruing daily from the Conversion
Date until such amount, plus all such interest thereon, is paid in full. If the
Company has been requested by the Holders to obtain, and fails to obtain, the
Shareholder Approval by the 75/th/ day after such request, then the Holders
shall have the right to require the Company to perform under, at the sole option
of such Holder, clause (3) of this Section 5(a)(iii)(B). The Company and the
Holders understand and agree that shares of Common Stock issued to and then held
by Holders as a result of conversions of Preferred Stock and as payment of
dividends thereon shall not be entitled to cast votes on any resolution to
obtain Shareholder Approval pursuant hereto.
(b)(i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Preferred Stock (subject to the limitations set forth in Section 5(a)(iii)
hereof), (ii) one or more certificates representing the number of shares of
Preferred Stock not converted, (iii) a bank check in the amount of accrued and
unpaid dividends (if the Company has elected to pay accrued dividends in cash),
and (iv) if the Company has elected and is permitted hereunder to pay accrued
dividends in shares of Common Stock, certificates, which shall be free of
restrictive legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement), representing such shares of Common
Stock, provided, however, that the Company shall not be obligated to issue
-------- -------
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Preferred Stock until certificates evidencing such shares of
Preferred Stock are delivered for conversion to the Company, or the Holder of
such Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates, including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, are not delivered to or as directed by the
applicable Holder by the third (3/rd/) Trading Day after the Conversion Date,
the Holder shall be entitled by written notice of the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
5
<PAGE>
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
third (3rd) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Preferred Stock or as payment of dividends thereon by the third
(3rd) Trading Day after the Conversion Date, the Holder may, by notice to the
Company, require the Company to issue shares of Common Stock pursuant to Section
5(c), except that for such purpose the Conversion Price applicable thereto shall
be the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provision of this Section.
(iii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the third (3rd) Trading Day after the Conversion Date,
and if after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall (A) pay in
-------
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either return
the shares of Preferred Stock for which such conversion was not honored or
deliver to such Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of shares of Preferred Stock with respect to which the
market price of the Underlying Shares on the date of Conversion totaled $10,000,
under clause (A) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 5(b)(ii) in respect of the certificates resulting in such Buy-In.
(c)(i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
----------------
$4,2703 (the "Fixed Conversion Price") or (b) 88% of the average of the ten (10)
----------------------
lowest Per Share Market Values during the thirty (30) Trading Days immediately
preceding the applicable Conversion Date (which, at the Holder's option, may
include Trading Days prior to the Initial Conversion Date), provided, that such
--------
thirty (30) Trading Day period shall be extended for the number of Trading Days,
if any, during such period in which (A) trading in the Common Stock is suspended
from the NASDAQ or a Subsequent Market on which it is listed for trading
6
<PAGE>
prior to such suspension, or (B) after the date declared effective by the
Commission, the Underlying Securities Registration Statement is now effective,
or (C) after the date declared effective by the Commission, the Prospectus
included in the Underlying Securities Registration Statement may not be used by
the Holder for the resale of Underlying Shares.
If (a) the Underlying Securities Registration Statement is not filed
on or prior to the Filing Date (if the Company files such Underlying Securities
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the Registration Rights
Agreement, the Company shall not be deemed to have satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or not
subject to further review or comment, or (c) the Underlying Securities
Registration Statement is not declared effective by the Commission on or prior
to the Effectiveness Date, or (d) such Underlying Securities Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective as to all Registrable Securities (as defined in the
Registration Rights Agreement) at any time prior to the expiration of the
Effectiveness Period without being succeeded within ten (10) days by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission, or (e) trading in the Common Stock shall be
suspended from the NASDAQ or a Subsequent Market for more than three (3)
Business Days (which need not be consecutive days), (f) the conversion rights of
the Holders are suspended for any reason or (g) an amendment to the Underlying
Securities Registration Statement is not filed by the Company with the
Commission within ten (10) days of the Commission's notifying the Company that
such amendment is required in order for the Underlying Securities Registration
Statement to be declared effective (if the Company files such amendment
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) of the Registration Rights Agreement, the Company
shall not be deemed to have satisfied this clause (g)) (any such failure or
breach being referred to as an "Event" and for purposes of clauses (a), (c), (f)
-----
the date on which such Event occurs, or for purposes of clause (b) the date on
which such five (5) day period is exceeded, or for purposes of clauses (d) and
(g) the date which such 10 day-period is exceeded, or for purposes of clause (e)
the date on which such three (3) Business Day-period is exceeded, being referred
to as "Event Date"), then, on the Event Date and on each monthly anniversary
----------
thereof until such time as the applicable Event is cured, the Company shall pay
to the Holder 2.5% of the aggregate Stated Value of all of the shares of
Preferred Stock purchased by such Holder under the Purchase Agreement in cash,
as liquidated damages and not as a penalty. The provisions of this Section are
not exclusive and shall in no way limit the Company's obligations hereunder.
(ii) If the Company, at any time while any shares of Preferred Stock
are outstanding, shall (a) pay a stock dividend or otherwise make a distribution
or distributions of shares of its Junior Securities or pari passu securities
payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification and
exchange of the Common Stock any shares of capital stock of the Company, then
the Fixed Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
7
<PAGE>
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Fixed Conversion Price shall be multiplied
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration shall be recomputed and effective immediately upon such expiration
shall be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the adjustment
of the Conversion Price made upon the issuance of such rights, warrants, or
options been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights, warrants or options actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), at any time while
any shares of Preferred Stock are outstanding, shall issue shares of Common
Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
------------
Equivalents"), other than issuances pursuant to any (a) stockholder approved
- -----------
stock option or stock purchase program solely to employees of the Company, (b)
any acquisition, licensing joint venture or strategic partnership not primarily
for the purpose of raising capital, or (c) conversion of any options, warrants
or other convertible securities outstanding on the Original Issue Date,
entitling any Person to acquire shares of Common Stock at a price per share less
than the Conversion Price, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Common Stock or such
Common Stock Equivalents plus the number of shares of Common Stock which the
offering price for such shares of Common Stock or Common Stock Equivalents would
purchase at the Conversion Price, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock so issued or issuable,
provided, that for purposes hereof, all shares of Common Stock that are issuable
- --------
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued.
(v) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii)-(iv) above), then in each such case the Fixed Conversion Price at which
each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Fixed Conversion Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per
8
<PAGE>
Share Market Value on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding shares of Common Stock as determined
by the Board of Directors in good faith; provided, however, that in the event of
-------- -------
a distribution exceeding ten percent (10%) of the net assets of the Company, if
the Holders of a majority in interest of the Preferred Stock dispute such
valuation, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
---------
good faith by the Holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
-------- -------
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the Holders
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant
to Section 5(o)(ii), (iii), (iv), or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock,
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Preferred
Stock then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) If (a) the Company shall declare a dividend (or any
other distribution) on the Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (c) the
Company shall authorize the granting to all holders of Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (d) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of any compulsory share
of exchange whereby the Common Stock is converted into other securities, cash or
property, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of Preferred Stock, and shall cause to be mailed to the
Holders at their last addresses as they shall appear upon the stock books of the
Company, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a
9
<PAGE>
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange. Holders are entitled to
convert shares of Preferred Stock during the 20-day period commencing the date
of such notice to the effective date of the event triggering such notice.
(x) In case of any (1) merger or consolidated of the Company with or
into another Person that would constitute a Change of Control Transaction, or
(2) sale by the Company of more than one-half of the assets of the Company (on
an as valued basis) in one or a series of related transactions, or (3) tender
or other offer or exchange (whether by the Company or another Person) pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, stock, cash or property of the Company or another
Person; then, if a Holder has not exercised its rights of redemption, if any,
under Section 7 hereof, such Holder shall have the right thereafter to (A) if
permitted under Section 7 hereof, exercise its rights of redemption under
Section 7 with respect to such event, (B) convert its shares of Preferred Stock
into the shares of stock and other securities, cash and property receivable upon
or deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and property
as the shares of Common Stock into which such shares of Preferred Stock could
have been converted immediately prior to such merger, consolidation or sales
would have been entitled, (C) in the case of a merger or consolidation, (x)
require the surviving entity to issue shares of convertible preferred stock or
convertible debentures with such aggregate stated value or in such face amount,
as the case may be, equal to the Stated Value of the shares of Preferred Stock
then held by such Holder, plus all accrued and unpaid dividends and other
amounts owing thereon, which newly issued shares of preferred stock or
debentures shall have terms identical (including with respect to conversion) to
the terms of the Preferred Stock (except, in the case of debentures, as may be
required to reflect the differences between debt and equity) and shall be
entitled to all of the rights and privileges of a Holder of Preferred Stock set
forth herein and the agreements pursuant to which the Preferred Stock was issued
(including, without limitation, as such rights relate to the acquisition,
transferability, registration and listing of such shares of stock other
securities issuable upon conversion thereof), and (y) simultaneously with the
issuance of such convertible preferred stock or convertible debentures, shall
have the right to convert such instrument only into shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger or consolidation, or (D) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section, tender or exchange its shares of Preferred Stock for such securities,
stock, cash and other property receivable upon or deemed to be held by holders
of Common Stock that have tendered or exchanged their shares of Common Stock
following such tender or exchange, and such Holder shall be entitled upon such
exchange or tender to receive such amount of securities, cash and property as
the shares of Common Stock into which shares of Preferred Stock could have been
converted (taking into account all then accrued and unpaid dividends)
immediately prior to such tender or exchange would have been entitled as would
have been issued. In the case of clause (C), the conversion price applicable for
the newly issued shares of convertible preferred stock or convertible debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction, the Conversion Ratio
immediately prior to the effectiveness or closing date for such transaction and
the Conversion Price stated herein. The terms of any such merger, sale,
consolidation, tender or exchange shall include such terms so as to continue to
give the Holders of Preferred Stock the right to receive the securities, cash
and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
10
<PAGE>
events.
(d) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(e) The issuance of certificates for Common Stock on conversion of
Preferred Stock and as payment of dividends in shares of Common Stock shall be
made without charge to the Holders thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company 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 such certificate upon conversion in a name other than that of the Holder
of such shares of Preferred Stock so converted.
(f) Shares of Preferred Stock converted into Common Stock or redeemed
in accordance with the terms hereof shall be canceled and may not be reissued.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Financial Officer of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
8:00 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 8:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Optional Redemption.
-------------------
(a) Subject to the provisions of this Section 6, the Company shall
have the right, exercisable upon five (5) Trading Days' notice (an "Optional
--------
Redemption Notice") to the Holders to redeem all or any portion of the shares of
- -----------------
Preferred Stock which have not previously been redeemed, at a price equal to the
Optional Redemption Price (as defined below); provided, that, in order to be
valid an Optional Redemption Notice must have been delivered either (1) Within
three (3) Trading Days after any 90 consecutive Trading Day period during which
the average Per Share Market Value was less than the Fixed Conversion Price or
(ii) within one Trading Day after the Per Share Market Value for two (2)
consecutive Trading Days was less than $1.60. The Company shall not be entitled
to deliver an Optional Redemption Notice after the Effectiveness Date if: (i)
the number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes is insufficient to satisfy the Company's
11
<PAGE>
conversion obligations of all shares of Preferred Stock then outstanding, or
(ii) the Underlying Shares then outstanding are not registered for resale
pursuant to an effective Underlying Securities Registration Statement, or (iii)
the Common Stock is not then listed for trading on the NASDAQ, on a Subsequent
Market or the OTC Bulletin Board. The entire Optional Redemption Price shall be
paid in cash. A Holder may convert (and the Company shall honor such conversions
in accordance with the terms hereof) up to 25% of its shares of Preferred Stock
subject to an Optional Redemption Notice given after the Effectiveness Date,
provided that the Conversion Notice for such shares is delivered within 24 hours
following the receipt by such Holder of such an Optional Redemption Notice.
(b) Failure by the Company to pay any portion of the Optional
Redemption Price by the 6th Trading Day following the date of an Optional
Redemption Notice shall result in the invalidation ab initio if the unpaid
---------
portion of such optional redemption, and, notwithstanding anything herein to the
contrary, the Company shall thereafter have no further rights to optionally
redeem any shares of Preferred Stock. In such event, the Company shall, at the
option of the Holder, either, (i) not later than three (3) Trading Days from
receipt of Holder's request for such election, return to the Holder all of the
shares of Preferred Stock for which such Optional Redemption Price has not been
paid in full (the "Unpaid Redemption Shares") or (ii) convert of all or any
------------------------
portion of the Unpaid Redemption Shares in which event the Per Share Market
Value for such shares shall be the lower of the Per Share Market Value
calculated on the date the Optional Redemption Price was originally due and the
Per Share Market Value as of the Holder's written demand for conversion. If the
Holder elects option (ii) above, the Company shall within three (3) Trading Days
of its receipt of such election deliver to the Holder the shares of Common Stock
issuable upon conversion of the Unpaid Redemption Shares subject to such Holder
conversion demand and otherwise perform its obligations hereunder with respect
thereto.
(c) The "Optional Redemption Price" shall equal the sum of (i) the
-------------------------
Applicable Percentage (as defined below) multiplied by the aggregate Stated
Value of the shares of Preferred Stock to be redeemed, (ii) all then accrued and
unpaid dividends in respect of such shares of Preferred Stock and (iii) all
other amounts, costs, expenses and liquidated damages due in respect of such
shares of Preferred Stock. For the purposes hereof, "Applicable Percentage"
shall mean (x)(l) for optional redemptions not satisfying the requirements of
clause (y) of this paragraph, but for which the Optional Redemption Notice meets
the requirements of clause (1) of the first sentence of Section 6(a) and such
notice is given by October 31, 1999. 110%; and (2) for optional redemptions not
satisfying the requirements of clause (y) of this paragraph, but for which the
Optional Redemption Notice meets the requirements of clause (1) of the first
sentence of Section 6(a) and such notice is given after October 31, 1999,118%
and (y)(1) if the Optional Redemption Notice is given by October 31, 1999 and is
given within two (2) Trading Days after the second consecutive Trading Day on
which the Conversion Price is less than $1.60. 110%, and (2) if the Optional
Redemption NOtice is given after October 31, 1999 and is given within two (2)
Trading Days after the second consecutive Day on which the Conversion Price is
less than $1.60, 118%.
Section 7. Redemption Upon Triggering Events.
---------------------------------
Upon the occurrence of a Triggering Event, each Holder shall (in addition
to all other rights may have hereunder or under applicable law), have the right,
exercisable at the sole option of such Holder, to require the Company to redeem
all or a portion of the Preferred Stock then held by such Holder for a
redemption price, in cash, equal to the sum of (i) the Mandatory Redemption
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions or as payment of dividends hereunder and then held by the
Holder and (B) the Per Share Market Value on the date such redemption is
demanded or the date the redemption price hereunder is paid in full, whichever
is greater (such sum, "Redemption Price"). The Redemption Price shall be due and
----------------
payable within (10) days of
12
<PAGE>
the date on which the notice for the payment therefor is provided by a Holder.
If the Company fails to pay the redemption price hereunder in full pursuant to
this Section on the date such amount is due in accordance with this Section, the
Company will pay interest thereon at a rate of 18% per annum, accruing daily
from such date until the redemption price, plus all such interest thereon, is
paid in full. For purposes of this Section, a share of Preferred Stock is
outstanding until such date as the Holder shall have received Underlying Shares
upon a conversion (or attempted conversion) thereof that meets the requirements
hereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness of
the Underlying Securities Registration Statement lapses for any reason for more
than an aggregate of three (3) Trading Days, or the Holder shall not be
permitted to resell Registrable Securities under the Underlying Securities
Registration Statement for more than an aggregate of three (3) Trading Days
(which need not be consecutive Trading Days);
(iii) the failure of the Common Stock to be listed for trading
on the NASDAQ or on a Subsequent Market or the suspension of the Common Stock
from trading on the NASDAQ or an a Subsequent Market, in either case, for more
than three (3) Trading Days (which need not be consecutive Trading Days);
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 10th day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof.
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the satisfaction of
the Holders prior to the expiration of sixty (60) days from the Event Date
relating thereto (other than an Event under Sections 5(c)(i)(c) and (c) hereof);
(vii) the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-in within seven (7) days after notice
therefor is delivered hereunder; or
(viii) the Company shall not have received at least $1,500,000
either in a bona fide equity financing from any Person or in non-recurring
engineering fees from S3 Incorporated, in either case, by April 2, 1999.
13
<PAGE>
Section 8. Definitions. For the purposes hereof, the following
-----------
terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of any of (i) an
------------------------------
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(i) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity, consolidation or sale of all or substantially all of the assets
of the Company in one or a series of related transactions, or (iv) the execution
by the Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's Common Stock, par value $.01 per
------------
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means at any time, a fraction, the numerator of
----------------
which is Stated Value plus accrued but unpaid dividends but only to the extent
not paid in Common Stock in accordance with the terms hereof, and the
denominator of which is the Conversion Price at such time.
"Dividend Effectiveness Date" means the earlier to occur of (x) the
---------------------------
Effectiveness Date (as defined in the Registration Rights Agreement) for the
Preferred Stock and (y) the date that an Underlying Securities Registration
Statement relating to the Preferred Stock is declared effective by the
Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Junior Securities" means the Common Stock and all other equity
-----------------
securities of the Company which are junior in rights and liquidation preference
to the Preferred Stock.
"Mandatory Redemption Amount" for each share of Preferred Stock means
---------------------------
the sum of (i) the greater of (A) the Stated Value and all accrued dividends
with respect to such share and (B) the product of (a) the Per Share Market Value
on the Trading Day immediately preceding (x) the date of the Triggering Event or
the Conversion Date, as the case may be, or (y) the date of payment in full by
the Company of the applicable redemption price, whichever is greater, and (b)
the Conversion Ratio calculated on the date of the Triggering Event, or the
Conversion Date, as the case may be, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such share of Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
-------------------
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
14
<PAGE>
"Per Share Market Value" means on any particular date (a) the closing
----------------------
bid price per share of Common Stock on such date on the NASDAQ or on the
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or on a Subsequent
Market, the closing bid price for a shares of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock are not
then publicly traded the fair market value of a Common Share as determined by an
Appraiser selected in good faith by the Holders of a majority of the shares of
the Preferred Stock.
"Person" means a corporation, in association, a partnership,
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
------------------
Agreement, dated the Original Issue Date, between the Company and the original
Holder.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated the Original Issue Date, between the Company and the original
Holder.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Subsequent Market" means any of the New York Stock Exchange, American
-----------------
Stock Exchange or Nasdaq SmallCap Market.
"Trading Day" means (a) a day on which the Common Stock is traded on
-----------
the NASDAQ or on the Subacquent Market on which the Common Stock is then listed
or quoted, as the case may be, or (b) if the Common Stock is not listed on the
NASDAQ or on a Subacquent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
-------- -------
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Securities Registration Statement" means a registration
--------------------------------------------
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Underlying Shares by the recipient thereof, who
shall be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common Stock
-----------------
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof.
15
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 4% Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "Common Stock"), of Number Nine Visual Technology
------------
Corporation (the "Company") according to the conditions hereof, as of the date
-------
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion except for such transfer taxes, if any.
Conversion calculations: _____________________________________________________
Date to Effect Conversion
_____________________________________________________
Number of shares of Preferred Stock to be Converted
_____________________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________________
Applicable Conversion Price
_____________________________________________________
Signature
_____________________________________________________
Name
_____________________________________________________
Address
<PAGE>
State of Delaware
Office of the Secretary of State
Page 1
--------------------
I, Edward J. Freel, Secretary of State of the State of Delaware, do hereby
certify the attached is a true and correct copy of the certificate of correction
of "Number Nine Visual Technology Corporation", filed in this office on the
seventh day of April, A.D. 1999, at 9 o'clock a.m.
A filed copy of this certificate has been forwarded to the New Castle County
Recorder of Deeds.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
Authentication: 9674310
Date: 04-07-99
2463735 8100
991135210
<PAGE>
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION, PREFERENCES, AND RIGHTS OF SERIES B
CONVERTIBLE PREFERRED STOCK
OF
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
Number Nine Visual Technology Corporation.
2. The Certificate of Designation, Preferences, and Rights of Series B
Convertible Preferred Stock of the corporation, which was filed by the Secretary
of State of Delaware on March 30, 1999, is hereby corrected.
3. The inaccuracies to be corrected in said instrument is as follows:
(1.) Page 5, paragraph 1 reads: If the Company has been requested by
the Holders to obtain, and fails to obtain, the Shareholder Approval by the 75th
day after such request, then the Holders shall have the right to require the
Company to perform under, at the sole option of such Holder, clause (3) of this
----------
Section 5(a)(iii)(B).
(2.) Page 4, paragraph 4 reads: (B) Notwithstanding anything to the
contrary set forth herein, the Company shall not be obligated to issue in excess
of 1,883,237 shares of Common Stock upon conversion of Preferred Stock and
payment of dividends hereunder, which number of shares shall be subject to
adjustment pursuant to Sections 5(c)(ii), (iii), and (v) (such number of shares,
the "Issuable Maximum"). The Issuable Maximum equals 19.99% of the number of
----------------
shares of Common Stock outstanding immediately prior to the Closing. Shares of
Common Stock issued in respect of liquidated damages hereunder shall not count
towards the 1,883,237 share limit set forth in this paragraph and shall be paid
---------
in cash as provided herein unless otherwise agreed to by the Holders.
(3.) Page 6, paragraph 3 reads: (a)(i) The conversion price for each
share of Preferred Stock (the "Conversion Price") in effect on any Conversion
----------------
Date shall be the lesser of (a) $4.2703 (the "Fixed Conversion Price") or (b)
------- ------------------------
88% of the average of the ten (10) lowest Per Share Market Values during the
thirty (30) Trading Days immediately preceding the applicable Conversion Date
(which, at the Holder's option, may include Trading Days prior to the Initial
Conversion Date), provided, that such thirty (30) Trading Day period shall be
--------
extended for the number of Trading Days, if any, during such period in which (A)
trading in the Common Stock is suspended from the NASDAQ or a Subsequent Market
on which it is listed for trading prior to such suspension, or (B) after the
date declared effective by the Commission, the Underlying Securities
Registration Statement is not effective, or (C) after the date declared
effective by the Commission, the Prospectus included in the Underlying
Securities Registration Statement may not be used by the Holder for the resale
of Underlying Shares.
DC DCD-CERTIFICATE OF CORRECTION 01/98 (#1277)
<PAGE>
(4.) Page 15, paragraph 1 reads: "Per Share Market Value" means on any
----------------------
particular date (a) the closing bid price per share of Common Stock on such date
on the NASDAQ or on the Subsequent Market on which the Common Stock is then
listed or quoted, or if there is no such price on such date, then the closing
bid price on the NASDAQ or on such Subsequent Market on the date nearest
preceding such date, or (b) if the Common Stock is not then listed or quoted on
the NASDAQ or on a Subsequent Market, the closing bid price for a share of
-----
Common Stock in the over-the-counter market, as reported by the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock are not then publicly traded the fair market value of a Common
Share as determined by an Appraiser selected in good faith by the Holders of a
majority of the shares of the Preferred Stock.
4. The portion of the instrument in corrected form is as follows:
(1.) If the Company has been requested by the Holders to obtain, and
fails to obtain, the Shareholder Approval by the 75th day after such request,
then the Holders shall have the right to require the Company to perform under,
at the sole option of such Holder, clause (2) of this Section 5(a)(iii)(B).
----------
(2.) (B) Notwithstanding anything to the contrary set forth herein,
the Company shall not be obligated to issue in excess of 1,883,236 shares of
---------
Common Stock upon conversion of Preferred Stock and payment of dividends
hereunder, which number of shares shall be subject to adjustment pursuant to
Sections 5(c)(ii), (iii), and (v) (such number of shares, the "Issuable
--------
Maximum"). The Issuable Maximum equals 19.99% of the number of shares of Common
- -------
Stock outstanding immediately prior to the Closing. Shares of Common Stock
issued in respect of liquidated damages hereunder shall not count towards the
1,883,236 share limit set forth in this paragraph and shall be paid in cash as
provided herein unless otherwise agreed to by the Holders.
(3.) (b)(i) The conversion price for each share of Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the lesser of
----------------
(a) $4.14 (the "Fixed Conversion Price") or (b) 88% of the average of the ten
----- ----------------------
(10) lowest Per Share Market Values during the thirty (30) Trading Days
immediately preceding the applicable Conversion Date (which, at the Holder's
option, may include Trading Days prior to the Initial Conversion Date, provided,
--------
that such thirty (30) Trading Day period shall be extended for the number of
Trading Days, if any, during such period in which (A) trading in the Common
Stock is suspended from the NASDAQ or a Subsequent Market on which it is listed
for trading prior to such suspension, or (B) after the date declared effective
by the Commission, the Underlying Securities Registration Statement is not
effective, or (C) after the date declared effective by the Commission, the
Prospectus included in the Underlying Securities Registration Statement may not
be used by the Holder for the resale of Underlying Shares.
DB BCD-CERTIFICATION CORRECTION 01/98 (#1277)
<PAGE>
(4.) "Per Share Market Value" means on any particular date (a) the
----------------------
closing bid price per share of Common Stock on such date on the NASDAQ or on the
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or on a Subsequent
Market, the closing bid price for a share of Common Stock in the
-----
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock are not then publicly traded the fair market value of a Common
Share as determined by an Appraiser selected in good faith by the Holders of a
majority of the shares of the Preferred Stock.
Signed on April 6, 1999
/s/ William Ralph
----------------------------------
William Ralph, Assistant Treasurer
DE DCD-CERTIFICATE OF CORRECTION 01/98 (#1277)
<PAGE>
EXHIBIT 4.5
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
WARRANT
-------
Dated: March 31, 1999
Number Nine Visual Technology Corporation, a Delaware corporation (the
"Company"), hereby certifies that, for value received, KA Investments LDC, or
its registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 195,000 shares of Common
Stock, $.01 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $3.45 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including March 31, 2002 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
<PAGE>
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Transfer
Agent or to the Company at the office specified in or pursuant to Section 3(b).
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 8:00 P.M., New York City time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
8:00 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except (i) either in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated
-2-
<PAGE>
by the Holder to receive Warrant Shares shall be deemed to have become holder of
record of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the Effectiveness Period
-----------------------------
(as defined in the Registration Rights Agreement, of even date herewith, between
the Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 20 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of this
--------------------------
Warrant when the Warrant Shares are not registered pursuant to an effective
registration statement, the Holder may make a written request for the
registration under the Securities Act (a "Demand Registration"), of all of the
Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 5 shall be
limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all of its registration expenses in
-3-
<PAGE>
connection therewith. A Demand Registration shall not be counted as a Demand
Registration hereunder until the registration statement filed pursuant to the
Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
360 day period.
6. Payment of Taxes. The Company will pay all U.S. documentary
----------------
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant
-4-
<PAGE>
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of
-5-
<PAGE>
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Company's independent certified public accountants that
regularly examines the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock for a consideration per
share less than the Exercise Price then in effect, other than issuances pursuant
to any (a) stockholder approved stock option or stock purchase program solely to
employees of the Company, (b) any acquisition, licensing joint venture or
strategic partnership not primarily for the purpose of raising capital, or (c)
conversion of any options, warrants or other convertible securities outstanding
on the date hereof, then, forthwith upon such issue or sale, the Exercise Price
shall be reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance, and (ii) the number
of shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise or conversion in full of such rights, warrants and
convertible securities) for the issuance of such additional shares of Common
Stock would purchase at the Exercise Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall 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) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
-6-
<PAGE>
(g) Whenever the Exercise Price is adjusted pursuant to Section
9(c) above, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case the adjustment shall be
equal to the average of the adjustments recommended by each of the Appraiser and
such appraiser. The Holder shall promptly mail or cause to be mailed to the
Company, a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
adjustment shall become effective immediately after the record date mentioned
above.
(h) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which
the Company is a party, any sale or transfer of
all or substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
-7-
<PAGE>
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately
-------------
available funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant
-----------------
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the
Common Stock for the five (5) trading days immediately
prior to (but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant
-8-
<PAGE>
so presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 11, be issuable on the exercise of this Warrant, the
Company shall pay an amount in cash equal to the Exercise Price multiplied by
such fraction.
12. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
18 Hartwell Avenue, Lexington, MA 02421-3141, Attention: Chief Financial
Officer, or to facsimile no. (781) 869-7190, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 12.
13. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
-9-
<PAGE>
(c) 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 Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
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.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By: /s/ William Ralph
--------------------------------------
Name: William Ralph
-------------------------------------
Title: General Manager/Assistant Treasurer
-----------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Number Nine Visual Technology Corporation:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of Number
Nine Visual Technology Corporation and , if such Holder is not utilizing the
cashless exercise provisions set forth in this Warrant, encloses herewith
$________ in cash, certified or official bank check or checks, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR
TAX IDENTIFICATION NUMBER
_____________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:______, _____ Name of Holder:
(Print)___________________________
(By:)_____________________________
(Name:)
(Title:)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Number Nine Visual
Technology Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Number Nine
Visual Technology Corporation with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
EXHIBIT 4.6
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
Right to Purchase 211,000 Shares of Common Stock
of Number Nine Visual Technology Corporation
Common Stock Warrant No. W-1
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS. FURTHERMORE,
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT MAY BE
SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED
IN THIS WARRANT, COMPLETE AND CORRECT COPIES OF WHICH ARE AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF NUMBER NINE VISUAL TECHNOLOGY CORPORATION,
AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS WARRANT UPON WRITTEN
REQUEST.
Number Nine Visual Technology Corporation
Common Stock Purchase Warrant
Void after 5:00 p.m., Eastern Standard Time on March 31, 2009
Number Nine Visual Technology Corporation, a Delaware corporation (together
with any corporation which shall succeed to or assume the obligations of Number
Nine Visual Technology Corporation hereunder, the "COMPANY"), hereby certifies
that, for value received, FSC Corp., a Delaware corporation, or its assigns
("FSC"), is entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time after the date hereof, until the
expiration hereof pursuant to Section 2.3 hereof, up to 211,000 shares of fully
paid and non-assessable shares of Common Stock (as defined in Section 15.4
hereof), at an initial purchase price per share of $2.86 (which is equal to the
average of the daily closing market prices of the Common Stock over a period of
30 consecutive trading days prior to the date of this Warrant) (such price per
share as adjusted from time to time as provided herein is referred to herein as
the "EXERCISE PRICE"). The number and character of such shares of Common Stock
and the Exercise Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Loan and Security Agreement (the
"LOAN AGREEMENT") dated as of March 31, 1999, between the Company and
BankBoston, N.A., a copy of which is on file at the principal office of the
Company.
1. DEFINITIONS. Certain terms used in this Warrant are specifically defined in
-----------
Section 15 hereof.
<PAGE>
2. EXERCISE OF WARRANT.
-------------------
2.1. Exercise. This Warrant may be exercised prior to its expiration
--------
pursuant to Section 2.3 hereof by the holder hereof at any time or from time to
time, by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, by certified or official bank check payable to the order
of the Company or by wire transfer to its account, in the amount obtained by
multiplying the number of shares of Common Stock for which this Warrant is then
being exercised by the Exercise Price then in effect. In the event the Warrant
is not exercised in full, the Company, at its expense, will forthwith issue and
deliver to or upon the order of the holder hereof a new Warrant or Warrants of
like tenor, in the name of the holder hereof or as such holder (upon payment by
such holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
equal to the balance of the number shares then purchasable under this Warrant.
Upon any exercise of this Warrant, in whole or in part, the holder hereof may
pay the aggregate Exercise Price with respect to the shares of Common Stock for
which this Warrant is then being exercised (collectively, the "EXERCISE SHARES")
by (a) in the event the holder of this Warrant is also the holder of a
promissory note of the Company, decreasing the outstanding principal and/or
interest amount of such note by such amount, or (b) by surrendering this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of shares of Warrant Stock
determined as follows:
X = Y(A-B)/A
where:
X = the number of shares of Warrant Stock to be issued to the
Holder.
Y = the number of shares of Warrant Stock with respect to
which this Warrant is being exercised.
A = the average of the closing sale prices of the Common Stock
for the thirty (30) trading days immediately prior to (but not
including) the exercise date.
B = the Exercise Price.
For purposes of this Section 2.1, the fair market value of one share of
Common Stock (the "FAIR MARKET VALUE") shall be equal to, at any date, and
determined as follows:
(a) If the Common Stock shall be listed or admitted for trading on any
national securities exchange or quoted on the National Quotation Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"), then the Fair Market Value shall be equal to
the average of the daily closing market prices of the Common Stock over a
period of 30 consecutive trading days prior to the day on which Fair Market
Value is being determined. As used in this subparagraph (a), "market price"
for each
-2-
<PAGE>
such trading day shall be the average of the closing prices on such day of
the Common Stock on all domestic primary national securities exchanges on
which the Common Stock is then listed, or, if there shall have been no
sales on any such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or if the
Common Stock shall not be so listed, the average of the representative bid
and asked prices at the end of such trading day as reported by NASDAQ.
(b) If the Common Stock is not listed or admitted for trading on any
national securities exchange or quoted on NASDAQ, then the Fair Market
Value of one share of Common Stock shall be equal to the fair market value
of the entire capital equity of the Company taken as a whole, divided by
the number of shares of Common Stock (on a fully diluted basis) then issued
(or deemed issued) and outstanding, without premium for control and without
discount for minority interest or restriction on transfer, as determined by
the Company's Board of Directors in good faith and set forth in writing to
FSC within fifteen (15) days after the occurrence of the event which
requires the valuation, unless FSC shall object in writing within five (5)
days after receipt of the Board of Directors' determination, in which case
the Fair Market Value shall be determined (x) by a reputable independent
appraiser selected by mutual agreement of the Company and FSC and set forth
in writing to the Company and FSC within thirty (30) days after the
occurrence of the event which requires the valuation, or (y) (if the
Company and FSC shall have been unable to agree upon an appraiser within
ten (10) days after FSC's objection to the Board of Directors'
determination of Fair Market Value) as the average of the two (2) closest
appraisals by three (3) reputable independent appraisers, one chosen by the
Company, one chosen by FSC, and the third selected by the other two (2)
appraisers, set forth in writing within sixty (60) days after the
occurrence of the event which requires the valuation. If the Fair Market
Value as determined by appraisal pursuant to clause (x) above or by the
average of the appraisals determined in accordance with clause (y) above,
as the case may be, is greater than the Fair Market Value determined by the
Board of Directors, then all expenses of such appraisals shall be paid by
the Company, and in all other circumstances, such appraisal expenses shall
be paid by FSC.
2.2. Warrant Agent In the event that a bank or trust company shall have
-------------
been appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 16 hereof and shall accept, in its
own name for the account of the Company or such successor entity as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.3. Termination. This Warrant shall terminate upon the earliest to occur
-----------
of (a) exercise in full, or (b) March 31, 2009.
-3-
<PAGE>
3. REGISTRATION RIGHTS.
-------------------
3.1. Definitions. As used in this Section 3:
-----------
Holder means FSC and all Persons to whom any Registrable Securities are
------
transferred in accordance with the provisions hereof. A Holder shall, for all
purposes of this Section 3, unless the context shall otherwise require, be
deemed to hold, at any particular time, all shares of Warrant Stock issuable
upon exercise of this Warrant held of record by such Holder at such time.
Register, Registered and Registration refer to a registration effected by
-------- ---------- ------------
preparing and filing with the Commission a registration statement in compliance
with the Securities Act (as defined in Section 15) and the declaration or
ordering by the Commission of effectiveness of such registration statement.
Registrable Securities means, at any particular time, all shares of Warrant
----------------------
Stock issuable upon exercise of this Warrant at such time, or issued and
outstanding.
3.2. Registration.
------------
(a) Request for Registration.
------------------------
(a) Within forty-five (45) days of the date of this Warrant, the
Company shall prepare and file with the Commission a "Shelf" registration
statement covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The registration statement shall be on
Form S-3 (or if the Company is not then eligible to Register for resale the
Registrable Securities on Form S-3 such Registration shall be on another
appropriate form in accordance herewith, or, in connection with an Underwritten
Offering hereunder, such other form agreed to by the Company and by the Holders
of Registrable Securities The Company shall use its best efforts to cause the
registration statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof and shall use its best efforts to
keep such registration statement continuously effective under the Securities Act
until the date which is three years after the date that such registration
statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such registration statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion to such effect,
addressed and acceptable to the Company's transfer agent.
(b) If the Holders of a majority of the Registrable Securities
so elect and the shares are not then covered by an effective registration
statement, an offering of Registrable Securities pursuant to the registration
statement may be effected in the form of an underwritten offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such underwritten offering exceeds the amount of Registrable
Securities which can be sold in such underwritten offering, there shall be
included in such underwritten offering the amount of such
-4-
<PAGE>
Registrable Securities which in the opinion of such managing underwriters can be
sold. and such amount shall be allocated pro rata among the Holders proposing to
sell Registrable Securities in such underwritten offering.
(c) If any of the Registrable Securities are to be sold in an
underwritten offering, the investment banker in interest that will administer
the offering will be selected by the Company. No Holder may participate in any
underwritten offering hereunder unless such Holder (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting and other documents required under the terms of such arrangements.
3.3. Registration Procedures. If (and on each occasion that) the Company
-----------------------
shall become obligated to effect any Registration of any Registrable Securities
hereunder, the Company will use its best efforts in good faith to effect the
Registration of such Registrable Securities under the Securities Act and to
permit the public offering and sale of such Registrable Securities in accordance
with the intended method of disposition thereof. and, in connection therewith,
the Company, as expeditiously as possible, will:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (provided. that before
--------
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to counsel selected by the
holders of a majority of the Registrable Securities covered by such
registration statement. copies of all such documents proposed to be filed,
which documents will be subject to the timely review of such counsel);
(b) prepare and file' with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for not more than twelve (12) months. and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such effective
period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each Holder selling Registrable Securities such number
of copies of such registration statement. each amendment and supplement
thereto. the prospectus included in such registration statement (including
each preliminary prospectus and each prospectus filed under Rule 424 of the
Securities Act) and such other documents as each such seller may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by each such Holder:
(d) use its best efforts to Register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests.
-5-
<PAGE>
use its best efforts to keep each such Registration or qualification effective,
during the period such registration statement is required to be kept effective,
and do any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller; provided that
--------
the Company will not be required (i) to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph (d). (ii) to subject itself to taxation in any such jurisdiction or
(iii) to consent to general service of process in any such jurisdiction;
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and.
at the request of any such seller, the Company will promptly prepare (and, when
completed, give notice to each seller of Registrable Securities) a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading; provided that upon such notification by the
--------
Company, each seller of such Registrable Securities will not offer or sell such
Registrable Securities until the Company has notified such seller that it has
prepared a supplement or amendment to such prospectus and delivered copies of
such supplement or amendment to such seller;
(f) use its best efforts to cause all such Registrable Securities to be
listed, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration. on each securities exchange on which similar
securities issued by the Company are then listed and. if not so listed, to be
listed with NASDAQ;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) make available for inspection on a confidential basis by any Holder
that is a seller of Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers. directors, employees and independent
accountants to supply on a confidential basis all information reasonably
requested by any such seller, underwriter, attorney. accountant or agent in
connection with such registration statement:
(i) permit any holder of Registrable Securities which holder. in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company within the meaning of Section 15 of the Securities Act, to
participate in the preparation of such Registration or comparable statement and
to permit the insertion therein
-6-
<PAGE>
of material, furnished to the Company in writing, which in the reasonable
judgment of such Holder and its counsel should be included, provided that such
material shall be furnished under such circumstances as shall cause it to be
subject to the indemnification provisions provided pursuant to Section 3.6(b)
hereof;
(j) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities included in such registration statement for sale in
any jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order; and
3.4. Cooperation by Prospective Sellers, Etc.
---------------------------------------
(a) Each prospective seller of Registrable Securities will furnish to
Company in writing such information as the Company may reasonably require from
such seller, and otherwise reasonably cooperate with the Company in connection
with registration statement with respect to such Registrable Securities.
(b) The failure of any prospective seller of Registrable Securities to
furnish any information or documents in accordance with any provision contained
in this Section 3 shall not affect the obligations of the Company under this
Agreement to any remaining sellers who furnish such information and documents
unless in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the viability of the offering or the legality
of the registration statement or the underlying offering.
(c) The Holders of Registrable Securities included in any registration
statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such registration statement or prospectus; but the
obligations of the Company with respect to maintaining any registration
statement current and effective shall be extended by a period of days equal to
the period such suspension is in effect.
(d) If on any occasion of registration in which the Company proposes to
file a registration statement under the Securities Act with respect to the
proposed sale of Common Stock. and the managing underwriter shall request an
agreement by the Holders of Registrable Securities not to sell any of the shares
so held by such Holder of Registrable Securities for a period of up to 180 days
after the effectiveness of any such registration statement in order to effect an
orderly public distribution thereof. then the Holders of Registrable Securities
shall agree to enter into and execute such an agreement with such managing
underwriter and the Company pertaining to a restriction on the transfer of any
shares of capital stock of the Company then held by the Holder of Registrable
Securities during such period.
-7-
<PAGE>
(e) At the end of any period during which the Company is obligated to keep
any registration statement current and effective as provided by Section 3 hereof
(and any extensions thereof required by the preceding paragraph (c) of this
Section 3.4), the Holders of Registrable Securities included in such
registration statement shall discontinue sales of shares pursuant to such
registration statement upon receipt of notice from the Company of its intention
to remove from Registration the shares covered by such registration statement
which remain unsold, and such Holders shall notify the Company of the number of
shares Registered which remain unsold promptly after receipt of such notice from
the Company.
3.5. Registration Expenses.
---------------------
(a) All costs and expenses incurred or sustained in connection with or
arising out of the filing of a registration statement pursuant to Section 3.
hereof, including. without limitation, all Registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with the blue sky qualification of Registrable Securities). printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, fees and disbursements of all independent certified public
accountants (including the expenses relating to the preparation and delivery of
any special audit or "cold comfort" letters required by or incident to such
Registration), and fees and disbursements of underwriters (excluding discounts
and commissions), the reasonable fees and expenses of any special experts
retained by the Company of its own initiative or at the request of the managing
underwriters in connection with such Registration, and fees and expenses of all
(if any) other persons retained by the Company (all such costs and expenses
being herein called, collectively, the "Registration Expenses"), will be borne
and paid by the Company. The Company will, in any case, pay its internal
expenses (including, without limitation. all salaries and expenses of its
officers and employees performing legal or accounting duties). the expense of
any annual audit, and the fees and expenses incurred in connection with the
listing of the securities to be Registered on each securities exchange on which
similar securities of the Company are then listed.
(b) The Company will not bear the cost of nor pay for any stock transfer
taxes imposed in respect of the transfer of any Registrable Securities to any
purchaser thereof by any Holder of Registrable Securities in connection with any
Registration of Registrable Securities pursuant to this Section 3.
(c) To the extent that Registration Expenses incident to any Registration
are. under the terms of this Section 3, not required to be paid by the Company.
each Holder of Registrable Securities included in such Registration will pay all
Registration Expenses which are clearly solely attributable to the Registration
of such Holder's Registrable Securities so included in such Registration. and
all other Registration Expenses not so attributable to one Holder will be borne
and paid by all sellers of securities included in such Registration in
proportion to thc number of securities so included by each such seller.
-8-
<PAGE>
3.6. Indemnification.
---------------
(a) Indemnification by the Company. The Company will indemnify each Holder
--------------- -- -----------
requesting or joining in a Registration and each underwriter of the securities
so Registered, the officers, directors and partners of each such Person and each
Person who controls any thereof (within the meaning of the Securities Act)
against any and all claims, losses. damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of any material fact contained in any prospectus, offering
circular or other document incident to any Registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
any action or inaction required of the Company in connection with any such
Registration, qualification or compliance, and the Company will reimburse each
such Holder, underwriter. officer, director, partner and controlling person for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
- --------- -------
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company in an instrument duly executed by such Holder, underwriter, officer.
director. partner or controlling person and stated to be specifically for use in
such prospectus. offering circular or other document.
(b) Indemnification by Each Holder. Each Holder requesting or joining in a
------------------------------
Registration will indemnify each underwriter of the securities so Registered,
the Company and its officers and directors and each person, if any, who controls
any thereof (within the meaning of the Securities Act) and their respective
successors in title and assigns against any and all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact contained in
any prospectus, offering circular or other document incident to any
Registration. qualification or compliance (or in any related registration
statement. notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Holder will reimburse each
underwriter, the Company and each other person indemnified pursuant to this
paragraph (b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim. loss. damage,
liability or action; provided, however, that this paragraph (b) shall apply only
-------- -------
if (and only to the extent that) such statement or omission was made in reliance
upon written information furnished to such underwriter or the Company in an
instrument duly executed by any such Holder and stated to be specifically for
use in such prospectus. offering circular or other document (or related
registration statement, notification or the like) or any amendment or supplement
thereto: and provided further that each Holder's liability hereunder with
--------
respect to any particular
-9-
<PAGE>
Registration shall be limited to an amount equal to the net proceeds received by
such Holder from the Registrable Securities sold by such Holder in such
Registration.
(c) Indemnification Proceedings. Each party entitled to
--------------- -----------
indemnification pursuant to this Section 3.6 (the "indemnified party")
-----------------
shall give notice to the party required to provide indemnification pursuant to
this Section 3.8 (the "indemnifying party") promptly after such
------------------
indemnified party acquires actual knowledge of any claim as to which indemnity
may be sought, and shall permit the indemnifying party (at its expense) to
assume the defense of any claim or any litigation resulting therefrom; provided
--------
that counsel for the indemnifying party, who shall conduct the defense of such
claim or litigation. shall be acceptable to the indemnified party, and the
indemnified party may participate in such defense at such party's expense; and
provided, further, that the failure by any indemnified party to give notice as
- -------- -------
provided in this paragraph (c) shall not relieve the indemnifying party of its
obligations under this Section 3.6 except to the extent that the failure results
in a failure of actual notice to the indemnifying party and such indemnifying
party is damaged solely as a result of the failure to give notice. No
indemnifying party. in the defense of any such claim or litigation, shall.
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. The
reimbursement required by this Section 3.6 shall be made by periodic payments
during the course of the investigation or defense, as and when bills are
received or expenses incurred.
3.7. Contribution in Lieu of Indemnification. If the indemnification
---------------------------------------
provided for in Section 3.6 hereof is unavailable to a party that would have
been an indemnified party under any such Section in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each party that would have been an indemnifying party thereunder
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and such indemnified party on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative fault shall be determined by reference
to. among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent. knowledge. access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Holder of Registrable Securities agree that it would not be just
and equitable if contribution pursuant to this Section 3.7 were determined by
pro rata allocation or by any other method of allocation which does not take
- --- ----
account of the equitable considerations referred to above in this Section 3.7.
The amount paid or payable by an indemnified party as a result of the losses.
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 3.7 shall include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
-10-
<PAGE>
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation. Each Holder's liability hereunder with respect to any
particular Registration shall be limited to an amount equal to the net proceeds
received by such Holder from the Registrable Securities sold by such Holder in
such Registration.
3.8. Rule 144 Requirements; Form S-3. The Company will make every effort
-------------------------------
in good faith to take all steps necessary to ensure that the Company will be
eligible to Register securities on Form S-3 (or any comparable form adopted by
the Commission) and to make publicly available and available to the Holders of
Registrable Securities, pursuant to Rule 144 of the Commission under the
Securities Act ("Rule 144"), such information as shall be necessary to enable
the Holders of Registrable Securities to make sales of Registrable Securities
pursuant to Rule 144. The Company will furnish to any Holder of Registrable
Securities, upon request made by such Holder a written statement signed by the
Company, addressed to such Holder, describing briefly the action the Company has
taken or proposes to take to comply with the current public information
requirements of Rule 144. The Company will, at the request of any Holder of
Registrable Securities, upon receipt from such Holder of a certificate
certifying (a) that such Holder has held such Registrable Securities for a
period of not less than two (2) consecutive years, (b) that such Holder has not
been an affiliate (as defined in Rule 144) of the Company for more than the
ninety (90) preceding days, and (c) as to such other matters as may be necessary
to meet the requirements of Rule 144, remove from the stock certificates
representing such Registrable Securities that portion of any restrictive legend
which relates to the Registration provisions of the Securities Act.
3.9. Participation in Underwritten Registrations. No Holder of Registrable
-------------------------------------------
Securities may participate in any underwritten Registration pursuant to this
Section 3 unless such Holder of Registrable Securities (a) agrees to sell such
Holder's securities on the basis provided in any underwriting arrangements
approved by the Persons entitled, under the provisions hereof, to approve such
arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required by the terms of such underwriting arrangements. Any Holder of
Registrable Securities to be included in any underwritten Registration shall be
entitled at any time to withdraw such Registrable Securities from such
Registration prior to its effective date in the event that such Holder shall
disapprove of any of the terms of the related underwriting agreement.
3.10. Miscellaneous.
-------------
(a) Inconsistent Agreements. The Company has not previously entered
-----------------------
into, and will not at any time after the date hereof enter into, any
agreement or contract (whether written or oral) with respect to any of its
securities which prevents the Company from complying in any respect with
the registration rights granted by the Company to Holders of Registrable
Securities hereunder.
(b) Amendments and Waivers. The provisions of this Section 3
----------------------
including the provisions of this paragraph (b), may not be amended,
modified or supplemented, and any waiver or consent to or any departure
from any of the provisions of this Section 3 may not
-11-
<PAGE>
be given and shall not become or be effective, unless and until (in each
case) the Company shall have received the prior written consent of the
Holders of 51% or more of all Registrable Securities for any such
amendment, modification, supplement, waiver or consent.
(c) Term. The agreements of the Company contained in this Section 3,
----
shall terminate with respect to any particular Registrable Securities when
such Registrable Securities shall have been effectively Registered under
the Securities Act or sold pursuant to a Public Sale.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
----------------- ------------------------
4.1. Delivery. As soon as practicable after the exercise of this Warrant
--------
in full or in part, and in any event within ten (10) days thereafter, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the holder
hereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled on such exercise, together with any other
stock or other securities and property (including cash, where applicable) to
which such holder is entitled upon such exercise.
4.2. Fractional Shares. In the event that the exercise of this Warrant, in
-----------------
full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant shall be entitled to cash
equal to the fair market value of such fractional share determined in the same
manner as for one share of Common Stock pursuant to Section 2.1 hereof.
5. ADJUSTMENTS FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS.
--------------------------------------------------------------
In case at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
(a) other or additional, or rights to acquire, stock or other
securities or property (other than cash) by way of dividend;
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company); or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate restructuring;
other than additional shares of Common Stock adjustments in respect of which are
- ----- ----
provided for in Section 7.1 hereof, then and in each such case, the holder of
this Warrant, on the exercise hereof as provided in Section 2 hereof, shall be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor,
-12-
<PAGE>
the amount of stock and other securities and property (including cash in the
cases referred to in subsections (b) and (c) of this Section 5) which such
holder would have received prior to or would have held on the date of such
exercise if on the date hereof it had been the holder of record of the number of
shares of Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and received and retained all such other or
additional stock and other securities and property (including cash in the cases
referred to in subsections (b) and (c) of this Section 5) receivable by such
holder as aforesaid during such period, giving effect to all further adjustments
called for during such period by Sections 6 and 7 hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. ETC.
---------------------------------------------------------
6.1. Certain Adjustments. In case at any time or from time to time, the
-------------------
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person, then in each such case, the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof at any time after the consummation of
such reorganization, recapitalization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise immediately prior
to such consummation or effective date, the stock and other securities and
property (including cash) to which such holder would have been entitled upon
such consummation (or thereafter as a result of such consummation, including in
connection with any dissolution of the Company) if such holder had so exercised
this Warrant immediately prior thereto, all subject to further adjustment
thereafter as provided in Sections 5 and 7 hereof.
6.2. Appointment of Trustee for Warrant Holders Upon Dissolution. In the
-----------------------------------------------------------
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the holder or holders of the
Warrant.
6.3. Continuation of Terms. Upon any reorganization, reclassification,
--------------------
recapitalization, consolidation, merger or transfer (and any dissolution
following any transfer) referred to in this Section 6, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation of such reorganization, reclassification,
recapitalization, consolidation, merger or transfer (and the effective date of
dissolution following any such transfer), as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 8 hereof.
-13-
<PAGE>
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON
-------------------------------------------------------------------------
STOCK.
- -----
7.1. General. If at any time there shall occur any stock split, stock
-------
dividend, reverse stock split or other subdivision of the Company's Common Stock
(a "STOCK EVENT"), then the number of shares of Common Stock to be received by
the holder of this Warrant shall be appropriately adjusted such that the
proportion of the number of shares issuable hereunder to the total number of
shares of the Company outstanding (on a fully diluted basis) prior to such Stock
Event is equal to the proportion of the number of shares issuable hereunder
after such Stock Event to the total number of shares of the Company outstanding
(on a fully diluted basis) after such Stock Event. No adjustment to the Exercise
Price shall be made in connection with any adjustment of the number of shares of
Common Stock receivable upon exercise of this Warrant, except that the Exercise
Price shall be proportionately decreased or increased upon the occurrence of any
stock split or other subdivision of the Common Stock.
7.2. Other Securities. In case any Other Securities shall have been
----------------
issued, or shall then be subject to issue, upon the conversion or exchange of
any stock (or Other Securities) of the Company (or any other issuer of Other
Securities or any other entity referred to in Section 6 hereof) or to
subscription, purchase or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or person), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to Common Stock) as is determined in accordance with the
terms hereof, treating all references to Common Stock herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 7 with respect to the Exercise Price
and the number of shares of Common Stock issuable upon exercise of this Warrant
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable on the
exercise of the Warrant, so as to provide the holder of the Warrant with the
benefits intended by this Section 7 and the other provisions of this Warrant.
8. NO IMPAIRMENT. The Company will not, by amendment of its charter or through
-------------
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the 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 action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrant against impairment. Without
limiting the generality of the foregoing, the Company (i) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable shares of stock on the exercise
of the Warrant from time to time outstanding, and (ii) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
other person to consolidate with or merge into the Company (if the Company is
not the surviving entity), unless such other person shall expressly assume in
writing and will be bound by all the terms of this Warrant.
-14-
<PAGE>
9. CERTIFICATE AS TO ADJUSTMENTS. In each case of any event that may require
-----------------------------
any adjustment or readjustment in the shares of Common Stock issuable on the
exercise of this Warrant, the Company at its expense will promptly prepare a
certificate setting forth such adjustment or readjustment, or stating the
reasons why no adjustment or readjustment is being made, and showing, in detail,
the facts upon which any such adjustment or readjustment is based, including a
statement of (i) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
issued or sold,(ii) the number of shares of Common Stock then outstanding or
deemed to be outstanding on a fully diluted basis, and (iii) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted and readjusted (if required by Section 7) on account thereof. The
Company will forthwith mail a copy of each such certificate to the holder of the
Warrant, and will, on the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the holder of the Warrant may confirm the adjustment noted on the certificate by
causing such adjustment to be computed by the Company's independent accounting
firm or another independent certified public accountant at the expense of the
Company.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to Holder as follows:
10.1. Organization and Good Standing. The Company is duly organized and
------------------------------
existing as a corporation in good standing in the State of Delaware. The Company
is duly qualified as a foreign corporation and authorized to do business in all
other jurisdictions in which the nature of its business or property makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Warrant or
Registrable Securities or (y) adversely impair the Company's ability to perform
fully on a timely basis its obligations under the Warrant. The Company has the
corporate power to own its properties and to carry on its business as now
conducted and as proposed to be conducted.
10.2. Authorization, The execution, delivery and performance by the
-------------
Company of this Warrant, and the issuance and sale by the Company of the
Securities hereunder (a) are within the Company's corporate power and authority,
(b) have been duly authorized by all necessary corporate proceedings, and (c) do
not conflict with or result in any breach of any provision of, or the creation
of any lien upon any of the property of the Company or require any consent or
approval pursuant to, the Charter or by-laws of the Company or any law,
regulation, order, judgment, writ, injunction, license, permit, agreement or
instrument applicable to the Company.
10.3. Enforceability. The execution and delivery by the Company of this
--------------
Warrant, and the issuance and sale by the Company of the Securities hereunder,
will result in legally binding obligations of the Company, enforceable against
the Company in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting
-15-
<PAGE>
generally the enforcement of creditors rights, and (b) the availability of the
remedy of specific performance or in injunctive or other equitable relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
10.4. Governmental Approvals. Provided the accuracy of the representation
----------------------
in Section 11, the execution, delivery and performance by the Company of this
Warrant, and the issuance and sale of the Securities hereunder, do not require
the approval or consent of, or any filing with, any governmental authority or
agency.
10.5. Capitalization.
--------------
(a) The authorized capital stock of the Company is as set forth on
Schedule 10.5 hereto, A description of the Common Stock, other securities,
-------------
and of the voting powers, rights and privileges thereof are set forth in
the Charter.
(b) The Company's issued and outstanding securities are as set forth
on Schedule 10.5 hereto. All of the shares of issued securities of the
-------------
Company have been duly and validly issued, are fully paid and non-
assessable.
(c) Options, Etc. Other than as created pursuant to this Warrant or
------------
as disclosed on Schedule 10.5 hereto, the Company has no outstanding rights
-------------
(either preemptive or other) or options to subscribe for or purchase from
the Company and no warrants or other agreements providing for or requiring
the issuance by the Company of, any capital stock or any securities
convertible into or exchangeable for its capital stock.
(d) Reservation, Etc. Sufficient shares of authorized but unissued
----------------
Common Stock have been reserved by appropriate corporate action in
connection with the prospective exercise of this Warrant and any other
agreements disclosed on Schedule 10.5. Except as disclosed on Schedule I
------------- ----------
0.5, the issuance of this Warrant or the shares of Warrant Stock upon the
---
exercise of this Warrant will not require any further corporate action by
the stockholders or directors of the Company, will not be subject to
preemptive rights in any present or future stockholders or other securities
holders of the Company and will not conflict with any provision of any
agreement to which the Company is a party or by which it is bound, and such
Common Stock, when issued upon exercise of this Warrant in accordance with
its terms or upon conversion, will be duly authorized, validly issued,
fully paid and non-assessable.
10.6. Defaults. Except as set forth in Schedule 10.6, the Company is not
-------- -------------
in default under any provisions of its Charter or by-laws; or under any
provisions of any franchise, contract, agreement, lease or other instrument to
which it is a party or by which it or its property is bound or in violation of
any law, judgment, decree or governmental order, rule or regulation, which
default or violation could affect adversely in any material manner the business,
assets or financial condition of the Company.
-16-
<PAGE>
10.7. Issuance of Securities. All securities of the Company to be issued
----------------------
pursuant to this Warrant when issued will have been issued in accordance with
all applicable laws and regulations, including without limitation the Securities
Act and state "blue sky" laws.
10.8. Financial Statements. All financial statements of the Company
--------------------
furnished to FSC by the Company is true and correct and fairly presents in all
material respects the financial condition and or results of operations, as the
case may be, of the Company at the close of business on the date thereof.
10.9. Representations and Warranties under Related Agreements. All
-------------------------------------------------------
representations and warranties (including all schedules relating thereto) made
by the Company in the Financing Agreements are true and correct as of the date
hereof with the same force and effect as though made on and as of the date
hereof, and such representations and warranties are hereby confirmed to FSC and
made representations and warranties of the Company hereunder as fully as if set
forth herein. To the Company's knowledge, all representations and warranties
made in the Financing Agreements by or on behalf of any party thereto other than
the Company are true and correct in all material respects.
10.10. Disclosure. No representation, warranty or statement made in this
----------
Warrant, any Financing Agreement, or any agreement, certificate, statement or
document furnished by or on behalf of the Company in connection with the
Financing Agreements contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading.
11. INVESTMENT REPRESENTATION. FSC represents and warrants to the Company that
-------------------------
FSC is (a) an "accredited investor" within the meaning of Rule 501(a)
promulgated under the Securities Act, and (b) acquiring the Securities for
investment and not with a view to selling or otherwise distributing the
Securities; provided, however, that the disposition of FSC's property shall at
--------- -------
all times be and remain in FSC's control, subject to Section 20 hereof.
12. NOTICES OF RECORD DATE. In the event of:
----------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
-17-
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
thirty (30) days prior to the date specified in such notice on which any such
action is to be taken.
13. INFORMATION RIGHTS. So long as FSC holds this Warrant and/or any of the
------------------
Exercise Shares, the Company shall deliver to FSC or BankBoston, N.A. (a)
promptly after mailing/sending, copies of all press releases, reports, financial
statements, notices or other written communications to any shareholders of the
capital stock of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing, and
(c) such other financial statements required under and in accordance with the
Loan Agreement or if there are no such requirements (or if the subject loan(s)
no longer are outstanding), then within thirty (30) days after the end of each
of the first three quarters of each fiscal year, the Company's quarterly,
unaudited financial statements.
14. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at
----------------------------------------------------
all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend its
Charter to provide sufficient reserves of shares of Common Stock issuable upon
exercise of this Warrant.
15. DEFINITIONS. As used herein the following terms have the following
-----------
respective meanings:
15.1. The term "AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with FSC
(or other specified Person).
15.2. "BANK AFFILIATE" See Section 19 hereof.
15.3. "BANK HOLDING COMPANY ACT" See Section 19 hereof.
15.4. The term "COMMON STOCK" includes the Company's Common Stock, $0.01
par value, and (ii) any other securities into which or for which any of the
securities described in clauses
-18-
<PAGE>
(i) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
15.5. The term "COMMISSION" shall mean the United States Securities and
Exchange Commission
15.6. The term "CHARTER" shall include the articles or certificate of
incorporation, statute, constitution, joint venture or partnership agreement or
articles or other organizational document of any Person other than an
individual, each as from time to time amended or modified.
15.7. The term "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any successor federal statute or code, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
15.8. The term "FINANCING AGREEMENTS" shall include this warrant and the
loan Agreement and all present and future documents, instruments, agreements and
certificates relating to the Warrant or Loan Agreement executed and delivered to
BankBoston, N.A. and/or FSC by any' Person in connection therewith.
15.9. The term "OTHER SECURITIES" refers to any stock (other than Common
Stock) and other securities of the Company or any other Person (i) which the
holder of this Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to Common
Stock, or (ii) which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities, in each case
pursuant to Section 5 or 6 hereof.
15.10. The term "PERSON" shall mean an individual, partnership,
corporation, limited liability company, association, trust, joint venture,
unincorporated organization, and any government, governmental department or
agency or political subdivision thereof.
15.11. The term "PUBLIC Sale" shall mean any sale of Common Stock to the
public (a) pursuant to a public offering registered under the Securities Act,
(b) through a broker or market-maker pursuant to the provisions of Rule 144 (or
any successor rule) adopted under the Securities Act, or (c) pursuant to any
other public offering not required to be registered under the Securities Act.
15.12. The term "SECURITIES" shall mean, collectively, the Warrant and the
shares of Warrant Stock.
15.13. The term "Securities ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute or code, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
-19-
<PAGE>
15.14. The term "SMALL BUSINESS ACT" shall mean the Small Business
Investment Act of 1958, as amended, or any successor federal statute, and the
rules and regulations of the Small Business Administration thereunder, all as
the same shall be in effect from time to time.
15.15. THE term "WARRANT STOCK" shall mean the Shares of Common Stock
issuable upon exercise of the Warrant and any capital stock or Other Securities.
16. WARRANT AGENT. The Company may, by written notice to the holder of this
-------------
Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
17. REMEDIES. The Company stipulates that the remedies at law of the Holder of
--------
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
18. NOTICES. All notices and other communications from the Company to the
-------
Holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier at such address as may have
been furnished to the Company in writing by such holder or, until any such
holder furnishes to the Company an address, then to, and at the address of, the
last holder of this Warrant who has so furnished an address to the Company.
19. REGULATORY RESTRICTIONS.
---------- ------------
19.1. Holding Company. No Person which is a bank holding company or a
---------------
subsidiary of a bank holding company (a "BANK AFFILIATE") as defined in the Bank
Holding Company Act of 1956, as amended, or other applicable banking laws of the
United States of America and the rules and regulations promulgated thereunder
(the "BANK HOLDING COMPANY ACT") shall acquire Common Stock, if, after giving
effect to such acquisition, the Bank Affiliate, together with its Affiliates,
would own more than five percent (5%) of the outstanding voting securities of
the Company. Notwithstanding the foregoing, shares of Common Stock may otherwise
be acquired or held by FSC or any Affiliate of FSC which is a Small Business
Investment Company consistent with and subject to the limitations contained in
the Small Business Act and, to the extent not inconsistent with the Bank Holding
Company Act, shares of Common Stock may be acquired in the event that:
(a) the Company shall vote to merge or consolidate with or into any
other Person and after giving effect to such merger or consolidation FSC or
Affiliate of FSC would not own more than five percent (5%) of the
outstanding voting securities of the surviving corporation; or
-20-
<PAGE>
(b) said holder exercises its registration rights pursuant to
Section 3 hereof an d the registration statement resulting therefrom is
effective.
20. RESTRICTIONS ON TRANSFER.
------------------------
20.1. General Restriction. The Securities shall be transferable only upon
-------------------
the satisfaction of the conditions set forth below in this Section 20.
20.2. Restrictions on Transfer. The holder of this Warrant and each Person
------------------------
to whom this Warrant is subsequently transferred represents and warrants to the
Company (by acceptance of such transfer) that such Person will not transfer this
Warrant or any Warrant Stock except (i) pursuant to an effective registration
statement under the Securities Act, (ii) pursuant to Rule 144 under the
Securities Act (or any other rule under the Securities Act related to the
disposition of securities), (iii) transfers by or between FSC and any of its
Affiliates, or (iv) upon the delivery of an opinion of counsel reasonably
satisfactory to the Company, that such transfer is exempt from registration
under the Securities Act.
20.3. Restrictive Legends. Except as otherwise permitted by this Section
-------------------
20, each Security shall bear the legend specified for such Security in Schedule
--------
20 hereto.
- --
20.4. Transferability. Subject to the provisions of this Section 20, this
---------------
Warrant and all rights hereunder are transferable, in whole or in part without
charge to the holder hereof at the office or agency of the Company by the
registered holder thereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with an assignment hereof properly endorsed.
Until transfer hereof on the registration books of the Company, the Company may
treat the registered holder hereof as the owner hereof for all purposes. Any
transferee of this Warrant and any rights hereunder, by acceptance thereof,
agrees to assume all of the obligations of a holder thereunder and to be bound
by all of the applicable terms and provisions of this Warrant.
21. NO RIGHTS AS STOCKHOLDER. Except as specifically provided herein, the
------------------------
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company.
22. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
-------------
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. The corporation laws of the
State of Delaware shall govern all issues concerning the relative rights of the
company and its stockholders. All other questions concerning construction,
validity, enforcement and interpretation of this Warrant shall be governed by
the laws of the Commonwealth of Massachusetts, without giving effect to any
choice of law or conflict of law provision or rule (whether with the
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
application of the laws or any jurisdiction other than the Commonwealth of
Massachusetts. All
-21-
<PAGE>
representations and warranties set forth in this Warrant shall survive the
execution and delivery of this Warrant. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant shall take effect as an instrument under seal.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant under
seal as of March 31, 1999.
--
(Corporate Seal) NUMBER NINE VISUAL TECHNOLOGY
CORPORATION
Attest: By: /s/ William L. Ralph
-------------------------------
Name: William L. Ralph
-----------------------------
/s/ Neil Aronson Title: GENERAL MANAGER
- ---------------------------- ---------------------------
Secretary
FSC CORP.
By:______________________________
Name:____________________________
Title:___________________________
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant under
seal as of March 31, 1999.
--
(Corporate Seal) NUMBER NINE VISUAL TECHNOLOGY
CORPORATION
Attest: By:__________________________________
Name:________________________________
Title:_______________________________
__________________________
Secretary
FSC CORP.
By: /s/ Mary Joseph Reilly
-------------------------------
Name: Mary Joseph Reilly
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
NOTICE OF EXERCISE OR CONVERSION
--------------------------------
Date:_____________, _____
Number Nine Visual Technology Corporation
- ----------------
- ----------------
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise or convert the enclosed Warrant
issued to it by Number Nine Visual Technology Corporation (the "Company") and
dated as of___________ ____, ____.
The undersigned elects to:
[_] Exercise the Warrant and to purchase thereunder _________________
shares of the Common Stock of the Company (the "Shares") at an
exercise price of _________ per Share for an aggregate purchase price
of _________________ Dollars ($______) (the "Purchase Price").
Pursuant to the terms of the Warrant, the undersigned has delivered
the Purchase Price herewith in full.
[_] Convert __% of the value of the Warrant at the current Exercise Price
(as defined in the Warrant) of $______ per Share.
[_] Convert $______ of the outstanding principal and interest under that
certain [Note] dated ___________, in the face amount of $_________,
issued by the Company and held by the undersigned, at the current
Exercise Price of $______ per share.
Very truly yours,
________________________
Receipt Acknowledged:
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By:____________________
Title:_________________
on:____________________
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
________________ of _______________________________ the right represented by the
within Common Stock Purchase Warrant to purchase _____ shares of Common Stock of
Number Nine Visual Technology Corporation, a Delaware corporation, to which the
within Common Stock Purchase Warrant relates, and appoints Attorney to transfer
such right on the books of Number Nine Visual Technology Corporation, with full
power of substitution in the premises.
Dated: _____________________ _______________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
_______________________________________
(Address)
Signed in the presence of:
____________________________
<PAGE>
Schedule 10.5
-------------
Capitalization
--------------
See attached
<PAGE>
SCHEDULE 10.5
-------------
CAPITALIZATION
1. The Company is authorized to issue 20,000,000 shares of common stock, $.01
par value per share ("Common Stock").
2. The Company is authorized to issue 5,000,000 shares of preferred stock, $.01
par value per share and has designated 3,700,000 shares as Series A
Convertible Preferred Stock.
3. The Company has issued one warrant to Silicon Graphics, Inc. ("SGI"), which
entitles SGI to purchase for a period of three years commencing August 11 ,
1998 at an exercise price of $2.75 per share that number of shares of Series
A Preferred Stock equal to 3% of the Company's then issued and outstanding
Common Stock at that time of exercise, as calculated on a fully diluted
basis.
4. The Company has entered into a Convertible Preferred Stock Purchase Agreement
with KA Investments, LDC ("KA Investments") whereby the Company will sell 300
shares of Series B Preferred Stock to KA Investments for the aggregate amount
of $3,000,000 (the "Series B Financing")
5. In connection with the Series B Financing, the Company will issue a warrant
to KA Investments, exercisable for a period of three years commencing on
March 29, 1999, to purchase up to 195,000 shares of Common Stock at an
exercise price of 125% of the average of the closing price of the ten (10)
day period immediately prior to the date of the Warrant.
6. In connection with the Series B Financing, the Company has agreed to issue to
Brighton Capital Ltd. a warrant to purchase for a period of three (3) years
up to 30,000 shares of Common Stock at an exercise price of 125% of the then
average of the closing price of the ten (10) day period immediately prior to
the date of the Warrant in consideration for consulting services provided to
the Company.
7. In connection with certain monies to be received by the Company in
consideration for certain non-recurring engineering costs to be performed by
the Company for S3 Incorporated ("S3"), the Company has agreed to issue to S3
a two year warrant to purchase up to 300,000 shares of Common Stock at an
exercise price equal to the average closing price of the 10 day period
immediately prior to the date of the S3 Warrant.
8. The outstanding securities of the Company are shown in the table below:
TYPE OF SECURITY NUMBER OF SHARES
---------------- ----------------
Common Stock 9,416,187
Series A convertible Preferred Stock 3,350,894
<PAGE>
WARRANTS
--------
See items ## 5, 6 and 7 above
STOCK OPTIONS
-------------
STOCK PLAN NUMBER OF OPTIONS
---------- -----------------
1989 Employee Stock Plan 79,900
1994 Employee Stock Plan 1,012,404
1996 Employee Stock Plan 707,300
---------
1,799,604
TOTAL
2
<PAGE>
SCHEDULE 10.6
-------------
DEFAULTS
1. The Company has defaulted on the Loan and Security Agreement dated December
10, 1992 by and between the Company and Marine Midland Bank (the "Lender"),
as the same has been amended prior to the date of these Disclosure
Schedules (the "Loan Agreement"). The Company has entered into a series of
forbearance agreements with the Lender pursuant to which the Lender has
waived such defaults. The Company and the Lender have most recently entered
into a Tenth Forbearance Agreement pursuant to which the Lender has waived
certain defaults under the Loan Agreement and has extended the Loan
Agreement until March 31, 1999. The Company is currently negotiating with
BankBoston to establish a revolving credit arrangement which would allow
the Company to pay down the loan from the Lender.
3
<PAGE>
Schedule 20
-----------
Restrictive Legends
-------------------
Warrants
--------
"This Warrant and any shares acquired upon the exercise of this Warrant have
not been registered under the Securities Act of 1933, as amended, and may not be
sold or transferred in the absence of such registration or an exemption
therefrom under the Securities Act of 1933, as amended, or any applicable state
securities laws. Furthermore, this Warrant and any shares acquired upon the
exercise of this Warrant may be sold or otherwise transferred only in compliance
with the conditions specified in this Warrant, complete and correct copies of
which are available for inspection at the principal office of Number Nine Visual
Technology Corporation and will be furnished without charge to the holder of
this Warrant upon written request."
Warrant Stock
-------------
"The shares evidenced by this certificate have not been registered under the
Securities Act of 1933, as amended. No transfer of these shares may be made
unless a registration statement with respect to these shares has become
effective under the Securities Act of 1933, as amended, or Number Nine Visual
Technology Corporation (the "COMPANY") has been furnished with an opinion of
counsel satisfactory to the Company that such registration is not required.
These shares may be sold or otherwise transferred only in compliance with the
conditions specified in Section 20 of a certain Common Stock Purchase Warrant,
dated as of March 31, 1999, issued by the Company to FSC Corp., complete and
correct copies of which are available for inspection at the principal office of
the Company and will be furnished without charge to the holder of these shares
upon written request."
<PAGE>
EXHIBIT 99.1
Page 1 of 3
Yahoo - Number Nine Visual Technology Reports...
Thursday April 1,4:05 pm Eastern Time
Company Press Release
SOURCE: Number Nine Visual Technology Corporation
Number Nine Visual Technology Reports Results for the Fourth Quarter and
Full Fiscal Year of 1998
LEXINGTON, Mass., April 1 /PRNewswire/ -- Number Nine Visual Technology
Corporation (Nasdaq: NINE - news) today announced revenues and operating results
---- ----
for its fourth quarter of fiscal 1998 ended Jan. 2, 1999. Revenues for the
fourth quarter of 1998 were $3.1 million, a decrease of 79% from approximately
$14.6 million in the fourth quarter of 1997. Revenues for the twelve months of
1998 were approximately $16.5 million, a decrease of 65% from $47.2 million for
the twelve months of 1997. The Company reported a net loss of approximately $2.9
million, or ($0.30) per share on 9.4 million weighted average common shares
outstanding for tile fourth quarter of 1998 compared to net loss of
approximately $5.4 million or $(0.58) per share on 9.2 million weighted average
common shares outstanding for the fourth quarter of 1997. For the twelve months
of 1998, the net loss was approximately $13.9 million or $(1 .49) per share on
9,3 million weighted average shares outstanding compared to net loss of
approximately $20.8 million or ($2.28) per share on 9.1 million weighted average
shares outstanding for 1997.
The results for both the fourth quarter and twelve months of 1998 continue to be
attributable to the intense pricing environment with our market segment.
However, revenue during the fourth quarter of 1998 began to show improvement on
a sequential basis from the third quarter of 1998, with an increase of 108%. The
increase in revenues was a result of a full quarter's shipment of the Company's
proprietary based Revolution IV as well as December 1998 shipments of our
Digital Flat-Panel Solution Pack. These products, along with our much
anticipated SR9 products, utilizing S3's widely accepted Savage 4, will be
important contributors for Number Nine's efforts to return to profitability
during 1999. Andrew Najda, Number Nine's Chief Executive Officer commented, "Our
operating results should begin to improve with market acceptance of these
products. In particular, much acclaimed Digital Flat- Panel solution pack, (the
Silicon Graphics 1600 SW and Number Nine's Revolution IV graphics accelerator)
has begun to ramp into full production for 1999 and is now widely available.
Additionally, we secured a major design win with one of the top five PC
manufacturers, and is expected to begin shipping and announced during our second
quarter of 1999. These two products will be important in contributing gross
margin for the Company."
Until this business begins to impact our operating results, Number Nine
continues to stress the effective 'managing of our operating expenses and
balance sheet. Our operating expenses for the
<PAGE>
Page 2 of 3
Yahoo - Number Nine Visual Technology Reports...
fourth quarter and fiscal 1998 decreased approximately 40% from corresponding
amounts in 1997. Additionally, during 1998, we reduced our inventory
investment by approximately 65%. During our First quarter of 1999, we were
successful in raising $3,000,000 of capital through a placement of 4%
Convertible Preferred Stock with an investor, and able to secure a new $15
million secured working capital line from a major commercial bank. These
transactions will assist our ability to fund planned operations in 1999.
Additionally, Number Nine is beginning to utilize innovative approaches to
our business that our customers are demanding. These approaches require lower
inventory levels, generate higher gross margins and benefit our customers.
Nadja concluded, "We believe that our new product offerings, additional
financing, and new business model and should strengthen our competitive
advantages and help the Company return to profitability during 1999."
About Number Nine
Number Nine Visual Technology Corporation. http://www.nine.com, is a leading
-------------------
supplier of high-performance visual technology solutions, including
video/graphics accelerator subsystems, chips and productivity-enhancing
software. Number Nine is one of tile first companies to offer its users
drivers certified by Microsoft's Windows Hardware Quality Labs (WHQL). The
company is a pioneer in PC graphics, delivering the first 128-bit graphics
accelerator, the first 256-color and 16.8 million-color cards, and three
consecutive lines of 128-bit graphics chips and boards. Number Nine is a
publicly-held company (Nasdaq: NINE - news) headquartered in Lexington,
Massachusetts, with R&D, sales and/or marketing offices in Munich, Germany
and Redmond, Washington.
Number Nine and Revolution are registered trademarks and Ticket to Ride is a
trademark of Number Nine Visual Technology Corporation. All other trademarks
are properties of their respective companies. All rights reserved.
This press release contains forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations and are subject to
a number of factors and uncertainties which could cause actual results to
differ materially from those described herein, including, but not limited to
such factors as are described under "Certain Factors That May Affect Future
Results of Operations" in the Company's Annual Report on Form 10-K for its
1998 fiscal year ended January 2, 1999 as filed with the Securities and
Exchange Commission.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
Jan. 2, Dec. 27, Jan. 2, Dec. 27,
1999 1997 1999 1997
<S> <C> <C> <C> <C>
Revenue $ 3,069 $14,621 $ 16,466 $ 47,205
Cost of sales 2.699 14,688 16,702 44.053
Gross Margin 370 (67) (236) 3,152
Sales, general, &
administrative $ 1,795 $ 3,271 $ 7,758 $ 13,766
Research & development 1,369 1,877 5,662 8,263
Total operating expenses 3,164 5,148 13,420 22,029
Loss from operations (2,794) (5,215) (13.656) (18,877)
</TABLE>
2
<PAGE>
Page 3 of 3
Yahoo - Number Nine Visual Technology Reports...
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Other expense net 62 139 258 63
Loss before income
taxes (2.856) (5,354) (13,914) (18,940)
Provision for income
taxes --- --- --- 1,839
Net income (loss) (2,856) (5.354) (13,914) (2O,779)
Net income (loss) per common
and equivalent share
-- diluted $ (0.30) $ (0.58) $ (1.49) $ (2.28)
-- primary $ (0.30) $ (0.58) $ (1.49) $ (2.28)
Weighted average number of common
and equivalent share
-- diluted 9,377 9,170 9,319 9,120
-- primary 9,377 9,170 9,319 9,120
</TABLE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Jan. 2, 1999 December 27, 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 413 $ 2,481
Accounts receivable 2,542 10.506
Receivable from manufacturing
contractor arid other --- 1,678
Inventories 1,052 2,864
Other current assets 711 274
Total current assets 4,718 17.803
Long-term assets 2,622 4,056
Total assets $7,340 $21,859
Current liabilities:
Revolving line of credit $1,301 $ 8,500
Accounts payable 2,684 6.148
Note payable with manufacturing
contractor 476 ---
Accrued expenses and other current
liabilities 1,852 1,429
Total current liabilities 6,313 16,077
Total stockholders' equity 1,027 5,782
Total liabilities and stockholders'
equity $7,340 $21,859
</TABLE>
3
<PAGE>
EXHIBIT 99.2
================================================================================
===========================
LOAN AND SECURITY AGREEMENT
===========================
BANKBOSTON, N.A.
THE LENDER
===========================
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
THE BORROWER
===========================
March 31, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS:
ARTICLE 2-THE REVOLVING CREDIT:
2-1. Establishment of Revolving Credit........................................................ 16
---------------------------------
2-2. Advances in Excess of Availability....................................................... 18
--------------------- ------------
2-3. Risks of Value of Collateral............................................................. 18
----------------------------
2-4. Commitment Fee........................................................................... 18
--------------
2-5. Unused Line Fee.......................................................................... 18
---------------
2-6. Early Termination Fee.................................................................... 18
---------------------
2-7 Procedures Under Revolving Credit........................................................ 19
---------------------------------
2-8. The Loan Account......................................................................... 20
----------------
2-9. The Revolving Credit Note................................................................ 21
-------------------------
2-10. Payment of Loan Account.................................................................. 22
-----------------------
2-11. Interest................................................................................. 22
--------
2-12. Duration of Interest Periods............................................................. 22
----------------------------
2-13. Changed Circumstances.................................................................... 23
---------------------
2-14. Payments and Prepayments................................................................. 24
------------------------
ARTICLE 3-CONDITIONS PRECEDENT:
3-1. Corporate Due Diligence......................................................................... 30
-----------------------
3-2. Opinion......................................................................................... 31
-------
3-3. Landlord Waiver................................................................................. 31
---------------
3-4. Additional Documents............................................................................ 31
--------------------
3-5. Officers' Certificates.......................................................................... 31
----------------------
3-6. Representations and Warranties.................................................................. 31
------------------------------
3-7. Warrants........................................................................................ 31
--------
3-8. Minimum Excess Availability..................................................................... 31
---------------------------
3-9. All Fees and Expenses Paid...................................................................... 32
--------------------------
3-10. No Suspension Event............................................................................. 32
-------------------
3-11. IBM Purchase Order.............................................................................. 32
------------------
3-12. Equity Investment............................................................................... 32
-----------------
3-13. No Adverse Change............................................................................... 32
-----------------
ARTICLE 4-GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
4-1. Payment and Performance of Liabilities.......................................................... 32
--------------------------------------
4-2. Due Organization - Corporate Authorization - No Conflicts....................................... 33
---------------------------------------------------------
4-3. Trade Names..................................................................................... 33
-----------
4-4. Infrastructure.................................................................................. 34
--------------
4-5. Year 2000 Compliance............................................................................ 34
--------------------
4-6. Locations....................................................................................... 34
---------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4-7. Title to Assets................................................................................ 35
---------------
4-8. Indebtedness................................................................................... 36
------------
4-9. Insurance Policies............................................................................. 36
------------------
4-10. Licenses....................................................................................... 37
--------
4-11. Leases......................................................................................... 37
------
4-12. Requirements of Law............................................................................ 37
-------------------
4-13. Maintain Properties............................................................................ 37
-------------------
4-14. Pay Taxes...................................................................................... 38
---------
4-15. No Margin Stock................................................................................ 39
---------------
4-16. ERISA.......................................................................................... 39
-----
4-17. Hazardous Materials............................................................................ 39
-------------------
4-18. Litigation..................................................................................... 40
----------
4-19. Dividends or Investments....................................................................... 40
------------------------
4-20. Loans.......................................................................................... 41
-----
4-21. Protection of Assets........................................................................... 41
--------------------
4-22. Line of Business............................................................................... 41
----------------
4-23. Affiliate Transactions......................................................................... 41
----------------------
4-24. Patents and Trademarks......................................................................... 42
----------------------
4-25. Additional Assurances.......................................................................... 42
---------------------
4-26. Adequacy of Disclosure......................................................................... 43
----------------------
4-27. Other Covenants................................................................................ 43
---------------
ARTICLE 5-FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5-1. Maintain Records............................................................................... 43
----------------
5-2. Access to Records.............................................................................. 44
-----------------
5-3. Immediate Notice to Lender..................................................................... 45
--------------------------
5-4. Borrowing Base Certificate..................................................................... 45
--------------------------
5-5. Monthly Reports................................................................................ 46
---------------
5-6. Quarterly Reports.............................................................................. 46
-----------------
5-7. Projections.................................................................................... 46
-----------
5-8. Annual Reports................................................................................. 46
--------------
5-9. Officers' Certificates......................................................................... 47
----------------------
5-10. Additional Financial Information............................................................... 47
--------------------------------
5-11. Audits and Appraisals.......................................................................... 47
---------------------
5-12. Financial Covenants............................................................................ 48
-------------------
5-13. Minimum Availability........................................................................... 48
--------------------
ARTICLE 6-USE AND COLLECTION OF COLLATERAL:
6-1. Use of Inventory Collateral.................................................................... 48
---------------------------
6-2. Adjustments and Allowances..................................................................... 48
--------------------------
6-3. Validity of Accounts........................................................................... 49
--------------------
6-4. Notification to Account Debtors................................................................ 49
-------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 7-RECEIVABLES:
7-1 Proceeds and Collection of Accounts............................................................ 49
-----------------------------------
7-2. Proceeds and Collection of Accounts Held in Trust.............................................. 50
-------------------------------------------------
7-3. Payment of Liabilities......................................................................... 50
----------------------
ARTICLE 8- GRANT OF SECURITY INTEREST:
8-1. Grant of Security Interest..................................................................... 50
--------------------------
8-2. Extent and Duration of Security Interest....................................................... 51
----------------------------------------
Article 9-Lender As Borrower's Attorney-In-Fact:
9-1. Appointment as Attorney-In-Fact................................................................ 51
-------------------------------
9-2. No Obligation to Act........................................................................... 52
--------------------
ARTICLE 10-EVENTS OF DEFAULT:
10-1. Failure to Pay Revolving Credit............................................................... 53
-------------------------------
10-2. Failure To Make Other Payments................................................................ 53
------------------------------
10-3. Failure to Perform Covenant or Liability (No Grace Period).................................... 53
----------------------------------------------------------
10-4. Failure to Perform Covenant or Liability (Grace Period)....................................... 53
-------------------------------------------------------
10-5. Misrepresentation............................................................................. 53
-----------------
10-6. Acceleration of Other Debt. Breach of Lease................................................... 53
-------------------------------------------
10-7. Default Under Other Agreements................................................................ 54
------------------------------
10-8. Uninsured Casualty Loss....................................................................... 54
-----------------------
10-9. Judgment. Restraint of Business............................................................... 54
-------------------------------
10-10. Business Failure.......................................................................... 54
----------------
10-11. Bankruptcy................................................................................ 55
----------
10-12. Default by Guarantor or Related Entity.................................................... 55
--------------------------------------
10-13. Indictment - Forfeiture................................................................... 55
-----------------------
10-14. Termination of Guaranty................................................................... 55
-----------------------
10-15. Challenge to Loan Documents............................................................... 55
---------------------------
10-16. Executive Management...................................................................... 56
--------------------
10-17. Change in Control......................................................................... 56
-----------------
10-18. Failure to Receive NRE Payment............................................................ 56
------------------------------
ARTICLE 11-RIGHTS AND REMEDIES UPON DEFAULT:
11-1. Rights of Enforcement......................................................................... 56
---------------------
11-2. Sale of Collateral............................................................................ 57
------------------
11-3. Occupation of Business Location............................................................... 57
-------------------------------
11-4. Grant of Nonexclusive License................................................................. 58
-----------------------------
11-5. Assembly of Collateral........................................................................ 58
----------------------
11-6. Rights and Remedies........................................................................... 58
-------------------
ARTICLE 12-NOTICES:
12-1. Notice Addresses.............................................................................. 59
----------------
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
12-2. Notice Given................................................................................. 59
------------
ARTICLE 13-TERM:
13-1. Termination of Revolving Credit.............................................................. 60
-------------------------------
13-2. Effect of Termination........................................................................ 60
---------------------
ARTICLE 14-GENERAL:
14-1. Protection of Collateral..................................................................... 60
------------------------
14-2. Successors and Assigns....................................................................... 61
----------------------
14-3. Severability................................................................................. 61
------------
14-4. Amendments. Course of Dealing................................................................ 61
-----------------------------
14-5. Power of Attorney............................................................................ 62
-----------------
14-6. Application of Proceeds...................................................................... 62
-----------------------
14-7. Lender's Costs and Expenses.................................................................. 62
---------------------------
14-8. Copies and Facsimiles........................................................................ 63
---------------------
14-9. Massachusetts Law............................................................................ 63
-----------------
14-10. Consent to Jurisdiction.................................................................. 63
-----------------------
14-11. Indemnification.......................................................................... 64
---------------
14-12. Rules of Construction.................................................................... 64
---------------------
14-13. Intent................................................................................... 65
------
14-14. Right of Set-Off......................................................................... 66
----------------
14-15. Maximum Interest Rate.................................................................... 66
---------------------
14-16. Waivers.................................................................................. 66
-------
</TABLE>
iv
<PAGE>
EXHIBITS
2-9 : Revolving Credit Note
2-12 : Renewal/Conversion Notice
3-3 : Landlord's Waiver
3-12 : S3 Letter
4-2 : Related Entities
4-3 : Trade Names
4-5 : Year 2000 Compliance
4-6 : Locations, Leases, and Landlords
4-7 : Encumbrances
4-8 : Indebtedness
4-9 : Insurance Policies
4-11 : Capital Leases
4-14 : Taxes
4-18 : Litigation
4-24 : Patents; Trademarks
v
<PAGE>
================================================================================
LOAN AND SECURITY AGREEMENT BankBoston, N.A.
================================================================================
March 31, 1999
THIS AGREEMENT is made between
BankBoston, N.A. (hereinafter, the "LENDER"), a national banking
association with its principal office at 100 Federal Street, Boston,
Massachusetts 02110,
and
Number Nine Visual Technology Corporation (hereinafter, the
"BORROWER"), a Delaware corporation with its principal executive offices at
18 Hartwell Avenue, Lexington, Massachusetts 02173-1234
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"ACCEPTABLE ACCOUNTS" (a) Such of the Borrower's Accounts as arise in the
ordinary course of the Borrower's business for goods sold and/or
services rendered by which Accounts have been determined by the Lender
to be satisfactory and have been earned by performance and are owed to
the Borrower by such of the Borrower's trade customers as the Lender
determines to be satisfactory, in the Lender's sole discretion in each
instance, and as to which Accounts, the Lender has a perfected
security interest which is prior and superior to all security
interests, claims and Encumbrances.
1
<PAGE>
(b) The following is a partial listing of those types of Accounts
which are not Acceptable Accounts:
(i) Any which is more than ninety (90) days after the invoice date
thereof or more than sixty (60) days after the due date thereof.
(ii) Any which is owed by any Account Debtor liable on any Account
described in Section(b)(i), above, if such Accounts aggregate more than 50%
of the Accounts from such Account Debtor.
(iii) Any which arises out of the sale by the Borrower of goods consigned
or delivered to the Borrower or to the Account Debtor on sale or return
terms (whether or not compliance has been made with Section 2-326 of the
Uniform Commercial Code).
(iv) Any which arises out of any sale made on a basis other than upon
terms usual to the business of the Borrower.
(v) Any which arises out of any sale made on a "bill and hold," dating,
or delayed shipping basis.
(vi) Any which is owed by any Account Debtor whose principal place of
business is not within the continental United States or the District of
Columbia. [See definition of Acceptable Foreign Accounts].
(vii) Any which is owed by any Related Entity.
(viii) Any as to which the Account Debtor holds or is entitled to any
claim, counterclaim, set off, or chargeback.
(ix) Any which is evidenced by a promissory note.
(x) Any which is owed by any person employed by, or a salesperson of,
the Borrower.
(xi) Any which the Lender in its sole discretion considers unacceptable
for any reason.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation, "accounts" as
defined in the UCC, and also all: accounts, accounts receivable, credit
card receivables, notes, drafts, acceptances, and other forms of
obligations and receivables and rights to payment for credit extended and
for goods sold or leased, or services rendered, whether or not yet earned
by performance; all "contract rights" as formerly defined in the UCC; all
Inventory which gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all reclaimed,
returned, rejected or repossessed Inventory (if any) the sale of which gave
rise to any Account.
2
<PAGE>
"ACCEPTABLE FOREIGN ACCOUNTS" Such of the Borrower's international Accounts
which are supported by a foreign credit insurance policy acceptable to
the Lender, less any deductibles under such insurance policies.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which (a)
one holds, directly or indirectly, not less than Twenty Five Percent
(25%) of the capital stock, beneficial interests, partnership
interests, or other equity interests of the other; or (b) one has,
directly or indirectly, the right, under ordinary circumstances, to
vote for the election of a majority of the directors (or other body or
Person who has those powers customarily vested in a board of directors
of a corporation); or (c) not less than Twenty Five Percent (25%) of
their respective ownership is directly or indirectly held by the same
third Person.
"APPLICABLE MARGIN": shall mean, as applicable, for the period from
closing until the Applicable Margin is adjusted in accordance with
(b), below, the amounts set forth in (a) below, and thereafter, the
amounts set forth in (b) below:
(a)
---------------------------
Base Margin LIBOR
Margin
---------------------------
100 basis 325 basis
points points
---------------------------
3
<PAGE>
(b) The Base Margin and the LIBOR Margin shall be adjusted based upon
satisfaction of both of the following performance covenants:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Tier Operating Cash Flow Total Liabilities to Base LIBOR
Coverage Ratio Tangible Net Margin Margin
Worth
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Less than 1.25 Greater than 3.0 100 basis 325 basis
points points
------------------------------------------------------------------------
2 Greater than or equal Less than or equal 75 basis 300 basis
to 1.25 but less than to 3.0 but greater points points
1.5 than 2.5
------------------------------------------------------------------------
3 Greater than 1.5 but Less than or equal 50 basis 275 basis
less than or equal to to 2.5 but greater points points
1.75 than 1.75
------------------------------------------------------------------------
4 Greater than 1.75 Less than 1.75 25 basis 250 basis
points points
------------------------------------------------------------------------
</TABLE>
For purposes of determining the Base Margin and the LIBOR Margin, the
foregoing performance measures shall be tested quarterly; The initial
adjustment to the Base Margin and the LIBOR Margin shall occur upon
the later of the receipt by the Lender of the Borrower's financial
statements for the fiscal period ending July 3,1999. Thereafter, the
Base Margin and the LIBOR Margin shall be adjusted quarterly,
determined on a rolling twelve month basis. The Base Margin and the
LlBOR Margin shall be adjusted after the Borrower delivers to the
Lender the quarterly financial statements (with readjustment upon
receipt of the annual financial statements, if applicable) required
under Section 5-6(i) below.
"AVAILABILITY": Is defined in Section 2-1(b)(i).
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE": The Base Rate announced from time to time by the Lender. Any
change in "Base" shall be effective, for purposes of the calculation
of interest due hereunder, when
4
<PAGE>
such change is made effective generally by the Lender. In all events,
interest which is determined by reference to Base shall be calculated
on a 360 day year and actual days elapsed.
"BASE MARGIN LOAN": Each Revolving Credit Loan while bearing interest at
the Base Rate.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day on
which banks in Boston, Massachusetts, generally are not open to the
general public for the purpose of conducting commercial banking
business; or (c) a day on which the Lender is not open to the general
public to conduct business.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended) or by any Person,
of beneficial ownership (within the meaning of Rule I 3d-3 of the
Securities and Exchange Commission) of 20% or more of the issued and
outstanding capital stock of the Borrower having the right, under
ordinary circumstances, to vote for the election of directors of the
Borrower, provided, however, that (i) the conversion of any of the
presently issued and outstanding shares of the Borrower's preferred
stock into shares of the Borrower's common stock shall not be deemed
to be a "Change in Control", and (ii) the acquisition by any of
Silicon Graphics, Inc., KA Investments, LDC, Stanley Bialek or Andrew
Najda or by any of them individually of shares of the Borrower's
capital stock or that would result in any or all of them beneficially
owning twenty percent (20%) or more of the issued and outstanding
capital stock of the Borrower having the right, under ordinary
circumstances, to vote for the election of directors of the Borrower
shall not be deemed to be a "Change in Control".
(b) More than half of the persons who were directors of the
Borrower on the first day of any period consisting of Twelve (12)
consecutive calendar months (the first of
5
<PAGE>
which Twelve (12) month periods commencing with the first day of the
month during which this Agreement was executed), cease, for any reason
other than death or disability, to be directors of the Borrower.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COMMITMENT": $15,000,000.00.
"COLLATERAL": Is defined in Section 8-1.
"COMMITMENT FEE": Is defined in Section 24.
"CONVERT, CONVERSION AND CONVERTED": The conversion of a loan from one type
to loans of another type.
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the
Lender's attorneys, and all reasonable costs incurred by the Lender in
the administration of the Liabilities and/or the Loan Documents,
including, without limitation, reasonable costs and expenses
associated with travel on behalf of the Lender, which costs and
expenses are directly or indirectly related to or in respect of the
Lender's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral, the
Liabilities, and/or the Lender's Rights and Remedies and/or any of the
Lender's rights and remedies against or in respect of any guarantor or
other person liable in respect of the Liabilities (whether or not suit
is instituted in connection with such efforts). The Costs of
Collection are Liabilities, and at the Lender's option may bear
interest at the highest post-default rate which the Lender may charge
the Borrower hereunder as if such had been lent, advanced, and
credited by the Lender to, or for the benefit of, the Borrower.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC.
"DILUTION RESERVE": as of the date of calculation, an amount equal to (x)
the difference between the average percent dilution of the Borrower's
Accounts for the immediately
6
<PAGE>
preceding three (3) months and ten percent (10%), multiplied by (y)
the Acceptable Accounts.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EARLY TERMINATION FEE": Is defined in Section 2-6.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) Any security interest, mortgage, pledge, hypothecation,
lien, attachment, or charge of any kind (including any agreement to
give any of the foregoing); the interest of a lessor under a Capital
Lease; conditional sale or other title retention agreement; sale of
accounts receivable or chattel paper; or other arrangement pursuant to
which any Person is entitled to any preference or priority with
respect to the property or assets of another Person or the income or
profits of such other Person or which constitutes an interest in
property to secure an obligation; each of the foregoing whether
consensual or non-consensual and whether arising by way of agreement,
operation of law, legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements which regulate or relate to, or impose any standard of
conduct or liability on account of or in respect to environmental
protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.
(b) The common law relating to damage to Persons
or property from Hazardous Materials.
"EQUIPMENT": Includes without limitation, "equipment" as defined in the
UCC, and also all
7
<PAGE>
motor vehicles, rolling stock, machinery, office equipment, plant
equipment, tools, dies, molds, store fixtures, furniture, and other
goods, property, and assets which are used and/or were purchased for
use in the operation or furtherance of the Borrower's business, and
any and all accessions or additions thereto, and substitutions
therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a
group which includes the Borrower and which would be treated as a
single employer under Section 414 of the Internal Revenue Code of
1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 10.
"FIXTURES": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in
respect of which reference to GAAP is being made.
"GENERAL INTANGIBLES": Includes, without limitation, "general intangibles"
as defined in the UCC; and also all; rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in
favor of the Borrower; warranty claims; federal, state, or domestic
tax refunds and abatements (specifically excluding foreign tax refunds
and foreign tax abatements); insurance refunds and premium rebates;
all means and vehicles of investment or hedging, including, without
limitation, options, warrants, and futures contracts; records;
customer lists; telephone numbers; goodwill; causes of action;
judgments; payments under any settlement or other agreement; literary
rights; rights to performance; royalties; license and/or franchise
fees; rights of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits,
certificates of convenience and necessity, and similar rights granted
by any governmental authority; patents, patent applications, patents
pending, and other intellectual property; internet addresses and
domain names; developmental ideas and concepts: proprietary processes;
blueprints, drawings; designs, diagrams, plans, reports;
8
<PAGE>
and charts; catalogs; manuals; technical data; computer software
programs (including the source and object codes therefor), computer
records, computer software, rights of access to computer record
service bureaus, service bureau computer contracts, and computer data;
tapes, disks, semi-conductors chips and printouts; trade secrets
rights, copyrights, mask work rights and interests, and derivative
works and interests; user, technical reference, and other manuals and
materials; trade names, trademarks, service marks, and all goodwill
relating thereto; applications for registration of the foregoing; and
all other general intangible property of the Borrower in the nature of
intellectual property; proposals; cost estimates, and reproductions on
paper, or otherwise, of any and all concepts or ideas, and any matter
related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced,
sold, or leased, by the Borrower or credit extended or services
performed, by the Borrower, whether intended for an individual
customer or the general business of the Borrower, or used or useful in
connection with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any of
the foregoing) are defined or regulated as a hazardous material in or
under any Environmental Law and (b) oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such Person but
which is secured by an Encumbrance on any asset of such Person)
whether or not evidenced by a promissory note, bond, debenture or
other written obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all
letters of credit and acceptances issued for the account of such
Person or reimbursement on account of which such Person would be
obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
9
<PAGE>
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
"indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance
on any asset of such Person, whether or not such
Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint
venture in which such Person is a general partner or joint
venturer.
"INDEMNIFIED PERSON": Is defined in Section 14-11.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INTEREST EXPENSE": shall mean, with respect to any Person, the aggregate
consolidated expense of such Person and its subsidiaries on account of
interest and fees paid on account of or with respect to Indebtedness
(including, without limitation, the Liabilities), determined in
accordance with GAAP.
"INTEREST PAYMENT DATE": With reference to:
(a) any LIBOR Loan, at the Lender's option, (i) on the
first day of each month or (ii) on the last day of each Interest
Period, provided that interest on LIBOR Loans having an Interest
Period of six months shall be payable on the last day of the third
month of such Interest Period and on the last day of the Interest
Period.
(b) any Base Margin Loan, the first day of each month
and the Termination Date.
"INTEREST PERIOD": (a) With respect to each LIBOR Loan, the period
commencing on the date of the making or continuation of or conversion
to such LIBOR Loan and ending one, two, three or six months
thereafter, as the Borrower may elect in the applicable Notice of
Borrowing or Conversion.
(b) With respect to each Base Margin Loan, the period
commencing on the
10
<PAGE>
date of the making or continuation of or conversion to such Base Margin
Loan and ending on that date (i) as of which the subject Base Margin Loan
is converted to a LIBOR Loan, as the Borrower may elect in the applicable
Notice of Borrowing or Conversion, or (ii) on which the subject Base Margin
Loan is paid by the Borrower.
Provided that:
--------
(i) if any Interest Period with respect to a LIBOR Loan would
otherwise end on a day that is not a LIBOR Business Day, that
Interest Period shall be extended to the next succeeding LIBOR
Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding LIBOR
Business Day;
(ii) if any Interest Period with respect to a Base Margin Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
(iii) if the Borrower shall fail to give notice as provided in
Section 2-12, herein, the Borrower shall be deemed to have requested
a conversion of the affected LIBOR Loan to a Base Margin Loan on the
last day of the then current Interest Period with respect thereto;
(iv) any Interest Period relating to any LIBOR Loan that
begins on the last LIBOR Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last LIBOR Business Day of a calendar month; and
(v) any Interest Period relating to any LIBOR Loan that would
otherwise extend beyond the Maturity Date of the Revolving Credit
Loans or the Term Loan, as applicable, shall end on such Maturity
Date.
"Inventory": Includes, without limitation, "inventory" as defined in the UCC and
also all: packaging, advertising, and shipping materials related to any of
the foregoing, and all names or marks affixed or to be affixed thereto for
identifying or selling the same; Goods held for sale or lease or furnished
or to be furnished under a contract or contracts of sale or service by the
Borrower, or used or consumed or to be used or consumed in the Borrower's
business; Goods of said description in transit: returned, repossessed and
rejected Goods of said description; and all documents (whether or not
negotiable) which
11
<PAGE>
represent any of the foregoing.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"L/C": Any letter of credit, issued by the Lender for the account of the
Borrower and any acceptance made on account of such letter of credit.
"L/C AGREEMENT": is defined in Section 2-16.
"LEASE": Any lease or other agreement, no matter how styled or structured,
pursuant to which the Borrower is entitled to the use or occupancy of
any space.
"LENDER": Is defined in the Preamble.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11-6.
"LIABILITIES" (in the singular, "Liability"): Includes, without limitation, all
and each of the following, whether now existing or hereafter arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender, each of every kind, nature,
and description.
(b) Each obligation to repay any loan, advance, indebtedness, note,
obligation, overdraft, or amount now or hereafter owing by the Borrower
to the Lender (including all future advances whether or not made
pursuant to a commitment by the Lender), whether or not any of such are
liquidated, unliquidated, primary, secondary, secured, unsecured,
direct, indirect, absolute, contingent, or of any other type, nature, or
description, or by reason of any cause of action which the Lender may
hold against the Borrower.
(c) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind, nature,
and description.
(d) All interest, fees, and charges and other amounts which may be
charged by the Lender to the Borrower and/or which may be due from the
Borrower to the Lender from time to time.
(e) All costs and expenses incurred or paid by the Lender in
respect of any agreement between the Borrower and the Lender or
instrument furnished by the Borrower
12
<PAGE>
to the Lender (including, without limitation, Costs of Collection,
attorneys' reasonable fees, and all court and litigation costs and
expenses).
(f) Any and all covenants of the Borrower to or with the Lender and
any and all obligations of the Borrower to act or to refrain from acting in
accordance with any agreement between the Borrower and the Lender or
instrument furnished by the Borrower to the Lender.
"LIBOR BUSINESS DAY": Any day on which commercial banks are open for
international business (including dealings in dollar deposits) in London
for such other LIBOR interbank market as may be selected by the Lender in
its sole discretion acting in good faith.
"LIBOR LOAN": Any Revolving Credit Loan which bears interest at a Libor Rate.
"LIBOR OFFER RATE": That rate of interest (rounded upwards, if necessary, to
the next 1/100 of 1%) determined by the Lender to be (i) the prevailing
rate per annum at which deposits on U.S. Dollars are offered to the Lender
by first-class banks in the London interbank market in which the Lender
regularly participates at or about 10:00AM (Boston Time) Two (2) LIBOR
Business Days before the first day of the Interest Period, for a deposit
approximately in the amount of the subject LIBOR Loan for a period of time
approximately equal to such Interest Period, divided by (ii) one minus the
Reserve Percentage.
"LOAN ACCOUNT": Is defined in Section 2-8.
"LOAN DOCUMENTS": This Agreement, each instrument and document executed and/or
delivered as contemplated by Article 3, below, and each other instrument or
document from time to time executed and/or delivered in connection with the
arrangements contemplated hereby, as each may be amended from time to time.
"MATURITY DATE": December 31, 2001.
"NET INCOME": shall mean, with respect to any Person, for any fiscal period,
the consolidated net income (or deficit) of such Person, after deduction of
all expenses, taxes, and other proper charges, determined in accordance
with GAAP.
13
<PAGE>
"OPERATING CASH FLOW" shall mean the sum of (i) Net Income, plus (ii) Interest
----
Expense, plus (iii) depreciation, amortization and other noncash charges
----
deducted in the calculation of Net Income, minus (iv) non-cash income,
-----
minus (v) income taxes paid in cash, minus (vi) internally funded Capital
----- -----
Expenditures, all as determined in accordance with GAAP.
"PERSON": Any natural person, and any corporation, limited liability company,
trust, partnership, joint venture, or other enterprise or entity.
"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the UCC
(defined below), and each type of property described in Section 8-1 hereof.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists of
the Borrower's Accounts, Accounts Receivable, General Intangibles, Chattel
Paper, Instruments, Documents of Title, Documents, Investment Property,
letters of credit for the benefit of the Borrower, and bankers' acceptances
held by the Borrower, and any rights to payment.
"RELATED ENTITY": (a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of the Borrower; could have such
enterprise's tax returns or financial statements consolidated with the
Borrower's; could be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal
Revenue Code of 1986, as amended from time to time) of which the Borrower
is a member; controls or is controlled by the Borrower or by any Affiliate
of the Borrower.
(b) Any Affiliate.
"RENEWAL CONVERSION NOTICE": is defined in Section 2-12.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and
injunctions, arbitrator's decisions, and/or similar rulings, in each
instance ((i) and (ii)) of or by any federal, state, municipal, and other
14
<PAGE>
governmental authority, or court, tribunal, panel, or other body which has
or claims jurisdiction over such Person, or any property of such Person, or
of any other Person for whose conduct such Person would be responsible.
(b) That Person's charter, certificate of incorporation, articles of
organization, and/or other organizational documents, as applicable; and (c)
that Person's by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"RESERVE PERCENTAGE": The decimal equivalent of that rate applicable to the
Lender under regulations issued from time to time by the Board of Governors
of the Federal Reserve System for determining the maximum reserve
requirement of that Lender with respect to "Eurocurrency liabilities" as
defined in such regulations. The Reserve Percentage applicable to a
particular Eurodollar Loan shall be based upon that in effect during the
subject Interest Period, with changes in the Reserve Percentage which take
effect during such Interest Period to take effect (and to consequently
change any interest rate determined with reference to the Reserve
Percentage) if and when such change is applicable to such loans.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT NOTE": Is defined in Section 2-9.
"SEC": The Securities and Exchange Commission.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts which (a)
is an Event of Default; or (b) would become an Event of Default if any
requisite notice were given and/or any requisite period of time were to run
and such occurrence, circumstance, or state of facts were not absolutely
cured within any applicable grace period.
"TANGIBLE NET WORTH" shall mean, as to any Person, the difference between total
assets of such Person and its subsidiaries and total liabilities of such
Person and its subsidiaries, plus all indebtedness subordinated to the
----
Lender on terms acceptable to the Lender less the sum of:
----
15
<PAGE>
(a) the total book value of all assets of such Person and its
subsidiaries properly classified as intangible assets under
GAAP, including items such as goodwill, unamortized debt
discount and expense, trademarks, trade names, service marks,
copyrights, patents and licenses; and
(b) all amounts representing the write-up in the book value of
any assets of such Person and its subsidiaries resulting from a
revaluation thereof; and
(c) to the extent not already deducted, all reserves; and
(d) the value of minority interests in subsidiaries; and
(e) the aggregate amount of all loans made by such Person and
its subsidiaries to any officer, employee or shareholder
thereof.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10-11 hereof; or (c) date
set by notice by the Lender to the Borrower, which notice sets the
Termination Date on account of the occurrence of any Event of Default
other than as described in Section 10-11 hereof
"TOTAL DEBT SERVICE" shall mean the sum of (i) principal payments made on
long term indebtedness plus (ii) capital lease payments, plus (iii)
---- ----
Interest Expense all as determined in accordance with generally
accepted accounting principles.
"UCC": The Uniform Commercial Code as presently in effect in Massachusetts
(Mass. Gen. Laws, Ch. 106).
"UNUSED LINE FEE": Is defined in Section 2-5.
"YEAR 2000 COMPLIANT": Computer applications, imbedded microchips, and
other systems and subsystems which properly recognize and perform
their intended function without any adverse effect on account of their
respective inability to recognize certain dates prior to, on, and
after December 31, 1999 or on account of their treating any date prior
to, on, or after December 31, 1999 other than as the specific date in
question.
ARTICLE 2 - THE REVOLVING CREDIT:
2-1. Establishment of Revolving Credit.
---------------------------------
(a) The Lender hereby establishes a revolving line of credit (the
"REVOLVING
16
<PAGE>
CREDIT") in the Borrower's favor pursuant to which the Lender, subject to, and
in accordance with, this Agreement, shall make loans and advances and otherwise
provide financial accommodations to and for the account of the Borrower as
provided herein. The amount available for borrowing under the Revolving Credit
shall be determined by the Lender by reference to Availability, as determined by
the Lender from time to time.
(b) As used herein, the term "AVAILABILITY" refers at any time to the
lesser of (i) or (ii), below:
(i) up to:
(A) the Commitment
Minus
-----
(B) The then unpaid principal balance of the Loan
Account.
Minus
-----
(C) The aggregate amounts then undrawn on all outstanding
L/C's, acceptances or any other accommodations issued
or incurred, or caused to be issued or incurred, by
the Lender for the account and/or the benefit of the
Borrower.
(ii) up to:
(A) Eighty percent (80%) of the face amount of the
Borrower's Acceptable Accounts.
Plus
----
(B) Eighty percent (80%) of the face amount of the
Borrower's Acceptable Foreign Accounts.
Minus
-----
(C) The Dilution Reserve.
Minus
-----
(D) The then unpaid principal balance of the Loan
Account.
Minus
-----
(E) The aggregate amounts then undrawn on all outstanding
L/C's, acceptances, or any other accommodations
issued or incurred, or caused to be issued or
incurred, by the Lender for the account and/or the
benefit of the Borrower.
(c) Availability shall be based upon Borrowing Base Certificates
furnished as
17
<PAGE>
provided in Section 54 hereof.
(d) The proceeds of borrowings under the Revolving Credit shall be
utilized solely to refinance indebtedness to Marine Midland Bank, to pay
transaction costs, for working capital purposes, and for general corporate
purposes.
2-2. Advances in Excess of Availability. The Lender does not have any
----------------------------------
obligation to make any loan or advance, or otherwise to provide any credit for
the benefit of the Borrower such that the balance of the Loan Account exceeds
the Availability. The making of loans, advances, and credits and the providing
of financial accommodations in excess of the Availability is for the benefit of
the Borrower and does not affect the obligations of the Borrower hereunder; such
loans, advances, credits, and financial accommodations constitute Liabilities.
The making of any such loans, advances, and credits and the providing of
financial accommodations, on any one occasion such that the Availability is
exceeded shall not obligate the Lender to make any such loans, credits, or
advances or to provide any financial accommodation on any other occasion nor to
permit such loans, credits, or advances to remain outstanding.
2-3. Risks of Value of Collateral. The Lender's reference to a given
----------------------------
asset in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Lender relative to the actual value of the asset in
question. All risks concerning the collectability of the Borrower's accounts are
and remain upon the Borrower. All Collateral secures the prompt, punctual, and
faithful performance of the Liabilities whether or not relied upon by the Lender
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit.
2-4. Commitment Fee.
--------------
(a) As compensation for the Lender's commitment to make loans and
advances to the Borrower and as compensation for the Lender's maintenance of
sufficient funds available for such purpose, the Lender has earned a Commitment
Fee (so referred to herein) of $ 50,000.00.
(b) The Commitment Fee shall be payable in full at closing.
2-5. Unused Line Fee. In addition to any other fee by the Borrower on
----------------
account of the Revolving Credit, the Borrower shall pay the Lender an Unused
Line Fee (so referred to herein) in arrears, on the first day of each month (and
on the Termination Date). The Unused Line Fee shall be equal to
18
<PAGE>
0:375% per annum of the average difference, during the month just ended (or
relevant period with respect to the payment being made on the Termination Date)
between the Commitment and the unpaid principal balance of the Loan Account.
2-6. Early Termination Fee.
---------------------
(a) In the event that the Termination Date occurs, for any reason,
prior to the Maturity Date, the Borrower shall pay the Lender the Early
Termination Fee (so referred to herein) determined and payable as follows:
(i) the sum of $375,000.00, if the Revolving Credit is
refinanced by another financial institution.
(ii) If the Revolving Credit is repaid in conjunction with the
sale of a controlling interest in the Borrower, the
following Early termination Fees shall apply:
(A) the sum of $375,000.00, if the Revolving Credit is
repaid within the first twelve (12) months after
the closing date.
(B) the sum of $225,000.00, if the Revolving Credit is
repaid after twelve (12) months from the closing
date and prior to twenty-four (24) months after
the closing date.
(C) the sum of $75,000.00, if the Revolving Credit is
repaid after twenty-four (24) months after the
closing date.
2-7 Procedures Under Revolving Credit.
---------------------------------
(a) The Borrower may request loans and advances under the Revolving
Credit from time to time under, in each instance in accordance with such
procedures as may from time to time be acceptable to the Lender.
(b) Subject to the provisions of this Agreement, a loan or advance
under the Revolving Credit duly and timely requested by the Borrower shall be
made pursuant hereto, provided that:
(i) The Availability will not be exceeded; and
(ii) The Revolving Credit has not been suspended as provided in
Section 2-
19
<PAGE>
7(g).
(c) (i) A loan or advance shall be deemed to have been made under
the Revolving Credit upon the charging of the amount of such loan to the Loan
Account.
(ii) There shall not be any recourse to, nor liability of, the
Lender on account of any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire transfer of
which was properly initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
(iii) The Lender may rely on any request for a loan or advance
or financial accommodation which the Lender, in good faith, believes to have
been made by a person duly authorized to act on behalf of the Borrower and may
decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(d) A request by the Borrower for any advance under the Revolving
Credit or of the issuance of an L/C or any other accommodations shall be
irrevocable and shall constitute certification by the Borrower and the Borrower
that as of the date of such request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition from the most recent financial information
furnished the Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in any of
the Loan Documents (defined below) is then true and complete as of and as
if made on the date of such request.
(iv) No Suspension Event is then extant.
(e) The Borrower shall immediately become indebted to the Lender for the
amount of each loan under or pursuant to this Agreement when such loan is deemed
to have been made.
(f) The Lender, without the request of the Borrower, may advance under the
Revolving Credit any amount which the Borrower is obligated to pay to the Lender
or for which the Borrower or the Lender becomes obligated on account of, or in
respect to, any L/C. Such advance shall be made even if such advance would
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 2-10(b),
below.
(g) Upon the occurrence from time to time of any Suspension Event:
(i) The Lender may suspend the Revolving Credit immediately
20
<PAGE>
(ii) The Lender shall not be obligated, during such suspension,
to make any loans or advance, or to provide any financial accommodation
hereunder or to seek the issuance of any L/C.
(iii) The Lender may suspend the right of the Borrower to
request any LIBOR Loan or to convert any Base Margin Loan to a LIBOR
Loan.
2-8. The Loan Account.
----------------
(a) An account (hereinafter, the "Loan Account") shall be opened on
the books of the Lender, in which Loan Account a record may be kept of all loans
made by the Lender to the Borrower under or pursuant to the Revolving Credit and
of all payments thereon.
(b) The Lender may also keep a record (either in the Loan Account or
elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities under the Revolving Credit and of all credits against such
amounts so owed.
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments as having been advanced under the
Revolving Credit whether or not such amounts are then due and payable.
(e) The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to which the Lender is entitled from Co-Agents pursuant hereto and may charge
the same to the Loan Account notwithstanding that such amount so advanced may
result in Availability's being exceeded. Such action on the part of the Lender
shall not constitute a waiver of the Lender's rights under Section 2-10(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Subsection shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower unless the Borrower provides the
Lender with written objection thereto within twenty (20) days from the mailing
of such statement, which written objection shall indicate, with particularity,
the reason for such objection. The Loan Account and the Lender's books and
records concerning the loan
21
<PAGE>
arrangement contemplated herein and the Liabilities shall be prima facie
evidence and proof of the items described therein.
2-9. The Revolving Credit Note. The obligation to repay loans and advances
-------------------------
under the Revolving Credit, with interest as provided herein, shall be evidenced
by a note (hereinafter, the "Revolving Credit Note") in the form of EXHIBIT 2-9,
annexed hereto, executed by the Borrower. Neither the original nor a copy of the
Revolving Credit Note shall be required, however, to establish or prove any
Liability. In the event that the Revolving Credit Note is ever lost, mutilated,
or destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender.
2-10. Payment of Loan Account.
-----------------------
(a) The Borrower shall repay all or any portion of the principal
balance of the Loan Account from time to time with the proceeds from the
Collateral until the termination of the Revolving Credit.
(b) The Borrower, without notice or demand from the Lender, shall
pay the Lender that amount, from time to time, which is necessary so that the
principal balance of the Loan Account does not exceed Availability.
(c) The Borrower shall pay the Lender the net proceeds of (i) sale
of assets not in the ordinary course of business, and (ii) casualty and
condemnation proceeds (except to the extent utilized to replace or repair the
property subject to the casualty). Such net proceeds will be applied to the
Revolving Credit (at the Lender's option, with a corresponding permanent
reduction in the Commitment).
(d) The Borrower shall repay the then entire unpaid balance of the
Loan Account upon the Termination Date.
2-11. Interest.
--------
(a) Revolving Credit Loans shall initially bear interest at the Base
Rate plus the Applicable Margin and thereafter shall bear interest at the Base
Rate plus the Applicable Margin or the LIBOR Rate plus the Applicable Margin,
as specified from time to time by the Borrower in the Renewal/Conversion Notice
with respect to the subject Revolving Credit Loan or as otherwise provided in
this Agreement.
(b) The Borrower shall pay interest on each Revolving Credit Loan in
arrears on the applicable Interest Payment Date for that Loan.
(c) Following the occurrence of any Event of Default (and whether or
not the Lender exercises the Lender's rights on account thereof). all loans and
advances made under the
22
<PAGE>
Revolving Credit shall bear interest at the aggregate of the Base Rate plus four
percent (4%) per annum.
2-12. Duration of Interest Periods.
----------------------------
(a) Subject to the limitation described herein, the Borrower shall
have the option to elect an Interest Period to be applicable to a Revolving
Credit Loan by giving notice of such election (a "Renewal I Conversion Notice")
in the form of EXHIBIT 2-12, annexed hereto received no later than 10:00 Boston
time One Business Day before the end of the then applicable Interest Period if
such Loan is to be converted to a Base Margin Loan and Three Business Days
before (and not counting) the end of the then applicable Interest Period if such
Loan is to be continued as, or converted to, a LIBOR Loan; provided, however,
--------- -------
that (a) any Conversion of LIBOR Loans may be made only on the last day of the
respective Interest Period for such Loans, and (b) no loan may be Converted to a
LIBOR Loan when any Default or Event of Default has occurred and is continuing.
Each such Conversion Request shall be by telephone, telecopy, telex or cable, in
each case confirmed immediately in writing in the manner specified for notices
herein, and shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Loans to be Converted, and (iii) if such Conversion
is to LIBOR Loan the duration of the initial Interest Period for such Loans.
Each Conversion Request with respect to LIBOR Loans shall be irrevocable and
binding on the Borrower.
(b) If the Lender does not receive a notice of election of, or
conversion to, an Interest Period for a LIBOR Loan pursuant to subsection (a)
within the applicable time limits specified therein, the Borrower shall be
deemed to have elected to convert such Loan in whole into a Base Margin Loan on
the last day of the then current Interest Period with respect thereto.
(c) The Borrower shall not select, renew, or convert any Revolving
Credit Loan such that there are more than three (3) interest rates applicable to
the Revolving Credit Loans which are LIBOR Loans at any one time.
(d) LIBOR Loans shall each be in an amount of not less than Five
Hundred Thousand Dollars ($500,000.00) and One Hundred Thousand Dollars
($100,000.00) increments in excess of such minimum.
(e) If after giving a Conversion Request, the Borrower fails to
borrow or Convert any LIBOR Loan, the Borrower shall indemnify the Lender
against any loss or expense incurred by the Lender as a result of such failure
including, without limitation, any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Lender to
fund or maintain a LIBOR Loan to be made by the Lender and the compensation as
provided for in Section 2-19, herein.
2-13. Changed Circumstances. In the event that:
---------------------
23
<PAGE>
(a) on any day on which the rate for a LIBOR Loan would otherwise be
set, the Lender shall have determined in good faith (which determination
shall be final and conclusive) that adequate and fair means do not exist
for ascertaining either such rate; or
(b) at any time the Lender shall have determined in good faith (which
determination shall be final and conclusive) that:
(i) the continuation of or conversion of any Revolving Credit
Loan to a LIBOR Loan has been made impracticable or unlawful by (A)
the occurrence of a contingency that materially and adversely affects
the applicable market or (B) compliance by the Lender in good faith
with any applicable law or governmental regulation, guideline or order
or interpretation or change thereof by any governmental authority
charged with the interpretation or administration thereof or with any
request or directive of any such governmental authority (whether or
not having the force of law); or
(ii) the indices on which the interest rates for LIBOR Loan
shall no longer represent the effective cost to the Lender for U.S.
dollar deposits in the interbank market for deposits in which it
regularly participates;
then, and in any such event, the Lender shall forthwith so notify the
Borrower thereof Until the Lender notifies the Borrower that the
circumstances giving rise to such notice no longer apply, the obligation of
the Lender to make LIBOR Loans of the type affected by such changed
circumstances or to permit the Borrower to select the affected interest
rate as otherwise applicable to any Revolving Credit Loans shall be
suspended. If at the time the Lender so notifies the Borrower, the Borrower
has previously given the Lender a Renewal/Conversion Notice with respect to
one or more LIBOR Loans, but such Revolving Credit Loans have not yet gone
into effect, such notification shall be deemed to be void and the Borrower
may borrow Revolving Credit Loans which are Base Margin Loans by giving a
substitute Renewal/Conversion Notice. Upon the expiration of the Interest
Period for any LIBOR Loan which is outstanding on the date of such
notification, the amount of such LIBOR Loan shall thereafter constitute a
Base Margin Loan.
2-14. Payments and Prepayments.
------------------------
(a) Base Margin Loans may be prepaid at any time and from time to time
without premium or penalty.
(b) Any LIBOR Loan may be prepaid, upon not less than three (3)
Business Days' prior written notice to the Lender, without penalty,
--------
provided that (1) each partial prepayment shall be in the principal amount
of $100,000.00 or an integral multiple thereof, (2) if such prepayment is
on any day other than the last day of the interest Period relating thereto,
such amount prepaid
24
<PAGE>
shall be accompanied by any additional amounts necessary to compensate the
Lender for any costs incurred by the Lender in accordance with Section 2-
19, herein, including any interest or fees payable by the Lender to lenders
of funds obtained by it in order to make or maintain its LIBOR Loans
hereunder and (3) any amount prepaid shall be accompanied by accrued
interest on the principal repaid to the date of payment.
(c) In the event that at the time of any such prepayment Loans are
outstanding of more than one type, the amount prepaid shall be applied
first to any Base Margin Loan prior to application to any LIBOR Loans.
(d) Any premium due hereunder upon such prepayment shall be due and
payable upon any prepayment whatsoever, whether voluntary or involuntary,
to the extent permitted by law, and after acceleration of the unpaid
principal balance of the Liabilities after the occurrence of an Event of
Default.
2-15. Fees For L/C's. (a) Prior to the issuance of any L/C, the Borrower
--------------
shall pay to the Lender a fee on account of such L/C based upon the Lender's
then current fee schedule for like L/C's.
(b) In addition to the fee to be paid as provided in Subsection
(a), above, the Borrower shall pay to the Lender, on demand, all issuance,
processing, negotiation, amendment, and administrative fees and other amounts on
account of, or in respect to, each L/C.
2-16. Establishment of Letter of Credit. (a) Upon the written, telephonic,
---------------------------------
or electronic request of the Borrower, the Lender agrees to cause the issuance
of L/C's on behalf of the Borrower as provided herein. The Borrower may request
issuance of L/C's in such manner as may from time to time be reasonably
acceptable to the Lender. The Borrower shall execute and deliver to the Lender
such further documents and instruments in connection with any L/C, as the
Lender, in accordance with the Lender's then customary practices with respect to
similar facilities, may reasonably request including, without limitation, the
Lender's standard letter of credit agreements (hereinafter, the "L/C
Agreement"). In the event of any inconsistency between the terms of the L/C
Agreement and this Agreement the terms and conditions of the L/C Agreement shall
control.
(b) (i) The maximum aggregate amount of L/C's Outstanding shall be
established by the Lender from time to time.
(c) No L/C shall have a maturity date which is later than the
earlier of (i) or (ii) below:
(i) One (1) year after the date of such L/C's issuance;
(ii) Sixty (60) days prior to the Termination Date.
25
<PAGE>
(d) Upon the making of any request by or on behalf of the Borrower
for issuance of a L/C, the Borrower shall be deemed to have certified that as of
the date of such request, the representations set forth in Subsections 2-7(d)
(i)-(iv), above, are true and correct and that the Availability which supports
the issuance of the subject L/C arises out of transactions involving the import
shipment of goods.
2-17. Effect of Honor of L/C's. The Borrower shall reimburse the Lender
--------------- --------
for the amount of any honoring of any L/C. Any such honoring which is not so
reimbursed on the Business Day when so honored shall constitute a Revolving
Credit Loan.
2-18. Additional Provisions Relating to L/C's. (a) The obligations of the
---------------------------------------
Borrower with respect to L/Cs shall be absolute and unconditional. The Lender's
rights, powers, privileges and immunities specified in or arising under this
Agreement are in addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or contract.
(b) The Borrower will
(i) promptly examine the copy of any L/C (and any amendments
thereof) sent to it by the Lender;
(ii) promptly examine all instruments and documents delivered
to it from time to time by the Lender; and
(iii) within two (2) Business Days of receipt thereof, provide
the Lender with written notice of any irregularity or claim of non-
compliance with the instructions of such person or entity.
The Borrower is conclusively deemed to have waived any such claim against the
Lender and its correspondents unless such notice is so timely given.
(c) The Borrower will
(i) procure promptly any necessary documentation, permits, or
licenses for the import, export or shipping of the property in connection
with which any L/C is issued;
(ii) comply with all foreign and domestic governmental
requirements relating to the shipment or financing of such property; and
(iii) furnish such evidence that the above requirements have
been fulfilled as the Lender reasonably may require.
(d) The Borrower will indemnify the Lender for and hold harmless
against any and all claims, loss, liability, or damage, including attorneys'
reasonable fees, howsoever arising from or in connection with the surrender or
endorsement of any bill of lading, warehouse receipt or documents of title at
any time held by the Lender. or any of its correspondents in connection with any
L/C.
26
<PAGE>
(e) As further security for the payment or performance of any and all
other obligations and liabilities hereunder, certain or contingent, and also for
the payment or performance of any and all other obligations and liabilities,
certain or contingent, due or to become due, now existing or hereafter arising,
which are now, or may at any time or times hereafter be owing by the Borrower to
the Lender, the Borrower hereby
(i) recognizes and admits the Lender's security interest in,
and, after the occurrence of an Event of Default, unqualified right to the
possession and disposal of, any and all shipping documents, warehouse
receipts, policies or certificates of insurance, and other documents
accompanying or relative to any L/C or Acceptance (whether or not such
documents, goods, or other property have been released to or upon the order
of the Borrower under a security agreement or trust or bailee receipt) and
in and to the proceeds of each and all of the foregoing; and
(ii) if any third party shall have joined in the application for
the L/C, assigns and transfers to the Lender all right, title and interest
of the Borrower in and to all property and interests which the Borrower may
now or hereafter obtain from such third party arising in connection with
the transaction to which the L/C relates, to the extent that same can be
lawfully assigned.
(f) Following the occurrence of any Event of Default, the Lender,
with power of substitution and revocation, may:
(i) sign, in the name of the Lender, and/or the name of the
Borrower, any document called for from the Borrower and/or endorse, in the
name of the Borrower, any and all notes, checks, drafts, documents of
title, Documents of Title, or other instruments or documents in which the
Lender or the Lender may at any time have any interest in connection with
any L/C; and
(ii) perform any obligation or agreement in connection with any
L/C or Acceptance which the Lender deems necessary or desirable to protect
the Lender's right, powers and remedies under this Agreement.
(g) None of the Lender, the Lender's correspondents or any advising,
negotiating, or paying bank with respect to any L/C, shall be responsible in any
way for:
(i) performance by any beneficiary under any L/C of that
beneficiary's or payee's obligations to the Borrower; or
(ii) the form, sufficiency, correctness, genuineness, authority
of any person signing; falsification; or the legal effect of; any documents
called for under any L/C if (with respect to the foregoing) such documents
on their face appear to be in order.
(h) The Lender may honor, as complying with the terms of any L/C and
of any
27
<PAGE>
drawing thereunder, any drafts or other documents otherwise in order, but signed
or issued by an administrator, executor, conservator, trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, liquidator,
receiver, or other legal representative of the party authorized under such L/C
or Acceptance to draw or issue such drafts or other documents.
(i) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes the Lender to (i) select an advising bank, if any;
(ii) select a paying bank, if any; and (iii) select a negotiating bank.
(j) All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Lender shall have discharged its
obligations under any L/C which, or the drawing under which, includes payment
instructions, by the initiation of the method of payment called for in, and in
accordance with, such instructions (or by any other commercially reasonable and
comparable method). The Lender does not assume any responsibility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post,
telegraph or cable, or for any inaccuracy of translation.
(k) The Lender's rights, powers, privileges and immunities specified
in or arising under this Agreement are in addition to any heretofore or at any
time hereafter otherwise created or arising, whether by statute or rule of law
or contract.
(l) Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Lender, and the Borrower, the L/C will be governed
by the Uniform Customs and Practice for Documentary Credits, International
Chamber of Commerce, Publication No.500, and any subsequent revisions thereof.
(m) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirements against L/C's heretofore or hereafter
caused to be issued by the Lender or with respect to which the Lender has
an obligation to lend to fund drawings thereunder; or
(ii) impose on any Lender any other condition or requirements
relating to any such L/C's;
and the result of any event referred to in clause (i) or (ii), above, shall be
to increase the cost to the Lender of issuing or maintaining any L/C, then, upon
demand by the Lender and delivery by the Lender to the Borrower of a certificate
of an officer of the Lender describing such change in law, executive order,
regulation, directive, or interpretation thereof, its effect on the Lender. and
the basis for determining such
28
<PAGE>
increased costs and their allocation, the Borrower within five (5) days after
receipt of such notice shall pay to the Lender, from time to time as specified
by the Lender, such amounts as shall be sufficient to compensate the Lender for
such increased cost. The Lender's determination of costs incurred under clause
(i) or (ii) above, shall be conclusive and binding. on the Borrower in the
absence of manifest error.
(n) The obligations of the Borrower under this Agreement with respect
to L/C's are absolute, unconditional, and irrevocable and shall be performed
strictly in accordance with the terms hereof under all circumstances, whatsoever
including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any L/C, or
any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, all or any of the above.
(iii) The existence of any claim, set-off, defense, or other
right which the Borrower may have at any time against the beneficiary of
the L/C.
2-19. Costs. The Borrower agrees to indemnify the Lender and to hold the
-----
Lender harmless from and against any loss, cost or expense (including loss of
anticipated profits) that the Lender may sustain or incur as a consequence of
(a) default by the Borrower in payment of the principal amount of or any
interest on any LIBOR Loans as and when due and payable, including any such loss
or expense arising from interest or fees payable by the Lender to lenders of
funds obtained by it in order to maintain its LIBOR Loans, (b) default by the
Borrower in making a borrowing or conversion after the Borrower has given (or is
deemed to have given) a Conversion Request, or (c) the making of any payment of
any LIBOR Loan or the making of any conversion of any such Loan to a Base
Margin Loan on a day that is not the last day of the applicable Interest Period
with respect thereto, whether due to voluntary prepayment, payment realized from
the Collateral or any Guarantor after the occurrence of an Event of Default, or
otherwise, including interest or fees payable by the Lender to lenders of funds
obtained by it in order to maintain any such Loans. Such loss shall include,
without limitation, an amount calculated as follows:
(a) First, the Lender shall determine the amount by which (i) the
total amount of interest which would have otherwise accrued hereunder on each
installment of principal so paid or not borrowed, during the period beginning on
the date of such payment or failure to borrow and ending on the date such
installment would have been due (the "Reemployment Period"), exceeds (ii) the
total amount of interest which would accrue, during the Reemployment Period, on
any readily marketable bond or other obligation of the United States of America
designated by the Lender in its sole discretion at or about the time of such
payment, such bond or other obligation of the United States of America to be in
an amount equal (as
29
<PAGE>
nearly as may be) to the amount of principal so paid or not borrowed and to have
a maturity comparable to the Reemployment Period, and the interest to accrue
thereon to take account of amortization of any discount from par or accretion of
premium above par at which the same is selling at the time of designation. Each
sum amount is hereafter referred to as an "Installment Amount".
(b) Second, each Installment Amount shall be treated as payable as of
the date on which the related principal installment would have been payable by
the Borrower had such principal installment not been prepaid or not borrowed.
(c) Third, the amount to be paid on each such date shall be the
present value of the Installment Amount determined by discounting the amount
thereof from the date on which such Installment Amount is to be treated as
payable, at the same annual interest rate as that payable upon the bond or other
obligation of the United States of America designated as aforesaid by the
Lender.
2-20. Computation of Interest and Fees. Interest and all fees payable
--------------------------------
hereunder shall be computed daily on the basis of a year of 360 days and paid
for the actual number of days for which due. If the due date for any payment of
principal is extended by operation of law, interest shall be payable for such
extended time. If any payment required by this Agreement becomes due on a day
that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension shall be included in computing interest in
connection with such payment.
2-21. Overdue Payments. Overdue amounts payable hereunder, under the Note
----------------
shall bear interest from and including the due date thereof until paid, payable
on demand, at a rate per annum equal to the Base Rate plus 4% per annum.
2-22. Automatic Payment. The Borrower authorizes the Lender to
-----------------
automatically debit the Borrower's demand deposit accounts with the Lender on
the Interest Payment Date or such other dates when due for all interest, fees,
costs, commissions, service charges and expenses due to the Lender.
ARTICLE 3- CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the establishment of
the Revolving Credit, and the making of the first loan under the Revolving
Credit, each of the documents respectively described in Sections 3-1 through and
including 3-5, (each in form and substance satisfactory to the Lender) shall
have been delivered to the Lender, and the conditions respectively described in
Sections 3-6, 3-7 through and including 3-13, shall have been satisfied:
30
<PAGE>
3-1. Corporate Due Diligence.
------------------------
(a) A Certificate of corporate good standing issued by the Secretary
of State of Delaware.
(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's Secretary of the due adoption,
continued effectiveness, and setting forth the texts of, each corporate
resolution adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
3-2. Opinion. An opinion of counsel to the Borrower in form and substance
-------
satisfactory to the Lender.
3-3. Landlord Waiver. The delivery to the Lender of a waiver within 30
----------------
days after the closing, in the form of EXHIBIT 3-3, executed by the Borrower's
landlord for the address contained in the preamble of this Agreement.
3-4. Additional Documents. Such additional instruments and documents as
--------------------
the Lender or its counsel reasonably may require or request.
3-5. Officers' Certificates. Certificates executed by the President and
----------------------
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Lender in the Loan Documents are true
and complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
3-6. Representations and Warranties. Each of the representations made by
-------------------------------
or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by or
on behalf of the Borrower shall be true and complete as of the date as of which
such representation or warranty was made.
3-7. Warrants. The Lender (or an affiliate of the Lender) shall receive
---------
warrants from the Borrower for the purchase of 211.000 shares of the Borrower's
registered common stock at an exercise
31
<PAGE>
price equal to the average closing price for the 30 day period immediately prior
to loan closing. The terms regarding the issuance of the warrant shall be
evidenced by a Warrant in form, and containing terms and conditions,
satisfactory to the Lender, which shall include, among other things, customary
anti-dilution provisions and registration rights.
3-8. Minimum Excess Availability. The Availability, for a period of 24
---------------------------
hours following the first funding under the Revolving Credit; all then held
checks (if any); accounts payable which are beyond credit terms then accorded
the Borrower; overdrafts; any charges to the Loan Account made in connection
with the establishment of the credit facility contemplated hereby; and L/C's to
be issued at, or immediately subsequent to, such establishment, is not less than
$1,000,000.00.
3-9. All Fees and Expenses Paid. The Borrower shall pay all fees due at
--------------------------
or immediately after the first funding under the Revolving Credit and all costs
and expenses incurred by the Lender in connection with the establishment of the
credit facility contemplated hereby (including the fees and expenses of counsel
to the Lender).
3-10. No Suspension Event. No Suspension Event shall then exist.
-------------------
3-11. IBM Purchase Order. The Borrower shall have received written
------------------
notification from IBM that it was selected as a preferred vendor for its CDT
Video Board.
3-12. Equity Investment. The Borrower shall have received equity
-----------------
investments in the aggregate amount of not less than $3,000,000.00 on terms and
conditions satisfactory to the Lender, in addition to which the Borrower shall
have entered into a letter agreement with S3 Incorporated in the form of EXHIBIT
3-12, annexed hereto.
3-13. No Adverse Change. No event shall have occurred or failed to occur,
-----------------
which occurrence or failure is or could have a materially adverse effect upon
the Borrower's financial condition when compared with such financial condition
at September 30,1998.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts. Under no
circumstances will this Agreement take effect until executed and accepted by the
Lender at said head office.
32
<PAGE>
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the loan arrangement contemplated herein
and to make loans and advances and to provide financial accommodations under the
Revolving Credit (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in this Agreement.
4-1. Payment and Performance of Liabilities. The Borrower shall pay each
--------------------------------------
Liability when due (or when demanded if payable on demand) and shall promptly,
punctually, and faithfully perform each other Liability.
4-2. Due Organization - Corporate Authorization - No Conflicts.
---------------------------------------------------------
(a) The Borrower presently is and shall hereafter remain in good
standing as a Delaware corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a Related Entity.
(c) The Borrower shall not change its State of incorporation nor its
taxpayer identification number.
(d) The Borrower has all requisite corporate power and authority to
execute and deliver all Loan Documents to which the Borrower is a party and has
and will hereafter retain all requisite corporate power to perform all
Liabilities.
(e) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
33
<PAGE>
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material respect
any provision of any Requirement of Law or obligation of the Borrower.
(iii) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of the
Borrower pursuant to any Requirement of Law or obligation, except pursuant
to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
4-3. Trade Names.
-----------
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a single
transaction or in a series of related transactions substantially all of
such entity's or person's assets.
(b) The Borrower will not change its name or conduct its business
under any name not listed on EXHIBIT 4-3 except (i) upon not less than twenty-
one (21) days prior written notice (with reasonable particularity) to the Lender
and (ii) in compliance with all other provisions of this Agreement.
4-4. Infrastructure.
--------------
(a) The Borrower has and will conduct its business as presently
conducted and as contemplated to be conducted.
(b) The Borrower owns and possesses, or has the right to use (and
will hereafter own, possess, or have such right to use) all patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person necessary for the
Borrower's conduct of the Borrower's business.
(c) The conduct by the Borrower of the Borrower's business does not
presently infringe (nor will the Borrower conduct its business in the future so
as to infringe) the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
34
<PAGE>
4-5. Year 2000 Compliance.
--------------------
(a) Based upon a diligent inquiry undertaken by the Borrower, it
appears that, except as set forth on EXHIBIT 4-5, annexed hereto, the Borrower's
operations are Year 2000 Compliant.
(b) The Borrower has developed a detailed plan and timetable with
respect to the Borrower's operations becoming fully Year 2000 Compliant as set
forth on EXHIBIT 4-5 and has committed adequate resources to execute that plan
and to meet such timetable.
(c) Following the Borrower's operations becoming Year 2000 Compliant,
the Borrower will not suffer or permit its operations thereafter to cease to be
Year 2000 Compliant in any manner which might have more than a de minimus effect
on its operations.
4-6. Locations.
---------
(a) The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the Borrower's chief
executive offices at
(i) 18 Hartwell Avenue, Lexington, Massachusetts; and
(ii) those locations which are listed on EXHIBIT 4-6, annexed
hereto, which EXHIBIT includes, with respect to each such location, the
name and address of the landlord on the Lease which covers such location
(or an indication that the Borrower owns the subject location) and of all
service bureaus with which any such records are maintained and the names
and addresses of each of the Borrower's landlords.
(b) The Borrower shall not remove any of the Collateral from said
chief executive office or those locations listed on EXHIBIT 4-6 except to:
(i) accomplish sales of Inventory in the ordinary course of
business; or
(ii) move Inventory from one such location to another such
location, except upon 30 days' prior written notice to the Lender, and
subject to the Lender's perfection of a first security interest in the
Inventory at such location; or
(iii) utilize such of the Collateral as is removed from such
locations in the ordinary course of business (such as motor vehicles).
(c) The Borrower will not commit to, or open or close any location at
which the Borrower maintains, offers for sales, or stores any of the Collateral,
except upon 30 days' prior written notice to the Lender, and subject to the
Lender's perfection of a first security interest in the Inventory at such
location.
(d) Except as otherwise disclosed pursuant to, or permitted by, this
Section 4-6, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody,
35
<PAGE>
storage, or entrustment.
4-7. Title to Assets.
---------------
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) Encumbrances in favor of the Lender.
(ii) Those Encumbrances (if any) listed on EXHIBIT 4-7, annexed
hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower except upon thirty (30) days prior
written notice to the Lender.
(c) The Borrower shall not acquire or obtain the right to use any
Equipment, the acquisition or right to use of which Equipment is otherwise
permitted by this Agreement, in which Equipment any third party has an interest,
except for:
(i) Equipment which is merely incidental to the conduct of the
Borrower's business, including, without limitation, the leasing of such
equipment (whether or not such arrangement may be characterized under
applicable law as a true lease or financing arrangement and whether by
Capital Lease or otherwise) as is customarily or ordinarily leased in the
Borrower's industry.
(ii) Equipment, the acquisition or right to use of which has been
consented to by the Lender, which consent may be conditioned upon the
Lender's receipt of such agreement with the third party which has an
interest in such Equipment as is satisfactory to the Lender.
4-8. Indebtedness. The Borrower does not and shall not hereafter have any
------------
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 4-8, annexed hereto.
4-9. Insurance Policies.
------------------
(a) EXHIBIT 4-9, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 4-9 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
36
<PAGE>
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of Sixty (60)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance, provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
$50,000.00 made by the Borrower under any policy of insurance which covers the
Collateral and will permit the Lender, at the Lender's option in each instance,
to the exclusion of the Borrower, to conduct the adjustment of each such claim
(and of all claims following the occurrence of any Suspension Event). The
Borrower hereby appoints the Lender as the Borrower's attorney in fact to
obtain, adjust, settle, and cancel any insurance described in this section and
to endorse in favor of the Lender any and all drafts and other instruments with
respect to such insurance. The within appointment, being coupled with an
interest, is irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Lender. The Lender shall
not be liable on account of any exercise pursuant to said power except for any
exercise in actual willful misconduct and bad faith. The Lender may apply any
proceeds of such insurance against the Liabilities, whether or not such have
matured, in such order of application as the Lender may determine.
4-10. Licenses. Each license, distributorship, franchise, and similar
--------
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
4-11. Leases. EXHIBIT 4-11, annexed hereto, is a schedule of all presently
------
effective Capital Leases. Exhibit 4-6 includes a list of all other presently
effective Leases. Each of such Leases and Capital Leases is in full force and
effect. No party to any such Lease or Capital Lease is in default or violation
of any such Lease or Capital Lease and the Borrower has not received any notice
or threat of cancellation of any such Lease or Capital Lease. The Borrower
hereby authorizes the Lender at any time
37
<PAGE>
and from time to time to contact any of the Borrower's landlords in order to
confirm the Borrower's continued compliance with the terms and conditions of the
Lease(s) between the Borrower and that landlord and to discuss such issues,
concerning the Borrower's occupancy under such Lease(s), as the Lender may
determine.
4-12. Requirements of Law. The Borrower is in compliance with, and shall
-------------------
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
4-13. Maintain Properties. The Borrower shall:
-------------------
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i) The sale of Inventory in compliance with this Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent necessary
to preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as
provided herein.
4-14. Pay Taxes.
---------
(a) The Borrower has not received written notice from the Internal
Revenue Service that there are any deficiencies, assessments, or other amounts
owed with respect to those tax years through and including the Borrower's
taxable year referenced on EXHIBIT 4-14, annexed hereto. Except as described in
EXHIBIT 4-14 no agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
(b) The Borrower has not received written notice from the respective
state and
38
<PAGE>
local taxing authorities to which the Borrower is subject that there are any
deficiencies, assessments, or other amounts owed for state and local income,
excise, sales, or other taxes with respect to those tax years referenced on
EXHIBIT 4-14, annexed hereto. No agreement is extant which waives or extends any
statute of limitations applicable to the right of any state taxing authority to
assert a deficiency or make any other claim for or in respect to any such state
taxes. No issue has been raised in any such examination which, by application of
similar principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 4-14, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay or by reason of the Borrower's receipt of sales
tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
the Borrower is obligated to so file.
(e) At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
4-15. No Margin Stock. The Borrower is not engaged in the business of
---------------
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock
39
<PAGE>
4-16. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
-----
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA to
be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could
be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning of
ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
4-17. Hazardous Materials.
-------------------
(a) The Borrower has never:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of release
of any Hazardous Material from any site or vessel occupied or operated by
the Borrower and/or of the incurrence of any expense or loss in connection
with the assessment, containment, or removal of any release or threat of
release of any Hazardous Material from any such site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance with
all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any
Hazardous Material, except if such storage or transport is in the ordinary
course of the Borrower's business and is in compliance with all
Environmental Laws.
(c) The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the
assessment, containment, or removal of any Hazardous Material, for which
expense or loss the Borrower may be liable.
40
<PAGE>
4-18. Litigation. Except as described in EXHIBIT 4-18, annexed hereto,
----------
there is not presently pending or threatened by or against the Borrower any
suit, action, proceeding, or investigation which, if determined adversely to the
Borrower, would have a material adverse effect upon the Borrower's financial
condition or ability to conduct its business as such business is presently
conducted or is contemplated to be conducted in the foreseeable future.
4-19. Dividends or Investments. The Borrower shall not:
------------------------
(a) Except for four (4%) percent cash or stock dividend on the
Borrower's Series B Preferred Stock, pay any cash dividend or make any
other distribution in respect of any class of the Borrower's capital stock,
unless no Event of Default is occurring, and the Borrower is in compliance
with all financial covenants herein.
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity other than pursuant to such joint
ventures with respect to product development and marketing as are normal
and customary in the Borrower's industry.
(f) Organize or create any Related Entity, except for previously
existing Related Entities.
(g) Subordinate any debts or obligations owed to the Borrower by
any third party to any other debts owed by such third party to any other
Person.
(h) Acquire any assets other than in the ordinary course and
conduct of the Borrower's business as conducted at the execution of this
Agreement
4-20. Loans. The Borrower shall not make any loans or advances to, nor
-----
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower,
which expenses are properly substantiated by the person seeking such
advance and properly reimbursable by the Borrower.
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4-21. Protection of Assets. The Lender, in the Lender's discretion, and
--------------------
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section. The obligation of the Borrower
to pay such amounts is a Liability.
4-22. Line of Business. The Borrower shall not engage in any business
----------------
other than the business in which it is currently engaged or a business
reasonably related thereto (the conduct of which reasonably related business is
reflected in the Business Plan).
4-23. Affiliate Transactions. The Borrower shall not make any payment, nor
----------------------
give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price and on terms which shall
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended: and
(b) not be less favorable from those which would have been charged
in an arms length transaction.
4-24. Patents and Trademarks. All patents, patents pending, patents
----------------------
assigned to the Borrower and trademarks and tradenames owned by or assigned to
the Borrower are listed on EXHIBIT 4-24, annexed hereto. The Borrower shall
provide the Lender with prompt written notice of each application for patent,
patent pending, and patent assigned to the Borrower hereafter, and each
trademark and tradename owned by or assigned to the Borrower hereafter, and upon
request of the Lender shall execute and deliver to the Lender, all such
instruments, documents and papers as may be requested by the Lender to perfect
the Lender's security interest in any application for patent, patent pending,
patent, trademark, or tradename.
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4-25. Additional Assurances.
---------------------
(a) The Borrower is not the owner of, nor has it any interest in,
any property or asset which, immediately upon the satisfaction of the
conditions precedent to the effectiveness of the credit facility
contemplated hereby (Article 3) will be not be subject to a perfected
security or other collateral interest in favor of the Lender (subject only
to Permitted Encumbrances) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition,
subject to such a perfected security or other collateral interest in favor
of the Lender to secure the Liabilities (subject only to Permitted
Encumbrances and security interests given in connection with equipment
leases, whether characterized as true leases or financing arrangements, and
whether by Capital Lease or otherwise, as is normal and customary in the
Borrower's industry).
(c) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time
to time hereafter as the Lender may request to carry into effect the
provisions and intent of this Agreement; to protect and perfect the
Lender's security interests in the Collateral; and to comply with all
applicable statutes and laws, and facilitate the collection of the
Receivables Collateral. The Borrower shall execute all such instruments as
may be required by the Lender with respect to the recordation and/or
perfection of the security interests created herein.
(d) The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to
sign and file any financing statements in order to perfect or protect the
Lender's security and other collateral interests in the Collateral.
(e) A carbon, photographic, or other reproduction of this Agreement
or of any financing statement or other instrument executed pursuant to this
Section 4-25 shall be sufficient for filing to perfect the security
interests granted herein.
4-26. Adequacy of Disclosure.
----------------------
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied
and present fairly the condition of the Borrower at the date(s) thereof and
the results of operations and cash flows for the period(s) covered. There
has been no change in the financial condition, results of operations, or
cash flows of the Borrower since the date(s) of such financial statements,
other than changes in the ordinary course of business, which changes have
not been materially adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease which is not noted in the
Borrower's financial statements furnished to the Lender
43
<PAGE>
prior to the execution of this Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of this Agreement by the
Lender contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements therein not misleading. There is no fact known to the Borrower
which has, or which, in the foreseeable future could have, a material
adverse effect on the financial condition of the Borrower or any such
guarantor which has not been disclosed in writing to the Lender.
4-27. Other Covenants. The Borrower shall not indirectly do or cause
---------------
to be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5- FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5-1. Maintain Records. The Borrower shall:
----------------
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's
transactions, all in accordance with GAAP applied consistently with prior
periods to fairly reflect the financial condition of the Borrower at the
close of, and its results of operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of
which reports, statements and schedules shall be prepared, to the extent
applicable, in accordance with GAAP applied consistently with prior periods
to fairly reflect the financial condition of the Borrower at the close of,
and its results of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales
records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public accountants
who are reasonably satisfactory to the Lender and instruct such accountants
to fully cooperate with, and be available to, the Lender to discuss the
Borrower's financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
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(e) Not change the Borrower's fiscal year.
5-2. Access to Records.
-----------------
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which the
Borrower has control. The Lender and the Lender's representatives shall
have the right, and the Borrower will permit the Lender and such
representatives from time to time as the Lender and such representatives
may request, to examine, inspect, copy, and make extracts from any and all
of the Borrower's books, records, electronically stored data, papers, and
files. The Borrower shall make all of the Borrower's copying facilities
available to the Lender.
(b) The Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced
to hard copy, run off, draw off, and otherwise use any and all
computer or electronically stored information or data which relates to
the Borrower, or any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor, accountant,
or other person fully to cooperate with the Lender and the Lender's
representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion
thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and
accountants and to sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Collateral.
5-3. Immediate Notice to Lender.
--------------------------
(a) The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which
written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given:
(i) Any change in the Borrower's officers.
(ii) Any ceasing of the Borrower's making of payment, in
the ordinary course, to any of its creditors (including the ceasing of
the making of such payments on account of a dispute with the subject
creditor).
(iii) Any material change in the business, operations, or
financial affairs of the Borrower.
(iv) The occurrence of any Suspension Event.
(v) Any intention on the part of the Borrower to
discharge the Borrower's
45
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present independent accountants or any withdrawal or resignation by such
independent accountants from their acting in such capacity (as to which,
see Subsection 5-1(d)).
(vi) Any litigation which, if determined adversely to the
Borrower, might have a material adverse effect on the financial condition
of the Borrower.
(vii) Any delay in the Borrower's meeting the timetable for
its operations becoming Year 2000 Compliant as described on EXHIBIT 4-5 or
maintaining such operations as Year 2000 Compliant, except where such delay
or failure to so maintain will have no more than a de minimus effect on the
Borrower's operations.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Provide the Lender:
(A) When filed, copies of all filings with the SEC.
(B) When received, copies of all correspondence from the
SEC, other than routine non-substantive general communications from
the SEC.
(iii) Provide the Lender, when received by the Borrower, with
a copy of any management letter or similar communications from any
accountant of the Borrower.
5-4. Borrowing Base Certificate. At such intervals as the Lender may
--------------------------
from time to time specify (daily, unless notice to the contrary is so given),
the Borrower shall provide the Lender with a Borrowing Base Certificate (in such
form as the Lender may specify from time to time), which Certificate shall
include a Schedule of all Receivables Collateral which has come into existence
since the date of such Schedule then most recently provided to the Lender.
5-5. Monthly Reports. Monthly, within Twenty (20) days following the end
---------------
of the previous month, the Borrower shall provide the Lender with the following:
(i) An aging of the Borrower's accounts receivable as
of the end of the subject month.
(ii) A reconciliation of the above described aging to
Availability and to the general ledger as of the end of
the subject month.
(iii) An aging of the Borrower's accounts payable.
(iv) A listing of the Borrower's Inventory.
5-6. Quarterly Reports. within Thirty (30) days following the end of the
-----------------
previous quarter, the
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Borrower shall provide the Lender with the following:
(i) An internally prepared financial statement of the
Borrower's financial condition at, and the results of its
operations for, the period ending with the end of the
subject quarter, which financial statement shall include,
at a minimum, a balance sheet, income statement, cash flow
and comparison for the corresponding quarter of the then
immediately previous year, as well as compared to any
financial projections furnished to the Lender, certified
to be true and accurate (except as to any projections
furnished to the Lender) by the Borrower's chief financial
officer;
(ii) Any report filed during the subject quarter with any
insurance company with whom a reporting form of policy is
carried.
5-7. Projections. Annually on or before Thirty (30) days prior to the end
-----------
of each fiscal year, management prepared financial projections for the next
fiscal year, with monthly detail, including at a minimum a projected income
statement, balance sheet and cash flow statement.
5-8. Annual Reports.
--------------
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with
(i) an original signed counterpart of the Borrower's annual financial
statement, which statement shall have been prepared by the Borrower's
independent certified public accountants and bear the opinion of such
accountants qualified solely with respect to the Borrower's ability
to continue as a going concern, if applicable for fiscal year end
1997 and 1998 only (i.e. said statement shall be "certified" by such
accountants). Such annual statements shall include, at a minimum
(with comparative information for the then prior fiscal year) a
balance sheet, income statement, statement of changes in
shareholders' equity, and cash flows.
(b) Each annual statement delivered under (a)(i) above shall be
accompanied by a Certificate from the Borrower's chief financial
officer indicating that to the best knowledge of such chief financial
officer, no event has occurred which is or which, solely with the
passage of time or the giving of notice (or both) would be, an Event
of Default.
(c) Annually, within 30 days after filing, copies of the Borrower's
federal and state tax returns.
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<PAGE>
5-9. Officers' Certificates. The Borrower shall cause the Borrower's
----------------------
general manager and chief financial officer respectively to provide such
Person's Certificate with those monthly, quarterly, and annual statements to be
furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial condition
of the Borrower at the close of, and the results of the Borrower's
operations and cash flows for, the period(s) covered, subject, however
(with the exception of the Certificate which accompanies such annual
statement) to usual year end adjustments.
(b) Indicate either that (i) no Event of Default has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and
the steps (if any) being taken or contemplated by the Borrower to be taken
on account thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 5-12 below.
5-10. Additional Financial Information. In addition to the foregoing, the
--------------------------------
Borrower promptly shall provide the Lender with such other and additional
information concerning the Borrower, the Collateral, the operation of the
Borrower's business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
5-11. Audits and Appraisals.
---------------------
(a) The Lender may from time to time conduct commercial finance
audits of the Borrower's books and records (in each event, at the
Borrower's expense estimated at $650.00 per day per person plus all out of
pocket expenses).
(b) Upon the Lender's request from time to time, the Borrower's
shall permit the Lender to obtain appraisals of the Borrower's assets (in
all events, at the Borrower's expense) conducted by such appraisers as are
satisfactory to the Lender.
5-12. Financial Covenants. (a) Maximum Net Loss. The Borrower shall not
------------------- ----------------
permit its maximum net loss after taxes to exceed (i) $3,000,000.00 for the
fiscal quarter ending December 31, 1998, and (ii) $1,000,000.00 for the fiscal
quarter ending March 31,1999, and (iii) $0.00 for any fiscal quarter thereafter.
(b) Operating Cash Flow to Total Debt Service. The Borrower shall not permit
-----------------------------------------
the ratio of Operating Cash Flow to Total Debt Service to be less than 1.2:1.0
at the end of the following periods: (i)
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fiscal quarter ending June 30,1999, (ii) fiscal quarter ending September
30,1999, calculated on a cumulative basis with fiscal quarter ending June
30,1999, (iii) fiscal quarter ending December 31,1999, calculated on a
cumulative basis with fiscal quarters ending June 30,1999 and September 30,1999,
and (iv) thereafter for any of its fiscal quarters commencing with the quarter
ending March 31,1999, calculated on a rolling four quarters basis.
5-13. Minimum Availability. The Borrower shall at all times maintain
--------------------
minimum Availability of at least $200,000.00 until June 30,1999, and, provided
no Event of Default is then occurring, thereafter of at least $50,000.00.
ARTICLE 6- USE AND COLLECTION OF COLLATERAL:
6-1. Use of Inventory Collateral.
---------------------------
(a) The Borrower shall not engage in any sale of the Inventory other
than for fair consideration in the conduct of the Borrower's business in the
ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or under
any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
6-2. Adjustments and Allowances. The Borrower may grant such allowances
--------------------------
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which time extension
shall not be done without first obtaining the Lender's prior written consent in
each instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-2 may be limited or terminated by the Lender at any time in the
Lender's discretion.
6-3. Validity of Accounts.
--------------------
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b) The Lender, from time to time (at the expense of the Borrower in
each instance), may verify the validity, amount, and all other matters with
respect to the Receivables Collateral
49
<PAGE>
directly with Account Debtors (including without limitation, by forwarding
balance verification requests to the Borrower's Account Debtors), and with the
Borrower's accountants, collection agents, and computer service bureaus (each of
which is hereby authorized and directed to cooperate in full with the Lender and
to provide the Lender with such information and materials as the Lender may
request.
(c) The Borrower has no knowledge of any impairment of the validity
or collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after Borrower becomes aware of any such impairment.
(d) The Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-4. Notification to Account Debtors. The Lender shall have the right at
-------------------------------
any time after an Event of Default has occurred upon notice to the Borrower to
notify any of the Borrower's Account Debtors to make payment directly to the
Lender and to collect all amounts due on account of the Collateral.
ARTICLE 7 - RECEIVABLES:
7-1 Proceeds and Collection of Accounts.
-----------------------------------
(a) It is recognized and intended that all Receipts constitute
Collateral and proceeds of Collateral. A portion of the Receivables Collateral
consists of Receipts.
(b) Whether or not any Liabilities are then outstanding, the Borrower
shall cause each of the Borrower's Account Debtors to forward all Receipts
proceeds of the Receivables Collateral directly to a lock box, blocked account,
or similar recipient designated by the Lender and over which the Lender has sole
access and control.
(c) All Receipts and collections of the Receivables Collateral which,
notwithstanding the provisions of Subsection 7-1(b) are received by the Borrower
or come under the control of the Borrower shall be held in trust by such
Borrower for the Lender; shall not be commingled with any of the Borrower's
other funds; and shall be deposited and/or transferred only to such lock box,
blocked account, or similar recipient designated by the Lender pursuant to
Subsection 7-1(b), above, or as otherwise instructed by the Lender.
7-2. Proceeds and Collection of Accounts Held in Trust. In the event
-------------------------------------------------
that, notwithstanding the provisions of this Article, the Borrower receives or
otherwise has dominion and control of any
50
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Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-3. Payment of Liabilities. On each Business Day, the Lender shall apply,
----------------------
towards the unpaid principal balance of the Loan Account, the aggregate of
Receipts and Receivables Collateral received by the Lender as provided in
Section 7-1 above, after allowing 2 (Two) Business Days for their collection.
ARTICLE 8 - GRANT OF SECURITY INTEREST:
8-1. Grant of Security Interest. To secure the Borrower's prompt,
--------------------------
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products, Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "COLLATERAL"):
(a) All Accounts and accounts receivable, with the exclusion of
foreign tax refunds and foreign tax abatements;
(b) All Inventory.
(c) All General Intangibles, with the exclusion of foreign tax
refunds and foreign tax abatements;
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the Collateral
and/or to the operation of the Borrower's business, and all
rights of access to such books, records, and information, and
all property in which such books, records, and information are
stored, recorded, and maintained.
(i) All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance, deposits,
impressed accounts, compensating balances, money, cash, or other
property.
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(j) All insurance proceeds, refunds, and premium rebates, including,
without limitation, proceeds of fire and credit insurance,
whether any of such proceeds, refunds, and premium rebates arise
out of any of the foregoing.(8-1(a) through 8-1(i)) or
otherwise.
(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (8-1(a) through 8-1(i)),
including the right of stoppage in transit.
(I) All Leasehold Interests.
8-2. Extent and Duration of Security Interest. The security interest
----------------------------------------
created and granted herein is in addition to, and supplemental of, any security
interest previously granted by the Borrower to the Lender and shall continue in
full force and effect applicable to all Liabilities until all Liabilities have
been paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 9 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
9-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
-------------------------------
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by the within appointment include but
are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors
52
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or verification of the Receivables Collateral; sign the Borrower's name on any
Proof of Claim in Bankruptcy against Accounts Debtors, and on notices of lien,
claims of mechanic's liens, or assignments or releases of mechanic's liens
securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of
any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
9-2. No Obligation to Act. The Lender shall not be obligated to do any
--------------------
of the acts or to exercise any of the powers authorized by Section 9-1 herein,
but if the Lender elects to do any such act or to exercise any of such powers,
it shall not be accountable for more than it actually receives as a result of
such exercise of power, and shall not be responsible to the Borrower for any act
or omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 10 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 10 respectively shall
constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event of
Default described in Section 10-11, any and all Liabilities shall become due and
payable without any further act on the part of the Lender. Upon the occurrence
of any other Event of Default, any and all Liabilities shall become immediately
due and payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise.
10-1. Failure to Pay Revolving Credit. The failure by the Borrower to pay
-------------------------------
any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower to
------------------------------
pay when due (or upon demand, if payable on demand) any payment Liability other
than under the Revolving Credit.
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10-3. Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 10-1 or Section 10-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
----------------------
4-6 Location of Collateral
4-7 Title to Assets
4-8 Indebtedness
4-9 Insurance Policies
4-14 Pay taxes
4-23,4-24 Affiliate Transactions
4-25 Additional Assurances
6-1 Use of Collateral
Article 5 Reporting Requirements and Financial Covenants
10-4. Failure to Perform Covenant or Liability (Grace Period). The failure
-------------------------------------------------------
by the Borrower, upon Thirty (30) days written notice by the Lender, to cure the
Borrower's failure to promptly, punctually and faithfully perform, discharge, or
comply with any covenant or Liability not described in any of Sections 10-1, 10-
2, or 10-3 hereof.
10-5. Misrepresentation. The determination by the Lender that any
-----------------
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects when given.
10-6. Acceleration of Other Debt, Breach of Lease. The occurrence of any
-------------------------------------------
event such that any Indebtedness of the Borrower to any creditor other than the
Lender could be accelerated or, without the consent of the Borrower, any Lease
could be terminated (whether or not the subject creditor or lessor takes any
action on account of such occurrence).
10-7. Default Under Other Agreements. The occurrence of any breach or
------------------------------
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
10-8. Uninsured Casualty Loss. The occurrence of any uninsured loss,
-----------------------
theft, damage, or destruction of or to any material portion of the Collateral.
54
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10-9. Judgment. Restraint of Business.
-------------------------------
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which judgment
is not satisfied (if a money judgment) or appealed from (with execution or
similar process stayed) within fifteen (15) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the
----------------
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower generally; or the initiation of any
judicial or non-judicial proceeding or agreement by, against, or including the
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors; and/or the initiation by or on behalf of the Borrower of the
liquidation or winding up of all or any part of the Borrower's business or
operations.
10-11. Bankruptcy. The failure by the Borrower to generally pay the
----------
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may
be granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure, which
complaint, application, or petition is not timely contested in good faith by the
Borrower by appropriate proceedings or, if so contested, is not dismissed within
thirty (30) days of when filed.
55
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10-12. Default by Guarantor or Related Entity. The occurrence of any of
--------------------------------------
the foregoing Events of Default with respect to any guarantor of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any parent (if the Borrower is a corporation), subsidiary, or Related
Entity, as if such guarantor, parent, or Related Entity were the "Borrower"
described therein.
10-13. Indictment - Forfeiture. The indictment of, or institution of any
-----------------------
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
10-14. Termination of Guaranty. The termination or attempted
-----------------------
termination of any guaranty by any guarantor of the Liabilities.
10-15. Challenge to Loan Documents.
---------------------------
(a) Any challenge by or on behalf of the Borrower or any guarantor
of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance
with the subject Loan Document's terms or which seeks to void, avoid,
limit, or otherwise adversely affect any security interest created by or in
any Loan Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any
Loan Document or any payment made pursuant thereto.
10-16. Executive Management. The death, disability or removal from office
--------------------
of any of the Borrower's chief executive officer, chief financial officer, or
president at any time to exercise that authority and discharge those management
responsibilities with respect to the Borrower as are exercised and discharged by
such Person at the execution of this Agreement.
10-17. Change in Control. Any Change in Control.
------------------
10-18. Failure to Receive NRE Payment. Failure of the Borrower to receive
------------------------------
a minimum of
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$1,000,000.00 of the NRE Payment, as defined in EXHIBIT 3-12, on or before April
30, 1999.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Lender's exercise of any of such rights and remedies.
11-1. Rights of Enforcement. The Lender shall have all of the rights and
---------------------
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or
processing as the Lender deems advisable and with or without the taking of
possession of any of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
------------------
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender
deems advisable, having due regard to compliance with any statute or
regulation which might affect, limit, or apply to the Lender's disposition
of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and remedies
upon default, may conduct one or more going out of business sales, in the
Lender's own right or by one or more agents
57
<PAGE>
and contractors. Such sale(s) may be conducted upon any premises owned, leased,
or occupied by the Borrower. The Lender and any such agent or contractor, in
conjunction with any such sale, may augment the Inventory with other goods (all
of which other goods shall remain the sole property of the Lender or such agent
or contractor). Any amounts realized from the sale of such goods which
constitute augmentations to the Inventory (net of an allocable share of the
costs and expenses incurred in their disposition) shall be the sole property of
the Lender or such agent or contractor and neither the Borrower nor any Person
claiming under or in right of the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise disposed
of by the Lender on credit, the Liabilities shall not be deemed to have been
reduced as a result thereof unless and until payment is finally received thereon
by the Lender.
(f) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
11-3. Occupation of Business Location. In connection with the Lender's
-------------------------------
exercise of the Lender's rights under this Article 11, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
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11-4. Grant of Nonexclusive License. The Borrower hereby grants to the
-----------------------------
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of inventory or sale or other disposition of
Inventory.
11-5. Assembly of Collateral. The Lender may require the Borrower to
----------------------
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges, and
-------------------
discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND REMEDIES")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender 's
Rights and Remedies. No waiver by the Lender of any of the Lender's Rights and
Remedies on any one occasion shall be deemed a waiver on any subsequent
occasion, nor shall it be deemed a continuing waiver. All of the Lender's Rights
and Remedies and all of the Lender's rights, remedies, powers, privileges, and
discretions under any other agreement or transaction are cumulative, and not
alternative or exclusive, and may be exercised by the Lender at such time or
times and in such order of preference as the Lender in its sole discretion may
determine. The Lender's Rights and Remedies may be exercised without resort or
regard to any other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES:
12-1. Notice Addresses. All notices, demands, and other communications
----------------
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
59
<PAGE>
If to the Lender:
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention : Paul Crimlisk
Vice President
Fax : 617 434-7537
With a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention : Robert E. Paul, Esquire
Fax : 617 723-6831
If to the Borrower:
Number Nine Visual Technology Corporation
18 Hartwell Avenue
Lexington, Massachusetts 02173-1234
Attention : Timothy J. Burns
Fax : 781 869-7220
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attention : Neil H. Aronson, Esquire
Fax: : 617 542-2241
12-2. Notice Given.
------------
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Three (3)
days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business Day
following the day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of customary business hours of
the recipient, when delivered. Otherwise, at the opening of the then next
Business Day.
(iv) By Facsimile transmission (which must include a header on
which the party sending such transmission is indicated): If sent on a Business
Day after 9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, one (1) hour after being sent.
Otherwise, at the opening of the then next Business Day.
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<PAGE>
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice was
given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM:
13-1. Termination of Revolving Credit. The Revolving Credit shall remain
-------------------------------
in effect (subject to suspension as provided in Section 2-7(g) hereof) until the
Termination Date.
13-2. Effect of Termination. On the Termination Date, the Borrower shall
---------------------
pay the Lender (whether or not then due), in immediately available funds, all
then Liabilities including, without limitation: the entire balance of the Loan
Account; any accrued and unpaid Unused Line Fee; any payments due on account of
the indemnification obligations included in Section 2-8(e); and all unreimbursed
costs and expenses of the Lender for which the Borrower is responsible; and
shall make such arrangements concerning any L/C's then outstanding are
reasonably satisfactory to the Lender. Until such payment, all provisions of
this Agreement, other than those contained in Article 2 which place an
obligation on the Lender to make any loans or advances or to provide financial
accommodations under the Revolving Credit or otherwise, shall remain in full
force and effect until all Liabilities shall have been paid in full. The release
by the Lender of the security and other collateral interests granted the Lender
by the Borrower hereunder may be upon such conditions and indemnifications as
the Lender may require.
ARTICLE 14 - GENERAL:
14-1. Protection of Collateral. The Lender has no duty as to the
------------------------
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
14-2. Successors and Assigns. This Agreement shall be binding upon the
-----------------------
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and
61
<PAGE>
the Lender's successors and assigns provided, however, no trustee or other
fiduciary appointed with respect to the Borrower shall have any rights
hereunder. In the event that the Lender assigns or transfers its rights under
this Agreement, the assignee shall thereupon succeed to and become vested with
all rights, powers, privileges, and duties of the Lender hereunder and the
Lender shall thereupon be discharged and relieved from its duties and
obligations hereunder.
14-3. Severability. Any determination that any provision of this Agreement
------------
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
14-4. Amendments. Course of Dealing.
-----------------------------
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney included
-----------------
in this Agreement, the Borrower hereby grants unto the Lender full power to do
any and all things necessary or appropriate in connection with the exercise of
such powers as fully and effectually as the Borrower might
62
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or could do, hereby ratifying all that said attorney shall do or cause to be
done by virtue of this Agreement. No power of attorney set forth in this
Agreement shall be affected by any disability or incapacity suffered by the
Borrower and each shall survive the same. All powers conferred upon the Lender
by this Agreement, being coupled with an interest, shall be irrevocable until
this Agreement is terminated by a written instrument executed by a duly
authorized officer of the Lender.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
-----------------------
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14-7. Lender's Costs and Expenses.
---------------------------
(a) The Borrower shall pay on demand all Costs of Collection and all
reasonable expenses of the Lender in connection with the preparation, execution,
and delivery of this Agreement and of any other Loan Documents, whether now
existing or hereafter arising, and all other reasonable expenses which may be
incurred by the Lender in preparing or amending this Agreement and all other
agreements, instruments, and documents related thereto, or otherwise incurred
with respect to the Liabilities, and all costs and expenses of the Lender which
relate to the credit facility contemplated hereby. To commemorate the closing,
the Lender may arrange for production of lucite tombstones. The Borrower shall
reimburse the Lender for such expenditures.
(b) The Borrower authorizes the Lender to pay all such fees and
expenses and in the Lender's discretion, to add such fees and expenses to the
Loan Account.
(c) The undertaking on the part of the Borrower in this Section 14-7
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Lender in favor of the Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 14-7.
14-8. Copies and Facsimiles. This Agreement and all documents which relate
---------------------
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and
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<PAGE>
likewise shall be so admissible in evidence as if the original of such facsimile
had been delivered to the party which or on whose behalf such transmission was
received.
14-9. Massachusetts Law. This Agreement and all rights and obligations
-----------------
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14-10. Consent to Jurisdiction.
-----------------------
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Suffolk County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all process
upon it, and irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the Borrower at the Borrower's
address for notices as specified herein, such service to become effective five
(5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non conveniens
and any objection to venue of any action or proceeding instituted under any of
the Loan Documents and consents to the granting of such legal or equitable
remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Suffolk County Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold the
---------------
Lender and any employee, officer, or agent of the Lender (each, an "Indemnified
Person") harmless of and from any claim brought or threatened against any
Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees and
expenses in
64
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connection therewith) on account of the relationship of the Borrower or of any
other guarantor or endorser of the Liabilities Lender (each of claims which may
be defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender's selection, but at the expense of the Borrower) other
than any claim as to which a final determination is made in a judicial
proceeding (in which the Lender and any other Indemnified Person has had an
opportunity to be heard), which determination includes a specific finding that
the Indemnified Person seeking indemnification had acted in a grossly negligent
manner or in actual bad faith. This indemnification shall survive payment of the
Liabilities and/or any termination, release, or discharge executed by the Lender
in favor of the Borrower, other than a termination, release, or discharge which
makes specific reference to this Section 14-11.
14-12. Rules of Construction. The following rules of construction shall be
---------------------
applied in the interpretation, construction, and enforcement of this Agreement
and of the other Loan Documents:
(a) Words in the singular include the plural and words in the plural
include the singular.
(b) Titles, headings (indicated by being underlined or shown in
----------
SMALL CAPITALS) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without limitation" (or
similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant subsections are joined by "or", compliance with any Section or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all subsections (if any) of that Section or provision. Except
where the context otherwise requires, compliance with any warranty or covenant
of any Loan Document which includes subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
(f) Text which is shown in italics, shown in bold, shown IN ALL
CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) Any reference to a Person's "knowledge" (or words of similar
import) are to such Person's knowledge assuming that such Person has undertaken
reasonable and diligent investigation with respect to the subject of such
"knowledge" (whether or not such investigation has actually been undertaken).
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(j) Terms which are defined in one section of any Loan Document
are used with such definition throughout the instrument in which so
defined.
(k) The symbol "$" refers to United States Dollars.
(l) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the
entire Loan Document in which such reference is made.
(m) References to "this Agreement" or to any other Loan Document
is to the subject instrument as amended to the date on which application of
such reference is being made.
(n) Except as otherwise specifically provided, all references to
time are to Boston time.
(o) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act,
event, or default from which the designated period of time begins to
run shall not be included and the last day of the period so computed
shall be included unless such last day is not a Business Day, in which
event the last day of the relevant period shall be the then next
Business Day and (II) the period so computed shall end at 5:00 PM on
the relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The work "through" means "to and including".
(p) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section
14-13 hereof, provided, however, in the event of any inconsistency between
the provisions of this Agreement and any other Loan Document, the
provisions of this Agreement shall govern and control.
14-13. Intent. It is intended that:
------
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this
Agreement be broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure
all Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Lender
in connection with the Lender's relationship(s) with the Borrower shall be
borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of the Borrower which is prohibited unless such
consent is given may be given or refused by the Lender in
66
<PAGE>
its sole discretion and without reference to Section 2-8 hereof.
14-14. Right of Set-Off. Any and all deposits or other sums at any time
----------------
credited by or due to the Borrower from the Lender or any participant (a
"Participant") in the credit facility contemplated hereby, or any Participant
and any cash, securities, instruments or other property of the Borrower in the
possession of the Lender any Participant, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of the
Borrower to the Lender or any Participant and may be applied or set off against
the Liabilities and against such obligations at any time, whether or not such
are then due and whether or not other collateral is then available to the Lender
or any Participant.
14-15. Maximum Interest Rate. Regardless of any provision of any Loan
---------------------
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
14-16. Waivers.
-------
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section 14-16(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the
Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE
67
<PAGE>
LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES
OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE
BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay, limitation,
hindrance, delay, or restriction (including, without limitation, any
automatic stay which otherwise might be imposed pursuant to Section 362 of
the Bankruptcy Code) with respect to any action which the Lender may or may
become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and
records of the Lender, could be reduced or claimed to be paid otherwise
than in accordance with the tenor of and written terms of such Liability.
(vi) Any claim to consequential, special, or punitive damages.
NUMBER NINE VISUAL
TECHNOLOGY CORPORATION
Witness: ("Borrower")
/s/ Timothy Burns By /s/ William Ralph
- --------------------------------------- -----------------------------------
Print Name: William Ralph
--------------------------
Title General Manager
-------------------------------
BANKBOSTON, N.A.
("Lender")
By /s/ Paul R. Crimlisk
-----------------------------------
Print Name: Paul R. Crimlisk
--------------------------
Title: Vice President
-------------------------------
68
<PAGE>
COMPANY DISCLOSURE EXHIBITS
---------------------------
NOTES TO EXHIBITS
1. Capitalized terms used in these Company Disclosure Exhibits but not
defined herein shall have the meanings ascribed to such terms in the Loan
and Security Agreement, dated as of March 31, 1999, by and between the
Company and BankBoston, N.A. (the "Loan Agreement").
2. Headings and captions in these Company Disclosure Exhibits are for
convenience of reference only and shall in no way modify or affect, or be
considered in construing or interpreting any information provided herein.
3. The information contained in these Company Disclosure Exhibits is as of the
date of the Loan Agreement.
4. Items, information, and other matters disclosed on one Exhibit shall be
deemed to be disclosed for all purposes under these Company Disclosure
Exhibits; provided that the Company shall make a good faith effort to
include any disclosure (by cross reference or by repeating the disclosure)
that is required by more than one representation and warranty in each
applicable portion of the Company Disclosure Exhibits. Cross references are
for the convenience of reference only and shall not limit the provisions
hereof.
<PAGE>
EXHIBIT 2-9
-----------
================================================================================
REVOLVING CREDIT NOTE BankBoston, N.A.
================================================================================
Boston, Massachusetts March ___, 1999
FOR VALUE RECEIVED, the undersigned, Number Nine Visual Technology
Corporation, a Delaware corporation with its principal executive offices at 18
Hartwell Avenue, Lexington, Massachusetts 02173 (the "BORROWER') promises to pay
to the order of BankBoston, N.A., a national banking association with offices at
100 Federal Street, Boston, Massachusetts 02110 (hereinafter, with any
subsequent holder, the "LENDER") the aggregate unpaid principal balance of loans
and advances made to or for the account of the Borrower pursuant to the
Revolving Credit established pursuant to the Loan and Security Agreement of even
date (as such may be amended hereafter, the "LOAN AGREEMENT") between the Lender
and the Borrower, with interest at the rate and payable in the manner stated
therein.
This is the "Revolving Credit Note" to which reference is made in the Loan
Agreement and is subject to all terms and provisions thereof. The principal of,
and interest on, this Note shall be payable as provided in the Loan Agreement
and shall be subject to acceleration as provided therein.
The Lender's books and records concerning loans and advances pursuant to
the Revolving Credit, the accrual of interest thereon, and the repayment of such
loans and advances, shall be prima facie evidence of the indebtedness to the
Lender hereunder.
No delay or omission by the Lender in exercising or enforcing any of the
Lender's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
The Borrower, and each endorser and guarantor of this Note, respectively
waives presentment, demand, notice, and protest, and also waives any delay on
the part of the holder hereof. Each assents to any extension or other indulgence
(including, without limitation, the release or substitution of collateral)
permitted by the Lender with respect to this Note and/or any collateral given to
secure this Note or any extension or other indulgence with respect to any other
liability or any collateral given to secure any other liability of the Borrower
or any other person obligated on account of this Note.
This Note shall be binding upon the Borrower, and each endorser and
guarantor hereof, and upon their respective heirs, successors, assigns, and
representatives, and shall inure to the benefit of the Lender and its
successors, endorsees, and assigns.
The liabilities of the Borrower, and of any endorser or guarantor of this
Note, are joint and several, provided, however, the release by the Lender of any
one or more such person, endorser or guarantor shall not release any other
person obligated on account of this Note. Each reference in this Note to the
Borrower, any endorser, and any guarantor, is to such person individually and
also to all such persons jointly. No person obligated on account of this Note
may seek contribution from any other person also obligated unless and until all
liabilities, obligations and indebtedness to the Lender of the person from whom
contribution is sought have been satisfied in full.
1
<PAGE>
This Note is delivered to the Lender at the offices of the Lender in
Boston, Massachusetts, shall be governed by the laws of The Commonwealth of
Massachusetts, and shall take effect as a sealed instrument.
The Borrower makes the following waiver knowingly, voluntarily, and
intentionally, and understands that the Lender in the establishment and
maintenance of Lender's relationship with the Borrower contemplated by the
within Note, is relying thereon. THE BORROWER, TO THE EXTENT ENTITLED THERETO,
WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR
ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT
OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN
RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON,
AND THE LENDER.
NUMBER NINE VISUAL
TECHNOLOGY CORPORATION
Witness: The ("Borrower")
______________________ By:_______________________
2
<PAGE>
EXHIBIT 2-12
NOTICE OF CONVERSION
Attached hereto as Attachment 2-12 is a copy of the Notice of Exercise or
---------------
conversion
<PAGE>
NOTICE OF EXERCISE OR CONVERSION
--------------------------------
Date:____________, _____
Number Nine Visual Technology Corporation
__________________
__________________
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise or convert the enclosed Warrant
issued to it by Number Nine Visual Technology Corporation (the "Company") and
dated as of ___________,_______.
The undersigned elects to:
[_] Exercise the Warrant and to purchase thereunder _________________
shares of the Common Stock of the Company (the "Shares") at an
exercise price of ________ per Share for an aggregate purchase price
of _______________ Dollars ($______) (the "Purchase Price"). Pursuant
to the terms of the Warrant, the undersigned has delivered the
Purchase Price herewith in full.
[_] Convert __% of the value of the Warrant at the current Exercise Price
(as defined in the Warrant) of $______ per Share.
[_] Convert $______ of the outstanding principal and interest under that
certain [Note] dated ___________, in the face amount of $_________,
issued by the Company and held by the undersigned, at the current
Exercise Price of $______ per share.
Very truly yours,
______________________________
Receipt Acknowledged:
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
By _______________________
Title:____________________
on _______________________
<PAGE>
EXHIBIT 3-3
LANDLORD'S WAIVER
Attached hereto as Attachment 3-3 is a copy of the Landlord's Waiver
--------------
<PAGE>
================================================================================
LANDLORD'S WAIVER BANKBOSTON, N.A.
================================================================================
March __, 1999
____________________________, (the "LANDLORD") owns real property located
at 18 Hartwell Avenue, Lexington, Massachusetts 02173 (the "LEASED PREMISES"),
which real property the Landlord leases to Number Nine Visual Technology
Corporation a Delaware corporation with offices at 18 Hartwell Avenue,
Lexington, Massachusetts 02173 (the "TENANT"). The Tenant has applied to
BankBoston, N.A. (the "LENDER"), a national banking association with offices at
100 Federal Street, Boston, Massachusetts 02110 to establish a credit facility
in favor of the Tenant, loans and financial accommodations under which will be
secured by all of the Tenant's present and after acquired assets including,
among other things, the Tenant's inventory and equipment (the "COLLATERAL")
located and to be located upon the Leased Premises. In order to induce the
Lender to establish that credit facility, the Landlord hereby represents,
warrants, covenants and agrees as follows:
1. The Tenant is not in default under the terms of its lease for other
Leased Premises.
2. The Landlord hereby waives any statutory or other lien of the Landlord
against the Collateral.
3. In the event the Tenant defaults on any of the Tenant's obligations to
the Lender, the Lender shall have reasonable time in which to repossess the
Collateral from the Leased Premises. The Landlord will cooperate with the Lender
in gaining access to the Leased Premises for the purpose of repossessing said
Collateral or, if requested by the Lender, the Landlord shall permit the Lender,
or its agent or nominee, to dispose of the Collateral on the Leased Premises in
a manner reasonably designed to minimize any interference with any other of
Landlord's tenants.
4. To the extent not paid or prepaid by the Tenant, the Lender shall pay
the Landlord a reasonable sum for the use and occupancy of the Leased Premises
(based upon comparable rent for comparable space) from the date on which the
Lender shall have taken possession of the Collateral on the Lease Premises until
the date of the Lender's vacating the Leased Premises, it being understood,
however, that the Lender shall not, thereby, have assumed any of the obligations
of the Borrower to the Landlord.
5. Prior to the Landlord's taking any action to evict the Tenant from the
Leased Premises for breach of the lease, the Landlord shall give the Lender not
less than thirty (30) days written notice of such
1
<PAGE>
action at the address set forth above, and a reasonable opportunity to preserve,
protect, and liquidate any Collateral on the Leased Premises and, if the Lender
so elects, to cure such breach of the lease.
6. The within Agreement shall inure to the benefit of the Lender, its
successors and assigns, shall be binding upon the Landlord, its heirs, assigns,
representatives, and successors.
Dated this the ____ day of ____ 1999.
..........
LANDLORD
By:_____________________
Title:________________
Date:___________________
STATE OF ______________
COUNTY OF _____________
The foregoing Agreement was subscribed, sworn to and acknowledged before me
this ____ day of _______, 1999 by _______________
_______________________________
Print Name..............
Notary Public
My Commission Expires:..........
2
<PAGE>
EXHIBIT 3-12
S3 LETTER
Attached hereto as Attachment 3-12 is a copy of the S3 commitment letter to
---------------
Borrower.
2
<PAGE>
[LETTERHEAD OF S3 INCORPORATED APPEARS HERE]
March 17, 1999
Mr. Timothy Burns
Acting Chief Financial Officer
Number Nine Visual Technology Corporation
18 Hartwell Avenue
Lexington, Mass. 02173
Re: LETTER OF INTENT
----------------
Dear Mr. Burns,
This letter will confirm our telephone conversation of March 9, 1999.
During that conversation, we agreed that S3 Incorporated ("S3") intends to pay
two million dollars ($2,000,000) (the "NRE Payment") to Number Nine Visual
Technology Corporation ("Number Nine") in consideration for Number Nine's
engineering efforts necessary for the design and development of the SR9 graphics
accelerator subsystem, incorporating S3's Savage 4 ASIC technology. These
engineering efforts are necessary in order to meet the requirements of our
mutual customer, IBM, who recently awarded us a major design win for this
product. This NRE Payment is contingent upon Number Nine closing its three
million dollar Preferred Stock Placement and Bank Financing Revolver of fifteen
million dollars, by no later than March 31, 1999.
Sincerely,
S3 INCORPORATED
/s/ Walter D. Amaral
- --------------------------
Walter D. Amaral
Senior V.P. Finance & CFO
<PAGE>
EXHIBIT 4-2
RELATED ENTITIES
1. Number Nine Visual Technology Vertiebs GmbH
2. Number Nine International, Ltd.
3. Silicon Graphics, Inc.
3
<PAGE>
EXHIBIT 4-3
TRADE NAMES
1. Number Nine Visual Technology Corporation
2. Number Nine Visual Technology Vertiebs GmbH
3. Number Nine International, Ltd.
4. Number Nine
5. Number Nine Computer Corporation
4
<PAGE>
EXHIBIT 4-5
YEAR 2000 COMPLIANCE
The Borrower has conducted an assessment of its internal information
systems to determine the extent of any Year 2000 problem. This assessment
revealed that its principal information systems correctly define the year 2000
and do not require any modification. As a result, the Borrower does not expect
to incur any material costs associated with Year 2000 issues. However, there can
be no assurance that, to date, the Borrower has identified all material Year
2000 issues associated with internal information systems which could have a
material adverse effect on the Borrower's business, financial condition and
results of operations.
The Borrower is in the process of contacting its customers, suppliers,
financial institutions, creditors, service providers and governmental agencies,
with which the Borrower has a material relationship, in an effort to verify the
Year 2000 readiness of these third parties that could cause a material impact on
the Borrower. However, there can be no assurance that all material Year 2000
issues associated with third parties will be identified and corrected on a
timely basis, or that corrections made by third parties will be compatible with
Borrower's information systems. The Borrower's business, financial condition and
results of operations could be materially adversely affected by the failure of
its systems and applications or those operated by third parties to properly
operate or manage dates beyond 1999.
The Borrower has not yet designed a contingency plan to address any Year
2000 issues that may arise, partially as a result of the favorable responses
regarding Year 2000 readiness received to date. The Borrower intends to design
and implement such a contingency plan prior to the end of the current fiscal
year, which will be based in part upon the balance of the responses the Borrower
expects to receive. The Borrower expects to identify and resolve all Year 2000
Problems that could materially affect its business operations. However,
management believes that it is not possible to, determine with complete
certainty that all Year 2000 Problems affecting the Borrower have been
identified or corrected. The number of devices that could be affected and the
interactions among these devices are simply too numerous. In addition, the
Borrower cannot accurately predict how many Year 2000 Problem-related failures
will occur or the severity, duration or financial consequences of these perhaps
inevitable and unforeseen failures. As a result, management expects that the
Borrower could likely suffer the following consequences:
1. A significant number of operational inconveniences and inefficiencies
for the Borrower and its clients that may divert management's time and
attention, and financial and human resources from its ordinary business
activities and
2. A lesser number of serious system failures that may require
significant efforts by the Borrower or its clients to prevent or alleviate
material business disruptions.
Based on the activities described above, the Borrower does not believe that
the Year 2000 Problem will have a material adverse effect on the Borrower's
business or results of operations.
5
<PAGE>
EXHIBIT 4-6
LOCATIONS
1. Hudson, New Hampshire:
A. Location:
14-16 Hampshire Drive
Hudson, New Hampshire
B. Landlord:
Atrium Medical Corporation
5 Wentworth Drive
Hudson, New Hampshire
2. Germany:
A. Location:
Gewerbezentrum Unterhaching
Landthazer KG
Rudesheimerstrafe 15
8000 Munchen 2l
Germany
B. Landlord:
[TO BE PROVIDED POST-CLOSING]
6
<PAGE>
EXHIBIT 4-7
PERMITTED ENCUMBRANCES
1. The Borrower's interest in each of the following real property
locations is subject to the encumbrances set forth on the title
insurance policy applicable to such property:
A. 18 Hartwell Road
Lexington, Massachusetts
B. 14-16 Hampshire Drive
Hudson, New Hampshire
C. Gewerbezentrum Unterhaching
Landthazer KG
Rudesheimerstrafe 15
8000 Munchen 2l
Germany
2. The Borrower's interest in each of the following lease arrangements is
subject to the encumbrances established in favor of the lessor thereof
(or in the case of T.A.L. Leasing Corp., to its assignee, The Co-
operative Bank of Concord):
A. The Borrower has entered into leasing arrangements with
T.A.L. Leasing Corp. for various telephone, computer and
other electronic equipment.
B. The Borrower has entered into leasing arrangements with
Minolta Leasing Corp. for copying equipment.
C. The Borrower has entered into a leasing arrangement with
U.S.T. Leasing, Corporation for equipment leased under
Equipment Lease Agreement No. 2697W0255.
D. The Borrower has entered into a leasing arrangement with
AT&T Credit Corporation for certain computer related
equipment.
3. The Borrower has granted a secured interest in one (1) Shanklin SL4-B
Scaler S/N S9 452 and one (1) Shanklin T-6X2 Tunnel S/N T89146 to
Shrink Packaging Systems, Corp.
4. The Borrower will be subject from time to time to additional
encumbrances in connection with the leasing of equipment incidental to
the conduct of the Borrower's business.
7
<PAGE>
5. The Borrower has granted a secured interest to Marine Midland Bank in the
following:
all of its Accounts, Inventory, General Intangibles, Chattel paper,
Documents, Instruments, and Equipment, whether or not affixed to realty,
Goods and Fixtures; and Equipment, whether or not affixed to realty, Goods
and Fixtures; (each capitalized item is defined in the Uniform Commercial
Code); and
all books, records, ledger cards, data processing records, computer
software, and other property at any time evidencing or relating to any of
the foregoing; and all parts, accessories, attachments, special tools,
additions, replacements, substitutions, and accessions to or for all of the
foregoing, and
all Proceeds (as defined in the Uniform Commercial Code) and products of
all of the foregoing in any form, including, without limitation, amounts
payable under any policies of insurance, insuring the foregoing against
loss or damage, and all increases and profits received from all of the
foregoing.
The Borrower will obtain a discharge and a release of Marine Midland's
secured interest upon the consummation of the transactions contemplated by
the Loan Agreement.
8
<PAGE>
EXHIBIT 4-8
OTHER INDEBTEDNESS
1. The Borrower has a note payable to S.C.I. Systems, Inc., a
manufacturing contractor. In June 1998 the Borrower converted
approximately $1.4 million of accounts payable with this contractor
into a six (6) month note with an annual interest rate of 5.99%, which
note was payable in six equal monthly installments. As of March 19,
1999 approximately $472,425.18 was outstanding and past due under this
note.
9
<PAGE>
EXHIBIT 4-9
INSURANCE POLICIES
1. Attached hereto as Attachment 4-9 is a schedule of the Borrower's
--------------
insurance policies.
2. The Borrower also has foreign credit insurance issued by Foreign
Credit Insurance of America, Inc., which insurance has an annual
deductible of $90,000.
3. The Borrower also has Directors and Officers liability insurance in
the amount of $10,000,000, which insurance has an annual deductible of
$250,000 per event.
10
<PAGE>
[LOGO]
Commercial Property and Casualty
Insurance Proposal
NUMBER NINE VISUAL TECHNOLOGY
Effective: December 31, 1998
---------
Provided By:
-----------
The McCarthy Companies
229 Andover Street
Wilmington, MA 01887
(800) 999-0642
(508) 657-5100
Prepared By;
-----------
Joan Driscoll, CIC, ARM, AAI
Account Manager
Licensed Insurance Advisor
<PAGE>
[LOGO]
Domestic Property Insurance
----------------------------------------------------------------------------
Quotation
============================================================================
Property/Income Limits
Please note, Mechanical Breakdown perils automatically included In Customers.
PREMISES: 18 Hartwell Ave., Lexington, MA 02173
Hudson, NH Office
CSA/1050 Perimeter Rd., Manchester, NH 03103
PERSONAL PROPERTY
BLANKET LIMIT OF INSURANCE $20,000,000
DEDUCTIBLE $ 5,000
BUSINESS INCOME (With Extra Expense)
LIMIT OF INSURANCE-LOC 1 ONLY $10,000,000
DEDUCTIBLE ON BOILER 24 HOURS
PERSONAL PROPERTY IN-TRANSIT
LIMIT OF INSURANCE $ 500,000
DEDUCTIBLE $ 10,000
PERSONAL PROPERTY /ANY ONE LOCATION
LIMIT OF INSURANCE $ 2,000,000
VALUABLE PAPERS, EDP & ACCOUNTS RECEIVABLE
BLANKET LIMIT OF INSURANCE $ 250,000
FLOOD & EARTHQUAKE (Excludes California)
LIMIT OF INSURANCE $5,000,000 (EACH)
DEDUCTIBLE $10,000 (EACH)
Supplemetary Limits/Additional Coverage
Customer provides a $250,000 Blanket Limit of Insurance to be
applied towards various property coverages, such as Accounts
Receivable, EDP, Extra Expense, Fine Arts, Personal Property of
Employees and Valuable Papers. Limits of Insurance are also
provided for various Additional Coverages at no additional cost to
you, including $250,000 for Debris Removal.
=============================================================================
Valuation
Valuation is Replacement Cost, except Selling Price on Manufacturer's
Finished Stock.
=============================================================================
<PAGE>
[LOGO]
NUMBER NINE VISUAL TECHNOLOGY
Workers Compensation
--------------------
COVERAGE ANNUAL PREMIUM
Workers Compensation Benefits
States: MA & NH
Employers Liability:
Bodily Injury by Accident $ 500,000 Each Accident
Bodily Injury by Disease $ 500,000 Policy Limit
Bodily Injury by Disease $ 500,000 Each Employee
Experience Modification Factor: .88
Estimated Payrolls:
-----------------------------------------------------------------------------
CLASSIFICATION STATE CODE PAYROLLS
-----------------------------------------------------------------------------
Office Machine MA 5191 $ 250,000
-----------------------------------------------------------------------------
Salespersons MA 8742 $1,000,000
-----------------------------------------------------------------------------
Clerical MA 8810 $3,100,000
-----------------------------------------------------------------------------
Clerical NH 8810 $1,000,000
-----------------------------------------------------------------------------
ANNUAL DEPOSIT: $14,581
<PAGE>
[LOGO]
--------------------------------------------------
UMBRELLA LIABILITY PROPOSAL
--------------------------------------------------
COVERAGE LIMIT PER
-------------------------------- -------------- -----------------
Limit of Liability $10,000,000 Each Occurrence
$10,000,000 General Aggregate
Self Insured Retention $ 0
ENDORSEMENTS:
Per Location General Aggregate applies.
Electronics Errors and Omissions
Foreign
ANNUAL PREMIUM: $15,100
excess liability
excludes
pollution liability - (asbestos)
employment practices
Directors & Officers
<PAGE>
EXHIBIT 4-11
LEASES
There are no Capital Leases currently outstanding.
11
<PAGE>
EXHIBIT 4-14
TAXES
1. The Borrower has filed a Form 872 to extend the Borrower's tax years for
1993, 1994 and 1995 to April 30, 2000.
2. The Borrower has filed a Form 7004 to extend 1998 taxes.
12
<PAGE>
EXHIBIT 4-18
LITIGATION
1. On June 11, 1996, a complaint was filed in the United States District Court
for the District of Massachusetts by named plaintiff RBI, an Alaskan limited
partnership, against the Borrower, Andrew Najda and Stanley W. Bialek (the
"Selling Stockholders") and the managing underwriters of the Borrower's initial
public offering, Robertson, Stephens & Company, Cowen & Company and Unterberg
Harris (the "Managing Underwriters"). On or about July 17, 1996, a complaint was
filed in the United States District Court for the District of Massachusetts by
named plaintiff John Foley against the Borrower, each member of the Borrower's
Board of Directors, (Andrew Najda, Stanley W. Bialek, Gill Cogan, Dr. Paul R.
Low, Dr. Fouad H. Nader and William H. Thalheimer), Kevin M. Hanks, former Chief
Financial Officer and Treasurer of the Borrower, and the Managing Underwriters.
On or about October 16, 1996, an additional complaint was filed in the United
States District Court for the District of Massachusetts by named plaintiff
Robert Schoenhofer against the Borrower, each member of the Borrower's Board of
Directors, Mr. Hanks, and the Managing Underwriters. Each of the plaintiffs
purports to represent a class of purchasers of the Common Stock of the Borrower
between and including May 26, 1995 through January 31, 1996. Each complaint
alleges that the named defendants violated the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, by, among other
things, issuing to the investing public false and misleading statements
regarding the Borrower's business, products, sales and earnings during the class
period in question. The plaintiffs seek unspecified damages, interest, costs and
fees. By order of the District Court, these actions have been consolidated into
a single action. It is possible that other claims may be made against the
Borrower or that there may be other consequences from the lawsuits. The
defendants deny any liability, believe they have meritorious defenses, and
intend to vigorously defend these and any similar lawsuits that may be filed,
although the ultimate outcome of these matters cannot yet be determined. If the
lawsuits are not resolved satisfactorily for the Borrower, there could be a
material adverse effect on the Borrower's future financial condition and results
of operations and, accordingly, income (loss). The Borrower does not believe
that the ultimate liability, if any, is estimable or probable, and therefore no
provision for any liability that may result from the actions has been recognized
in the Borrower's consolidated financial statements.
2. Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P has sent the Borrower
a letter, dated March 17, 1998, that alleges that the use of the Borrower's
monitors with certain on-screen displays infringes upon the patents referenced
therein.
3. The Borrower has received demand letters from Micron, Dell, and Unisys in
connection with a countersuit filed by Hakan Lans against Micron which has filed
a complaint for declaratory judgment of patent, invalidity and non-infringement
against Hakan Lans. A motion to amend the complaint in the countersuit has been
filed by counsel to Hakan Lans to include the Borrower as an additional
defendant.
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<PAGE>
EXHIBIT 4-24
PATENTS AND TRADEMARKS
1. The Borrower owns a patent issued as Canadian patent No. 860805 for High-
Speed Auxillary Computer Plug-In Units.
2. The Borrower owns the following trademarks:
9FX, Registration Number 2,016,895
9FX Motion, Registration Number 1,992,627
9FX Vision, Registration Number 2,031,462
Hawkeye, Registration Number 1,777,702
Imagine, PTO Serial Number 74/609207
Imagine 128 Logo, Registration Number 1,976,256
Number Nine, Registration Number 1,966,527
Number Nine Logo, Registration Number 2,029,234
Revolution, Registration Number, 2,169,217
Ticket to Ride, PTO Serial Number 75/244902
Ticket to Ride/T2R Design, PTO Serial Number 75/247905
<PAGE>
EXHIBIT 99.3
================================================================================
REVOLVING CREDIT NOTE BankBoston, N.A.
================================================================================
Boston, Massachusetts March 31, 1999
FOR VALUE RECEIVED, the undersigned, Number Nine Visual Technology
Corporation, a Delaware corporation with its principal executive offices at 18
Hartwell Avenue, Lexington, Massachusetts 02173 (the "BORROWER") promises to pay
to the order of BankBoston, N.A., a national banking association with offices at
100 Federal Street, Boston, Massachusetts 02110 (hereinafter, with any
subsequent holder, the "LENDER") the aggregate unpaid principal balance of loans
and advances made to or for the account of the Borrower pursuant to the
Revolving Credit established pursuant to the Loan and Security Agreement of even
date (as such may be amended hereafter, the "LOAN AGREEMENT") between the Lender
and the Borrower, with interest at the rate and payable in the manner stated
therein.
This is the "Revolving Credit Note" to which reference is made in the Loan
Agreement and is subject to all terms and provisions thereof. The principal of,
and interest on, this Note shall be payable as provided in the Loan Agreement
and shall be subject to acceleration as provided therein.
The Lender's books and records concerning loans and advances pursuant to
the Revolving Credit, the accrual of interest thereon, and the repayment of such
loans and advances, shall be prima facie evidence of the indebtedness to the
Lender hereunder.
No delay or omission by the Lender in exercising or enforcing any of the
Lender's powers, rights, privileges, remedies, or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
The Borrower, and each endorser and guarantor of this Note, respectively
waives presentment, demand, notice, and protest, and also waives any delay on
the part of the holder hereof. Each assents to any extension or other indulgence
(including, without limitation, the release or substitution of collateral)
permitted by the Lender with respect to this Note and/or any collateral given to
secure this Note or any extension or other indulgence with respect to any other
liability or any collateral given to secure any other liability of the Borrower
or any other person obligated on account of this Note.
This Note shall be binding upon the Borrower, and each endorser and
guarantor hereof, and upon their respective heirs, successors, assigns, and
representatives, and shall inure to the benefit of the Lender and its
successors, endorsees, and assigns.
The liabilities of the Borrower, and of any endorser or guarantor of this
Note, are joint and several, provided, however, the release by the Lender of any
one or more such person, endorser or guarantor shall not release any other
person obligated on account of this Note. Each reference in this Note to the
Borrower, any endorser, and any guarantor, is to such person individually and
also to all such persons jointly. No person obligated on account of this Note
may seek contribution from any other person also obligated unless and until all
liabilities, obligations and indebtedness to the Lender of the person from whom
contribution is sought have been satisfied in full.
This Note is delivered to the Lender at the offices of the Lender in
Boston, Massachusetts, shall be governed by the laws of The Commonwealth of
Massachusetts, and shall take effect as a sealed
1
<PAGE>
instrument.
The Borrower makes the following waiver knowingly, voluntarily, and
intentionally and understands that the Lender in the establishment and
maintenance of Lender's relationship with the Borrower contemplated by the
within Note, is relying thereon. THE BORROWER, TO THE EXTENT ENTITLED THERETO,
WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR
ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT
OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN
RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON,
AND THE LENDER.
NUMBER NINE VISUAL
TECHNOLOGY CORPORATlON
Witness: The ("BORROWER")
/s/ Timothy Burns By: /s/ William Ralph
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