Investment Restructuring Agreement
This is an agreement dated June 4, 2004 among MidMark Capital, L.P., a
Delaware limited partnership ("MidMark1") and MidMark Capital II, L.P., a
Delaware limited partnership ("MidMark2"; collectively with MidMark 1, the
"MidMarks"), Vertex Interactive, Inc., a New Jersey corporation (the "Company"),
XeQute Solutions, P.L.C., a company incorporated in England and Wales ("XQPLC"),
XeQute Solutions, Inc., a Delaware corporation ("XQSI") and the existing holders
of the Series C Convertible Preferred Shares of the Company (the "Series C
Investors").
Background
A. MidMark1 holds warrants to purchase 5,569,980 shares of common stock of
the Company (the "MidMark1 Warrants").
B. The Company is indebted as of the date of this agreement to MidMark1 in
the principal amount of $281,286.75 together with interest in the amount of
$25,505.53 as of the date hereof with interest to accrue each day hereafter in
an amount of $78.14 ("MidMark1/Vertex Debt").
C. MidMark1 holds 34 shares of Series C Convertible Preferred Shares of
the Company (the "MidMark1 C Shares").
D. The Company is indebted as of the date of this agreement to MidMark2 in
the principal amount of $4,871,257 together with interest in the amount of
$984,734.69 as of the date hereof with interest to accrue each day hereafter in
an amount of $1,532.43 (the "MidMark2/Vertex Debt").
E. MidMark2 holds 805 shares of Series C Convertible Preferred Shares of
the Company (the "MidMark2 C Shares").
F. MidMark2 holds warrants to purchase 60,000 shares of XQPLC (the
"MidMark2 Warrant").
G. XQPLC is indebted to MidMark2 in the principal amount of $250,000
together with interest in the amount of $7,483.86 as of the date hereof with
interest to accrue each day hereafter in an amount of $131.94 (the
"MidMark2/XQPLC Debt")
H. XQSI is indebted to MidMark2 in the principal amount of $1,125,000
together with interest in the amount of $199,682.11 as of the date hereof with
interest to accrue each day hereafter in an amount of $429.03 (the MidMark2/XQSI
Debt"; the MidMark 1 Warrants, the MidMark1/Vertex Debt, the MidMark 1 C Shares,
the MdiMark2/Vertex Debt, the MidMark2 C Shares, the MidMark2 Warrant, the
MidMark 2/XQPLC Debt and the MidMark2/XQSI Debt are sometimes referred to as the
"MidMark Investments").
I. In connection with that certain Securities Purchase Agreement dated as
of April 28, 2004 (the "AJW Agreement") certain entities which are a party
thereto (the "New Investors") agreed to purchase and Vertex Interactive, Inc.
("Vertex") has agreed to issue and sell to the New Investors certain 10%
callable secured convertible notes of Vertex in an aggregate principle amount of
$3,000,000 in the form attached as an exhibit thereto (the "AJW Convertible
Notes") and warrants to purchase 3,000,000 shares of common stock under the
terms of the Stock Purchase Warrant in the form attached as an exhibit thereto
(the "AJW Warrants") the MidMarks have agreed to restructure the MidMark
Investments as provided herein.
Now, therefore, the parties agree as follows:
1. It shall be a condition to the effectiveness of this agreement that:
(a) The Company, the MidMarks and the Series C Investors execute and
deliver a Registration Rights Agreement by the Company in the form
attached as Exhibit 1A; and
(b) The MidMarks and the Series C Investors receive an Agreement
Regarding Antidilution Rights in the form of Exhibit 1B executed and
delivered by the holders of the AJW Convertible Notes and the AJW
Warrants.
2. Following the execution and delivery of this agreement, satisfaction of
the aforesaid conditions and the approval by the Board of the Company, the
Company shall file with the Commercial Recording Division of the New Jersey
Department of Treasury (i) a Certificate of Powers, Designations, Preferences
and Rights of the Series C-1 Convertible Preferred Stock, of the Company in the
form attached as Exhibit 2A (the "Series C-1 Rights Certificate") creating the
Series C-1 Convertible Preferred Shares and (ii) the Certificate of Powers,
Designations, Preferences and Rights of the Series D Convertible Preferred
Stock, of the Company in the form attached as Exhibit 2B (the "Series D Rights
Designation").
3. Following delivery of proof of the proper filing and effectiveness of
the Series C-1 Rights Certificate and the Series D Rights Designation, the
Midmarks and all Series C Investors shall be deemed to have exchanged their
Series C Convertible Preferred Stock on a one for one basis for Series C-1
Convertible Preferred Stock (hereafter the "New Series C-1 Investors").
Immediately thereafter, MidMark1 and MidMark2 as holders of the Series C-1
Convertible Preferred Shares shall execute and deliver to the Company a consent
(the "MidMark Consent") to an amendment to the Certificate of Incorporation of
the Company in the form of Exhibit 3 (the "Certificate of Incorporation
Amendment") providing, among other things, for the authorization of 400,000,000
shares of common stock of the Company.
4. Following the execution and delivery of the MidMark Consent, the
Company shall thereafter distribute notice (the "Shareholder Notice") to the
shareholders of the Company of the proposed effectiveness of the Certificate of
Incorporation Amendment as required under NJSA 14A:5-6 and Section 14(f) of the
Securities Exchange Act of 1934 and provide to MidMark1 and MidMark2
satisfactory evidence of such distribution.
5. Following the proposed effective date of Certificate of Incorporation
Amendment which shall be no sooner than twenty one days following distribution
of the Shareholder Notice, the Company shall (i) deliver a certificate in the
form of Exhibit 5 stating that the effectiveness of the Certificate of
Incorporation Amendment has not been the subject of any significant challenge,
and (ii) deliver of proof that the Certificate of Incorporation Amendment has
been properly filed with the New Jersey Department of Treasury and is effective.
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6. On the date following the satisfaction of the conditions set forth
above, the following restructuring of the investments by the MidMarks in the
Company and its subsidiaries shall be effective:
(a) MidMark1 shall be deemed to have exercised the MidMark1 Warrant
and the Company and MidMark1 agree that, notwithstanding any prior
agreement to the contrary, the aggregate exercise price for the MidMark1
Warrant shall be the amount owed by the Company to MidMark1 with respect
to the MidMark1/Vertex Debt and that Midmark1 shall receive 5,569,980
shares of the common stock of the Company ("Common Stock") as a result of
such exercise.
(b) The MidMark2 Warrant shall be deemed to have been exchanged with
the Company for the right to acquire 240,000 shares of Common Stock for
$0.01 per share and MidMark2 shall be deemed to have exercised such right
in consideration of the reduction of the MidMark2/XQPLC Debt by $2,400.00.
(c) MidMark2 shall be deemed to have purchased and the Company shall
be deemed to have sold to MidMark shares of Series D Convertible Preferred
Shares in consideration of the contribution to the Company of the
MidMark2/Vertex Debt, the MidMark2/XQPLC Debt (less $2,400) and the
MidMark2/XQSI Debt for an aggregate number of shares equal to the amount
of such debt divided by 1000 (such amount being the liquidation preference
of the Series D Convertible Preferred Shares).
7. Within ten days following the effectiveness of the foregoing investment
restructuring, the Company shall deliver the following:
(a) A stock certificate evidencing the issuance to MidMark1 of
5,569,980 shares of common stock of the Company as a result of the
transaction set forth in Section 6(a), of this agreement, which stock
certificate shall be satisfactory in form and substance to MidMark 1.
(b) A stock certificate evidencing the issuance to MidMark2 of
240,000 shares of common stock of the Company as a result of the
transactions set forth in Section 6(b) of this agreement, which stock
certificate shall be satisfactory in form and substance to MidMark2.
(c) A stock certificate evidencing the issuance to MidMark2 of the
shares of Series D Convertible Preferred Shares to which it was entitled
as result of the transaction set forth in Section 6(c) of this agreement,
which stock certificate shall be satisfactory in form and substance to
MidMark2.
(d) Stock certificates evidencing the Series C-1 Convertible
Preferred Shares issued as a result of the transaction set forth in
Section 3 of this agreement, which stock certificates shall be
satisfactory in form and substance to New Series C-1 Investors.
8. On the earlier of December 31, 2004 or the receipt by the Company of a
New Jersey state tax refund (the "NJ Refund"), the Company shall, within ten
days thereafter, purchase from MidMark2 and MidMark2 shall sell to the Company
the number of Series D Convertible Preferred Shares which have an aggregate
Liquidation Preference (as defined in the Company's Certificate of Powers,
Designations, Preferences and Rights of the Series D Convertible Preferred
Stock, par value $.01 per share) equal to $504,712.85 (the "Redemption Price").
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9. Subject to the terms and conditions of this agreement each MidMark and
Series C Investor and New Series C-1 Investor (i) agrees that it will not,
directly or indirectly, during a period ending at the earlier of (A) one year
following the effective date of the "Registration Statement" as that term is
defined in the Registration Rights Agreement entered into among the Company and
the New Investors simultaneous with the AJW Agreement, and (B) the day the New
Investors have received $2,000,000 on account of principal repayments of the AJW
Convertible Notes or the sale of share of common stock received by them in
connection with the exercise of their conversion rights under the AJW
Convertible Notes or the exercise of the AJW Warrants (the "Lock-Up Period"),
issue, sell, offer or agree to sell, grant any option for the sale of, pledge,
make any short sale or maintain any short position, establish or maintain a "put
equivalent position" (within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, as amended), enter into any swap, derivative transaction
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock (whether any such transaction
is to be settled by delivery of Common Stock, other securities, cash or other
consideration) or otherwise dispose of, any Common Stock (or any securities
convertible into, exercisable for or exchangeable for such Common Stock) or
interest therein of the Company or of any of its subsidiaries, and (ii)
authorizes the Company during the Lock-Up Period to cause the transfer agent to
decline to transfer and/or to note stop transfer restrictions on the transfer
books and records of the Company with respect to any shares of Common Stock and
any securities convertible into, exercisable for, or exchangeable for Common
Stock for which the undersigned is the record holder and, in the case of any
such share or securities for which the undersigned is the beneficial but not the
record holder, agrees to cause the record holder to cause the transfer agent to
decline to transfer and/or to note stop transfer restrictions on such books and
records with respect to such shares or securities. Notwithstanding the
foregoing: the MidMarks may transfer any shares of Common Stock (or any
securities convertible into, exercisable for, or exchangeable for Common Stock)
to any of its partners or limited partner; provided, however, that in any such
case it shall be a condition to the transfer that each transferee execute an
agreement stating that the transferee is receiving and holding the shares of
Common Stock (or any securities convertible into, exercisable for, or
exchangeable for Common Stock) subject to the provisions of this agreement, and
there shall be no further transfer of such shares of Common Stock (or any
securities convertible into, exercisable for, or exchangeable for Common Stock)
except in accordance with this agreement.
10. If, at any time MidMark or the Series C Investors or the New Series
C-1 Investors submits a notice of conversion under their respective holdings of
Series C or Series C-1 Convertible Preferred Shares and Series D Convertible
Preferred Shares and the Company does not have sufficient authorized but
unissued shares of Common Stock available to effect such conversion in
accordance with the provisions thereof (a "Conversion Default") the Company
shall issue all of the shares of Common Stock which are then available to effect
such conversion. In addition, the Company shall pay to such MidMark or such
Series C or Series C-1 Investor payments ("Conversion Default Payments") for a
Conversion Default in the amount of (x) the then outstanding Liquidation
Preference under any remaining Series C or Series C-1 Convertible Preferred
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Shares and Series D Convertible Preferred Shares for which conversion has been
requested multiplied by (y) .24, multiplied by (z) (N/365), where N = the number
of days from the day the submission of a notice of conversion giving rise to a
Conversion Default (the "Conversion Default Date") to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect conversion of the remaining Liquidation Preference.
The Company shall use its best efforts to authorize a sufficient number of
shares of Common Stock as soon as practicable following the earlier of (i) such
time that a MidMark or Series C Investor or the New Series C-1 Investor notifies
the Company or that the Company otherwise becomes aware that there are or likely
will be insufficient authorized and unissued shares to allow full conversion
thereof and (ii) a Conversion Default. The Company shall send notice to the
MidMarks and the Series C Investors or the New Series C-1 Investors of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of accrued Conversion Default Payments. The accrued Conversion
Default Payments for each calendar month shall be paid in cash.
11. To induce the MidMarks and the Series C Investors or the New Series
C-1 Investors to enter into this agreement, the Company, XQPLC and XQSI (each a
"Vertex Party"; collectively the "Vertex Parties") make the following
representations and warranties:
(a) On April 28, 2004 the New Investors funded the purchase from the
Company of 10% callable secured convertible notes in an aggregate amount
of $1,500,000. Attached as Schedule 9(a) is the closing statement
reflecting the actual proceeds received by the Company in connection with
such purchase.
(b) The Company and each of its Subsidiaries (as defined below), if
any, is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted. Schedule 9(b) sets forth a
list of all of the Subsidiaries of The Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which its ownership or use of property
or the nature of the business conducted by it makes such qualification
necessary except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect. "Material Adverse Effect" means
any material adverse effect on the business, operations, assets, financial
condition or prospects of the Company or its Subsidiaries, if any, taken
as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
(c) (i) The Company has all requisite corporate power and authority
to enter into and perform this Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the securities,
in accordance with the terms hereof and thereof, (ii) the execution and
delivery of this Agreement and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company,
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its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its
authorized representative, and such authorized representative is the true
and official representative with authority to sign this Agreement and the
other documents executed in connection herewith and bind the Company
accordingly, and (iv) this Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms.
(d) As of the date hereof, the authorized capital stock of the
Company consists of (i) 75,000,000 shares of Common Stock, of which
50,055,747 shares are issued and outstanding, 8,000,000 shares are
reserved for issuance pursuant to the Company's stock option plans, and
(iii) 2,000,000 shares of preferred stock, of which 1,358,849 shares are
issued and outstanding. All of such outstanding shares of capital stock
are, or upon issuance will be, duly authorized, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company are subject
to preemptive rights or any other similar rights of the shareholders of
the Company or any liens or encumbrances imposed through the actions or
failure to act of the Company. Except as disclosed in SEC Documents, as of
the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls, rights of
first refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, (ii)
there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement)
and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the
issuance of the securities hereunder. The Company has furnished to the
MidMarks true and correct copies of the Company's Articles of
Incorporation as in effect on the date hereof ("Articles of
Incorporation"), the Company's By-laws, as in effect on the date hereof
(the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
(e) The Conversion Shares and Warrant Shares are duly authorized and
reserved for issuance and, upon conversion of the Notes and exercise of
the Warrants in accordance with their respective terms, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders of
the Company and will not impose personal liability upon the holder
thereof.
(f) Subject to the Stockholder Approval, the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Notes and the Warrants by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares) will not (i) conflict with or result in a
violation of any provision of the Articles of Incorporation or By-laws or
(ii) violate or conflict with, or result in a breach of any provision of,
or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
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indenture, patent, patent license or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound
or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the
Company nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the Company
or any of its Subsidiaries in default) under, and neither the Company nor
any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company or any of its Subsidiaries is a party or by which any
property or assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually or in
the aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries, if any, are not being conducted in violation
of any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it
to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Notes or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the Notes
and Warrants in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Notes and the Warrant Shares upon
exercise of the Warrants. Subject to shareholder approval, all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained
or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Over-the-Counter Bulletin
Board (the "OTCBB") and does not reasonably anticipate that the Common
Stock will be delisted by the OTCBB in the foreseeable future. The Company
and its Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
(g) The Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such documents)
incorporated by reference therein, being hereinafter referred to herein as
the "SEC Documents"). The Company has delivered to the MidMarks true and
complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act
and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were
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filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as
have been amended or updated in subsequent filings prior the date hereof).
As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or
the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of
the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the financial statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to
September 30, 2003 and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to
the financial condition or operating results of the Company.
(h) Since September 30, 2003, there has been no material adverse
change and no material adverse development in the assets, liabilities,
business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
(i) Except as disclosed in the SEC Documents, there is no action,
suit, claim, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries, or
their officers or directors in their capacity as such, that could have a
Material Adverse Effect. The Company and its Subsidiaries are unaware of
any facts or circumstances which might give rise to any of the foregoing.
(j) The Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent applications,
patent rights, inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and copyrights
("Intellectual Property") necessary to enable it to conduct its business
as now operated (and, except as set forth in Schedule 9(i) hereof, to the
best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to,
or proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as
now operated (and, except as set forth in Schedule 9(i) hereof, to the
best of the Company's knowledge, as presently contemplated to be operated
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in the future); to the best of the Company's knowledge, the Company's or
its Subsidiaries' current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any
person; and the Company is unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company and each of its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(k) Neither the Company nor any of its Subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has
or is expected to have a Material Adverse Effect.
(l) Except as set forth on Schedule 9(l), the Company and each of
its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined
to be due on such returns, reports and declarations, except those being
contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set
forth on Schedule 9(l), none of the Company's tax returns is presently
being audited by any taxing authority.
(m) Except for arm's length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course
of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of
stock options disclosed in the SEC Documents, none of the officers,
directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director,
trustee or partner.
(n) All information relating to or concerning the Company or any of
its Subsidiaries set forth in this Agreement and provided to the MidMarks
in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to state
any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect
to the Company or any of its Subsidiaries or its or their business,
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properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced
or disclosed (assuming for this purpose that the Company's reports filed
under the 1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).
(o) The Company acknowledges and agrees that the MidMarks are acting
solely in the capacity of arm's length purchasers with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that neither MidMark nor any affiliate of MidMark is acting
as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by either of he MidMarks or any of their
respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the MidMarks' purchase of the Securities. The
Company further represents to the MidMarks that the Company's decision to
enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
(p) The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated
hereby.
(q) The Company and each of its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since September 30, 2003, neither the Company nor any of
its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
(r) Environmental Matters.
(i) There are, to the Company's knowledge, with respect to the
Company or any of its Subsidiaries or any predecessor of the
Company, no past or present violations of Environmental Laws (as
defined below), releases of any material into the environment,
actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
10
similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to
the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal, state,
local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses, notices
or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries, and
no Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or
used by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
(iii) There are no underground storage tanks on or under any
real property owned, leased or used by the Company or any of its
Subsidiaries that are not in compliance with applicable law.
(s) The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 9(s) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such
exceptions as would not have a Material Adverse Effect.
(t) The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and
in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
(u) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company's
board of directors, to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access
to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
11
(v) Neither the Company, nor any of its Subsidiaries, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of his actions for, or on
behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(w) The Company (after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have a fair
market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the
transaction contemplated by this Agreement, have the ability to, nor does
it intend to take any action that would impair its ability to, pay its
debts from time to time incurred in connection therewith as such debts
mature. The Company did not receive a qualified opinion from its auditors
with respect to its most recent fiscal year end and, after giving effect
to the transactions contemplated by this Agreement, does not anticipate or
know of any basis upon which its auditors might issue a qualified opinion
in respect of its current fiscal year.
(x) The Company is not, and upon the issuance and sale of the
Securities as contemplated by this Agreement will not be an "investment
company" required to be registered under the Investment Company Act of
1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
12. To induce the Vertex Parties to enter into this agreement, the
MidMarks make the following representations and warranties:
(a) Each MidMark has full power and authority and has taken all
required action necessary to permit it to execute and deliver this
agreement, and all other documents or instruments required by this
agreement, and to carry out the terms of this agreement and of all such
other documents or instruments.
(b) Each MidMark will be acquiring the Common Stock and Series D
Preferred Convertible Shares of the Company for its own account and not
with a view to distribution thereof, except for transfers permitted
hereunder. Each MidMark understands that the Common Stock and Series D
Preferred Convertible Shares of the Company must be held indefinitely
unless it is registered under the `33 Act or an exemption from such
registration becomes available.
12
13. General Terms
(a) No amendment or modification of this agreement that purports to
alter, modify or change the rights, remedies or obligations of any party
may be waived, modified or amended without the prior written agreement of
such party. No such waiver, modification or amendment of this agreement
shall extend to or affect any right or obligation not expressly waived,
modified or amended.
(b) All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing, and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made
when delivered by hand, or, in the case of telecopy notice, when received,
or, in the case of a nationally recognized courier service, one Business
Day after delivery to such courier service, addressed to the addresses set
forth opposite the signatures of the parties to this agreement.
(c) No failure to exercise and no delay in exercising, on the part
of any party, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, power
or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
(d) Each Vertex Party agrees that it shall (i) pay or reimburse the
MidMarks for all their out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this agreement and any documents
prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, (ii)
ay or reimburse each MidMark for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
agreement, (iii) pay, indemnify, and hold each MidMark harmless from, any
and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other taxes,
if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
agreement and any such other documents, and (iv) be responsible for the
payment of any brokerage or similar fees which may become due as the
result of the consummation of the transactions contemplated by this
agreement.
(e) This agreement may be executed by one or more of the parties to
this agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) Any provision of this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13
(g) This agreement represents the agreement of the Vertex Parties
and the MidMarks with respect to the subject matter hereof, and there are
no promises, undertakings, representations or warranties by the Investors
relative to subject matter hereof not expressly set forth or referred to
herein.
(h) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW
JERSEY.
[signature page follows]
14
IN WITNESS WHEREOF, the parties hereto have caused this Investment
Restructure Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
Address for Notice: Vertex Interactive, Inc.
Vertex Interactive, Inc. By:________________________________
0000 Xxxxxxx Xxxx Name:
Xxxxx Xxxxxxxxxx, Xxx Xxxxxx 00000 Title:
Fax (000) 000-0000
Address for Notice: XeQute Solutions, P.L.C.
Vertex Interactive, Inc. By:________________________________
0000 Xxxxxxx Xxxx Name:
Xxxxx Xxxxxxxxxx, Xxx Xxxxxx 00000 Title:
Fax (000) 000-0000
Address for Notice: XeQute Solutions, Inc.
Vertex Interactive, Inc. By:________________________________
0000 Xxxxxxx Xxxx Name:
Xxxxx Xxxxxxxxxx, Xxx Xxxxxx 00000 Title:
Fax (000) 000-0000
Address for Notice: MidMark Capital, L.P.
MidMark Capital, L.P. by MidMark Associates, Inc., its
000 Xxxxxxx Xxxxxx general partner
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000 By:________________________________
Name:
Title:
Address for Notice: MidMark Capital II, L.P.
MidMark Capital II, L.P. by MidMark Associates II, LLC
000 Xxxxxxx Xxxxxx its general partner
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000 By:________________________________
Name:
Title:
Address for Notice: PainWebber Custodian
c/o MidMark Investments, Inc. f/b/o Xxxxx Xxxx Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000 By:________________________________
Fax (000) 000-0000 Name:
Title:
15
Address for Notice: O'Brien Limited Partnership
c/o MidMark Investments, Inc. by Xxxxx Xxxxxx, general partner
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000 By:________________________________
Fax (000) 000-0000 Xxxxx Xxxxxx
Address for Notice:
c/o MidMark Investments, Inc.
000 Xxxxxxx Xxxxxx ___________________________________
Xxxxxxxxxx, XX 00000 Xxxxxx X. Xxxxxxxx
Fax (000) 000-0000
Address for Notice: Xxxxxxx Xxxxxx/Xxxxxx Xxxxxx as
c/o MidMark Investments, Inc. joint tenants
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000 ___________________________________
Fax (000) 000-0000 Xxxxxxx Xxxxxx
___________________________________
Xxxxxx Xxxxxx
16
Exhibit 1A
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 2004, by
and among Vertex Interactive, Inc., a New Jersey corporation with its
headquarters located at 0000 Xxxxxxx Xxxx, Xxxxx Xxxxxxxxxx, Xxx Xxxxxx 00000
(the "Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Investors").
WHEREAS:
In connection with and in consideration of the Investment Restructuring
Agreement by and among the parties hereto of even date herewith (the "XXX"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to provide certain registration rights under the Securities Act of
1933, as amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the "1933 Act"), and applicable state
securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investors" means MidMarks and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer
to a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means issued shares of
Common Stock or shares of Common Stock which would be issued upon conversion of
Series C-1 Convertible Preferred Shares or Series D Convertible Preferred Shares
pursuant to the XXX, and any shares of capital stock issued or issuable as a
dividend on or in exchange for or otherwise with respect to any of the
foregoing.
(iv) "Registration Statement" means a registration
statement of the Company under the 0000 Xxx.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the XXX and the
Certificate of Powers, Designations, Preferences and Rights of the Series C-1
and Series D Convertible Preferred Stock, and amendments thereto. Series C-1 and
Series D Convertible Preferred Stock are sometimes referred to herein
collectively as the "Preferred Shares".
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to forty-five (45) days from April 28, 2004 (the "Filing Date"), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of the Registrable Securities, covering the resale of the
Registrable Securities, which Registration Statement, to the extent allowable
under the 1933 Act and the rules and regulations promulgated thereunder
(including Rule 416), shall state that such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of or otherwise to prevent dilution resulting from
stock splits, stock dividends or similar transactions. The number of shares of
Common Stock initially included in such Registration Statement shall be no less
than an amount equal to two (2) times the sum of a) the number of Common Shares
that are then issuable upon conversion of the Preferred Shares (based on the
Variable Conversion Price as would then be in effect and assuming the Variable
Conversion Price is the Conversion Price at such time), without regard to any
limitation on the Investor's ability to convert the Preferred Shares and b) the
remaining Registrable Securities not related to the Preferred Shares.. The
Company acknowledges that the number of shares initially included in the
Registration Statement represents a good faith estimate of the maximum number of
shares issuable under the terms of the XXX.
b. Intentionally omitted.
c. Payments by the Company. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not filed by the Filing Date or declared effective by the SEC on or prior to
one hundred (100) days from April 28, 2004, or (ii) after the Registration
Statement has been declared effective by the SEC, sales of all of the
Registrable Securities cannot be made pursuant to the Registration Statement, or
(iii) the Common Stock is not listed or included for quotation on the Nasdaq
National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the
New York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX")
after being so listed or included for quotation, or (iv) the Common Stock ceases
to be traded on the Over-the-Counter Bulletin Board (the "OTCBB") or any
equivalent replacement exchange prior to being listed or included for quotation
on one of the aforementioned markets, then the Company will make payments to the
Investors in such amounts and at such times as shall be determined pursuant to
this Section 2(c) as partial relief for the damages to the Investors by reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each holder of the Preferred
Shares an amount equal to the Liquidation Preference (and, in the case of
holders of Registrable Securities from conversion of the Preferred Shares, to
the Liquidation Preference from which such Registrable Securities were
converted) ("Outstanding Liquidation Amount"), multiplied by the Applicable
Percentage (as defined below) times the sum of: (i) the number of months
(prorated for partial months) after the Filing Date or the end of the
aforementioned one hundred (100) day period and prior to the date the
2
Registration Statement is declared effective by the SEC, provided, however, that
there shall be excluded from such period any delays which are solely
attributable to changes required by the Investors in the Registration Statement
with respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably prompt manner; (ii) the number of months
(prorated for partial months) that sales of all of the Registrable Securities
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective, subject to any share lockup agreement,
(including, without limitation, when sales cannot be made by reason of the
Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement, but excluding any days
during an Allowed Delay (as defined in Section 3(f)); and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or
that trading thereon is halted after the Registration Statement has been
declared effective. The term "Applicable Percentage" means two hundredths (.02).
(For example, if the Registration Statement becomes effective one (1) month
after the end of such one hundred (100) day period, the Company would pay $5,000
for each $250,000 of Outstanding Liquidation Amount. If thereafter, sales could
not be made pursuant to the Registration Statement for an additional period of
one (1) month, the Company would pay an additional $5,000 for each $250,000 of
Outstanding Liquidation Amount.) Such amounts shall be paid in cash or, at the
Company's option, in shares of Common Stock priced at the Conversion Price (as
defined in the Preferred Shares) on such payment date.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall determine to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other bona
fide, employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of such
determination and, if within fifteen (15) days after the effective date of such
notice, such Investor shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
3
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available in the event the Company fails to timely file, obtain effectiveness or
maintain effectiveness of any Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.
e. Eligibility for Form X-0, XX-0 or S-1; Conversion to Form
S-3. The Company represents and warrants that it meets the requirements for the
use of Form X-0, XX-0 or S-1 for registration of the sale by the Investors of
the Registrable Securities. The Company agrees to file all reports required to
be filed by the Company with the SEC in a timely manner so as to remain eligible
or become eligible, as the case may be, and thereafter to maintain its
eligibility, for the use of Form S-3. If the Company is not currently eligible
to use Form S-3, not later than five (5) business days after the Company first
meets the registration eligibility and transaction requirements for the use of
Form S-3 (or any successor form) for registration of the offer and sale by the
Investors of Registrable Securities, the Company shall file a Registration
Statement on Form S-3 (or such successor form) with respect to the Registrable
Securities covered by the Registration Statement on Form SB-2 or Form S-1,
whichever is applicable, filed pursuant to Section 2(a) (and include in such
Registration Statement on Form S-3 the information required by Rule 429 under
the 0000 Xxx) or convert the Registration Statement on Form SB-2 or Form S-1,
whichever is applicable, filed pursuant to Section 2(a) to a Form S-3 pursuant
to Rule 429 under the 1933 Act and cause such Registration Statement (or such
amendment) to be declared effective no later than forty-five (45) days after
filing. In the event of a breach by the Company of the provisions of this
Section 2(e), the Company will be required to make payments pursuant to Section
2(c) hereof.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than the Filing Date, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause such Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing but in no
event later than one hundred (100) days from April 28, 2004, and keep the
Registration Statement effective pursuant to Rule 415 at all times until such
4
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Investors) may be immediately sold to the
public without registration or restriction (including, without limitation, as to
volume by each holder thereof) under the 1933 Act (the "Registration Period"),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the Registrable Securities issued, or issuable
upon conversion of the Preferred Shares, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within fifteen (15) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof, but in any event within thirty (30)
days after the date on which the Company reasonably first determines (or
reasonably should have determined) the need therefor. The provisions of Section
2(c) above shall be applicable with respect to such obligation, with the one
hundred (100) days running from the day the Company reasonably first determines
(or reasonably should have determined) the need therefor.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its legal
counsel (i) promptly (but in no event more than two (2) business days) after the
same is prepared and publicly distributed, filed with the SEC, or received by
the Company, one copy of each Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, and, in the case of the Registration Statement referred to in Section
2(a), each letter written by or on behalf of the Company to the SEC or the staff
of the SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than any
portion of any thereof which contains information for which the Company has
sought confidential treatment), and (ii) promptly (but in no event more than two
(2) business days) after the Registration Statement is declared effective by the
SEC, such number of copies of a prospectus, including a preliminary prospectus,
and all amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of the
5
Registrable Securities owned by such Investor. The Company will immediately
notify each Investor by facsimile of the effectiveness of each Registration
Statement or any post-effective amendment. The Company will promptly (but in no
event more than five (5) business days) respond to any and all comments received
from the SEC (which comments shall promptly be made available to the Investors
upon request), with a view towards causing each Registration Statement or any
amendment thereto to be declared effective by the SEC as soon as practicable,
shall promptly file an acceleration request as soon as practicable (but in no
event more than two (2) business days) following the resolution or clearance of
all SEC comments or, if applicable, following notification by the SEC that any
such Registration Statement or any amendment thereto will not be subject to
review and shall promptly file with the SEC a final prospectus as soon as
practicable (but in no event more than two (2) business days) following receipt
by the Company from the SEC of an order declaring the Registration Statement
effective. In the event of a breach by the Company of the provisions of this
Section 3(c), the Company will be required to make payments pursuant to Section
2(c) hereof.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its shareholders.
e. Intentionally omitted.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than ten (10) consecutive
trading days (or a total of not more than twenty (20) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
6
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Investors to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 0000 Xxx) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with any Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company, including without limitation, records of conversions by other
holders of convertible securities issued by the Company and the issuance of
stock to such holders pursuant to the conversions (collectively, the "Records"),
as shall be reasonably deemed necessary by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided, however,
that each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
7
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation, of all the Registrable
Securities covered by the Registration Statement on Nasdaq or, if not eligible
for Nasdaq, on Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq
SmallCap, on the OTCBB and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
8
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request.
p. At the request of the holders of a majority-in-interest of
the Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
q. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities of the
Company to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the holders of a majority-in-interest of the
Registrable Securities.
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
9
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Investors pursuant to Sections 2(b)
and 3(h) hereof shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any
underwriter (as defined in the 0000 Xxx) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
10
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other shareholder selling securities pursuant to the
11
Registration Statement or any of its directors or officers or any person who
controls such shareholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
12
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii)contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
13
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company and Investors who
hold a majority interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Vertex Interactive, Inc.
0000 Xxxxxxx Xxxx
Xxxxx Xxxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Law Office of Xxxxxxx X. Xxxxx PC
000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
14
If to an Investor to the address set forth on the signature pages to this
Agreement.
With a copy to:
XxXxxxxx & English, LLP
Four Gateway Center
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW
YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
15
e. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
f. This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
g. Subject to the requirements of Section 9 hereof, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
h. The headings in this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
i. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
j. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
k. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the Preferred Shares then outstanding have been converted into
Registrable Securities.
l. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations under
this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of any of the provisions under this Agreement,
that each Investor shall be entitled, in addition to all other available
remedies in law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and provisions
hereof, without the necessity of showing economic loss and without any bond or
other security being required.
16
m. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
IN WITNESS WHEREOF, the Company and the undersigned Investors have caused
this Agreement to be duly executed as of the date first above written.
VERTEX INTERACTIVE, INC.
_______________________________
Xxxxxxxx X.X. Xxxx
Chief Executive Officer
Address for Notice: MidMark Capital, L.P.
MidMark Capital, L.P. by MidMark Associates, Inc., its
000 Xxxxxxx Xxxxxx general partner
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000 By:__________________________________
Name:
Title:
Address for Notice: MidMark Capital II, L.P.
MidMark Capital II, L.P. by MidMark Associates II, LLC
000 Xxxxxxx Xxxxxx its general partner
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000 By:__________________________________
Name:
Title:
18
Address for Notice: PainWebber Custodian
c/o MidMark Investments, Inc. f/b/o Xxxxx Xxxx Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000 By:__________________________________
Fax (000) 000-0000 Name:
Title:
Address for Notice: O'Brien Limited Partnership
c/o MidMark Investments, Inc. by Xxxxx Xxxxxx, general partner
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000 By:__________________________________
Fax (000) 000-0000 Xxxxx Xxxxxx
Address for Notice:
c/o MidMark Investments, Inc. _____________________________________
000 Xxxxxxx Xxxxxx Xxxxxx X. Xxxxxxxx
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000
Address for Notice: Xxxxxxx Xxxxxx/Xxxxxx Xxxxxx as joint
c/o MidMark Investments, Inc. tenants
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000 _____________________________________
Fax (000) 000-0000 Xxxxxxx Xxxxxx
_____________________________________
Xxxxxx Xxxxxx
Exhibit 1B
Agreement Waiving Anti-dilution Rights
This is an agreement dated June 4, 2004 by AJW Partners, LLC; AJW
Offshore, Ltd.; AJW Qualified Partners, LLC; and New Millennium Capital Partners
II, LLC (collectively, the "Purchasers") in favor of Vertex Interactive, Inc.
(the "Company"), MidMark Capital, L.P. ("MidMark1") and MidMark Capital II, L.P.
("MidMark2"; collectively with MidMark1, the "MidMarks") and others.
The Purchasers are party to that certain Securities Purchase Agreement
dated as of April 28, 2004 (the "SPA") among the Purchasers and the Company
pursuant to which the Company issued and sold the Purchasers certain Stock
Purchase Warrants (the "Warrants") and Callable Secured Convertible Notes (the
"Notes") to the Purchasers. The Warrants and Notes each have certain
anti-dilution and similar rights such that the number of common shares of the
Company which the Purchasers have a right to receive under the Warrants and
Notes is increased upon the occurrence of certain events.
In connection with the issuance of the Notes and Warrants under the SPA,
the Company has requested that the MidMarks restructure their loans and other
investments in the Company and its subsidiaries under the terms of an Investment
Restructuring Agreement of even date (the "XXX"). Under the terms of the XXX
among other things, the MidMarks will exercise certain warrants to purchase
common shares of the Company, the Company will amend the conversion rights under
its existing Series C Preferred Shares and the Company will issue and the
MidMarks will accept in satisfaction of its certain of its loans new shares of
Series D Preferred Shares with a right to convert into common shares of the
Company.
As a condition to the effectiveness of the XXX, the MidMarks have required
that the anti-dilution rights under the Warrants and Notes which might otherwise
be triggered by reason of the transactions contemplated by the XXX or the
subsequent exercise of any conversion rights under any shares received under the
XXX be waived.
Now, therefore, the undersigned agree as follows:
1. Each of the undersigned represent and warrant that they are the current
owners of the Notes and Warrants as issued to them under the SPA by the Company.
2. Each of the undersigned hereby waive any anti-dilution or similar
rights to require the Company to issue more or additional shares of common stock
of the Company under the Warrants or Notes as a result of the transactions
occurring under the XXX or the subsequent exercise of any conversion rights
under the Series C Preferred Shares or Series D Preferred Shares. The rights
hereby waived include the right to an adjustment to the "Fixed Conversion Price"
under Section 1.6(d) of the Note or an adjustment to the "Exercise Price" under
Section 4 of the Warrant.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement Waiving
Anti-dilution Rights to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
AJW PARTNERS, LLC
By: SMS Group, LLC
By:_____________________________________
Xxxxx X. Xxxxxxxx
Manager
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
By:_____________________________________
Xxxxx X. Xxxxxxxx
Manager
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
By:_____________________________________
Xxxxx X. Xxxxxxxx
Manager
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
By:_____________________________________
Xxxxx X. Xxxxxxxx
Manager
VERTEX INTERACTIVE, INC.
By:_____________________________________
Xxxxxxxx Xxxx
President
2
Exhibit 2A
VERTEX INTERACTIVE, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF
THE SERIES C-1 CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
Pursuant to Section 14A:7-2, Corporations, General, of the New
Jersey Statutes,
The undersigned, Xxxxxxxx Xxxx, Chief Executive Officer of Vertex
Interactive, Inc., a New Jersey corporation (the "Corporation"), DOES HEREBY
CERTIFY that the following resolution, creating a series of 10,000 shares of
Preferred Stock was duly adopted by the Board of Directors, on May 26, 2004:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to provide by resolution or resolutions for the issuance of shares
of Preferred Stock, par value $.01 per share, of the Corporation, in one or more
classes or series with such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions as shall
be stated and expressed in the resolution or resolutions providing for the
issuance thereof adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of Preferred
Stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby created
and established a series of Preferred Stock designated as "Series C-1
Convertible Preferred Stock" (the "Series C-1 Preferred Stock"). The authorized
number of shares of Series C-1 Preferred Stock shall be 10,000. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
Section 9 below.
2
2. Rank.
(a) The Series C-1 Preferred Stock shall with respect to
distributions of assets and rights upon the occurrence of a Liquidation rank (i)
senior to all classes of common stock of the Corporation (including, without
limitation, the Common Stock, par value $.005 per share (the "Common Stock"), of
the Corporation), (ii) senior to each other class or series of Capital Stock of
the Corporation hereafter created which does not expressly rank pari passu with
or senior to the Series C-1 Preferred Stock (the "Junior Stock") and (iii) pari
passu with the Series B Convertible Preferred Stock, par value $.01 per share,
of the Corporation.
(b) Notwithstanding anything to the contrary contained in the
Certificate of Incorporation of the Corporation, the vote of the holders of a
majority of the Series C-1 Preferred Stock shall be a prerequisite to the
designation or issuance of any shares of Capital Stock ranking senior to the
Series C-1 Preferred Stock in the event of a Liquidation.
3. Dividends. The holders of shares of Series C-1 Preferred Stock
shall not be entitled to receive any dividends except in accordance with this
Section 3. If the Corporation declares and pays cash dividends or distributions
on the Common Stock, then, in that event, the holders of shares of Series C-1
Preferred Stock shall be entitled to share in such dividends or distributions on
a pro rata basis, as if their shares had been converted into shares of Common
Stock pursuant to Section 7(a) immediately prior to the record date for
determining the stockholders of the Corporation eligible to receive such
dividends or distributions.
4. Liquidation Preference.
(a) Priority Payment. Upon the occurrence of a Liquidation,
the holders of shares of Series C-1 Preferred Stock shall be entitled to be paid
for each share of Series C-1 Preferred Stock held thereby, out of, but only to
the extent of, the assets of the Corporation legally available for distribution
to its stockholders, an amount equal to $1000 (as adjusted for stock splits,
stock dividends, combinations or other recapitalizations of the Series C-1
Preferred Stock, the "Liquidation Preference") plus, as provided in Section 3
above, all accrued and unpaid dividends, if any, with respect to each share of
Series C-1 Preferred Stock, before any payment or distribution is made to any
Junior Stock. If the assets of the Corporation available for distribution to the
holders of Series C-1 Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series C-1 Preferred Stock shall be distributed among and paid to such holders
ratably in proportion to the amounts that would be payable to such holders if
such assets were sufficient to permit payment in full.
(b) No Additional Payment. After the holders of all shares of
Series C-1 Preferred Stock shall have been paid in full the amounts to which
they are entitled in paragraph 4(a), the shares of Series C-1 Preferred Stock
shall not be entitled to any further participation in any distribution of assets
of the Corporation and the remaining assets of the Corporation shall be
distributed to the holders of Junior Stock.
3
(c) Notice. Written notice of a Liquidation stating a payment
or payments and the place where such payment or payments shall be payable, shall
be delivered in person, mailed by certified mail, return receipt requested,
mailed by overnight mail or sent by telecopier, not less than ten (10) days
prior to the earliest payment date stated therein, to the holders of record of
the Series C-1 Preferred Stock, such notice to be addressed to each such holder
at its address as shown by the records of the Corporation.
(d) Option. At the election of the holders of two-thirds (2/3)
of the Series C-1 Preferred Stock, a Sale Transaction shall be deemed to be a
Liquidation pursuant to this Section 4. Any securities of the surviving Person
to be delivered to the holders of shares of Series C-1 Preferred Stock pursuant
to this Section 4(d) shall be valued as follows:
(i) With respect to securities that do not constitute
"restricted securities," as such term is defined in Rule 144(a)(3)
promulgated under the Securities Act, the value shall be deemed to
be the Current Market Price of such securities as of three (3) days
prior to the date of distribution.
(ii) With respect to securities that constitute
"restricted securities," as such term is defined in Rule 144(a)(3)
promulgated under the Securities Act, and that are of the same class
or series as securities that are publicly traded, the value shall be
adjusted to make an appropriate discount from the value as set forth
above in clause (i) to reflect the appropriate fair market value
thereof, as mutually determined by the Board of Directors and the
holders of a majority of the shares of Series C-1 Preferred Stock,
or if there is no active public market with respect to such class or
series of securities, such securities shall be valued in accordance
with clause (i) above, giving appropriate weight, if any, to such
restriction as mutually determined by the Board of Directors and the
holders of a majority of the shares of Series C-1 Preferred Stock,
or if the Board of Directors and the holders of a majority of the
shares of Series C-1 Preferred Stock shall fail to agree, at the
Corporation's expense by an appraiser chosen by the Board of
Directors and reasonably acceptable to the holders of a majority of
the shares of Series C-1 Preferred Stock.
5. Redemption. The shares of Series C-1 Preferred Stock shall not be
redeemed or subject to redemption, whether at the option of the Corporation or
any holder thereof, or otherwise.
4
6. Voting Rights; Election of Director.
In addition to any voting rights provided by law, the holders
of shares of Series C-1 Preferred Stock shall have the following rights:
(a) Until such time as a sufficient number of shares of Common
Stock are duly authorized and reserved by the Corporation in satisfaction of the
conversion rights set forth in this Section 7, each share of Series C-1
Preferred Stock shall entitle the holder thereof to vote, in person or by proxy,
at a special or annual meeting of stockholders, on all matters voted on by
holders of Common Stock voting together as a single class with other shares
entitled to vote thereon. With respect to any such vote, each share of Series
C-1 Preferred Stock shall entitle the holder thereof to cast 100,000 votes per
share. At such time as a sufficient number of shares of Common Stock are duly
authorized and reserved by the Corporation in satisfaction of the conversion
rights set forth in this Section 7, and for as long as the Series C-1 Preferred
Stock is outstanding thereafter, each share of Series C-1 Preferred Stock shall
entitle the holder thereof to cast that number of votes per share as is equal to
the number of votes that such holder would be entitled to cast had such holder
converted his shares of Series C-1 Preferred Stock into Common Stock pursuant to
Section 7(a) on the record date for determining the stockholders of the
Corporation eligible to vote on any such matters.
(b) Unless the consent or approval of a greater number of
shares shall then be required by law, the affirmative vote of the holders of at
least 51% of the outstanding shares of Series C-1 Preferred Stock, voting
separately as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for the purpose, shall be necessary to authorize,
adopt or approve an amendment to the Certificate of Incorporation that would
increase or decrease the par value of the shares of Series C-1 Preferred Stock,
or alter or change the powers, preferences or special rights of the shares of
Series C-1 Preferred Stock, or otherwise affect the rights of the shares of
Series C-1 Preferred Stock adversely, including, without limitation, the
liquidation preference provisions.
7. Conversion.
(a) Optional Conversion. Any holder of Series C-1 Preferred
Stock shall have the right, at its option, at any time subsequent to the date on
which a sufficient number of shares of Common Stock are duly authorized and
reserved by the Corporation in satisfaction of the conversion rights set forth
in this Section 7, and from time to time thereafter, to convert, subject to the
terms and provisions of this Section 7, any or all of such holder's shares of
Series C-1 Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of shares of
Series C-1 Preferred Stock being so converted multiplied by the quotient of (i)
the Liquidation Preference divided by (ii) the conversion price(as defined
hereinbelow), subject to adjustment as provided in Section 7(c). Such conversion
right shall be exercised by the surrender of certificate(s) representing the
shares of Series C-1 Preferred Stock to be converted to the Corporation at any
time during usual business hours at its principal place of business to be
maintained by it (or such other office or agency of the Corporation as the
5
Corporation may designate by notice in writing to the holders of Series C-1
Preferred Stock), accompanied by written notice that the holder elects to
convert such shares of Series C-1 Preferred Stock and specifying the name or
names (with address) in which a certificate or certificates for shares of Common
Stock are to be issued and (if so required by the Corporation) by a written
instrument or instruments of transfer in form reasonably satisfactory to the
Corporation duly executed by the holder or its duly authorized legal
representative and transfer tax stamps or funds therefor, if required pursuant
to Section 7(h). All certificates representing shares of Series C-1 Preferred
Stock surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it. As promptly as practicable after the surrender
of any shares of Series C-1 Preferred Stock, the Corporation shall (subject to
compliance with the applicable provisions of federal and state securities laws)
deliver to the holder of such shares so surrendered certificate(s) representing
the number of fully paid and nonassessable shares of Common Stock into which
such shares are entitled to be converted and, to the extent funds are legally
available therefor, an amount equal to the accrued and unpaid dividends payable
with respect to such shares in accordance with Section 3 above. At the time of
the surrender of such certificate(s), the Person in whose name any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to be the holder of record of such shares of Common Stock on
such date, notwithstanding that the share register of the Corporation shall then
be closed or that the certificates representing such Common Stock shall not then
be actually delivered to such Person.
(a)(i) The Conversion Price shall be the lesser of (i) the
Variable Conversion Price (as defined herein) and (ii) the Fixed Conversion
Price (as defined herein) (subject, in each case, to equitable adjustments for
stock splits, stock dividends or rights offerings relating to the Corporation's
securities or the securities of any subsidiary of the Corporation, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events). The "Variable Conversion Price" shall mean the Applicable Percentage
(as defined herein) multiplied by the Market Price (as defined herein). "Market
Price" means the average of the lowest three (3) Trading Prices (as defined
below) for the Common Stock during the twenty (20) Trading Day period ending one
Trading Day prior to the date notice of conversion is sent to the Corporation
(the "Conversion Date"). "Trading Price" means, for any security as of any date,
the intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB")
as reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Series C-1 Preferred
Stock. If the OTCBB is not the principal trading market for such security, the
intraday trading price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
6
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in interest
of the Series C-1 Preferred Stock being converted for which the calculation of
the Trading Price is required in order to determine the Conversion Price of such
Series C-1 Preferred Stock. "Trading Day" shall mean any day on which the Common
Stock is traded for any period on the OTCBB, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded. "Applicable Percentage" shall mean 60.0%. The "Fixed Conversion Price"
shall mean $.30.
(a)(ii) Notwithstanding anything to the contrary, in the event
the Corporation (i) makes a public announcement that it intends to consolidate
or merge with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer to purchase 50% or more of the Corporation's
Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the Conversion
Price which would have been applicable for a conversion occurring on the
Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section 7(a)(i). For
purposes hereof, "Adjusted Conversion Price Termination Date" shall mean, with
respect to any proposed transaction or tender offer (or takeover scheme) for
which a public announcement as contemplated by this Section has been made, the
date upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or tender
offer (or takeover scheme) which caused this Section to become operative.
(b) Termination of Rights. On the date of such optional
conversion pursuant to Section 7(a) above, all rights with respect to the shares
of Series C-1 Preferred Stock so converted, including the rights, if any, to
receive notices and vote, shall terminate, except only the rights of holders
thereof to (i) receive certificates for the number of shares of Common Stock
into which such shares of Series C-1 Preferred Stock have been converted, (ii)
the payment of dividends, if any, pursuant to Section 3 above and (iii) exercise
the rights to which they are entitled as holders of Common Stock.
(c) Antidilution Adjustments. The Conversion Price, and the
number and type of securities to be received upon conversion of the Series C-1
Preferred Stock, shall be subject to adjustment as follows:
(i) Dividend, Subdivision, Combination or
Reclassification of Common Stock. In the event that the Corporation
shall at any time or from time to time, prior to conversion of the
Series C-1 Preferred Stock (w) pay a dividend or make a distribution
(other than a dividend or distribution in which holders of shares of
Series C-1 Preferred Stock participate, in the manner provided in
Section 3) on the outstanding shares of Common Stock payable in
Capital Stock, (x) subdivide the outstanding shares of Common Stock
into a larger number of shares, (y) combine the outstanding shares
7
of Common Stock into a smaller number of shares or (z) issue any
shares of its Capital Stock in a reclassification of the Common
Stock (other than any such event for which an adjustment is made
pursuant to another clause of this Section 7(c)), then, and in each
such case, the Conversion Price in effect immediately prior to such
event shall be adjusted (and any other appropriate actions shall be
taken by the Corporation) so that the holder of any share of Series
C-1 Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other
securities of the Corporation that such holder would have owned or
would have been entitled to receive upon or by reason of any of the
events described above, had such share of Series C-1 Preferred Stock
been converted immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section 7(c)(i) shall become
effective retroactively (x) in the case of any such dividend or
distribution, to a date immediately following the close of business
on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case
of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action
becomes effective.
(ii) Issuance of Common Stock or Common Stock Equivalent
below Conversion Price.
(a) If the Corporation shall at any time or from time to time prior
to conversion of shares of Series C-1 Preferred Stock, issue or sell any shares
of Common Stock or Common Stock Equivalents at a price per share of Common Stock
that is less than the Conversion Price then in effect as of the record date or
Issue Date (as defined below), as the case may be (the "Relevant Date")
(treating the price per share of Common Stock, in the case of the issuance of
any Common Stock Equivalent, as equal to (x) the sum of the price for such
Common Stock Equivalent plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such Common Stock Equivalent divided by (y) the number of shares of
Common Stock initially underlying such Common Stock Equivalent), other than (A)
issuances or sales for which an adjustment is made pursuant to another clause of
this Section 7(c) and (B) issuances in connection with an Excluded Transaction,
then, and in each such case, the Conversion Price then in effect shall be
adjusted by multiplying the Conversion Price in effect on the day immediately
8
prior to the Relevant Date by a fraction (i) the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the Relevant Date
plus the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of such additional shares of
Common Stock so issued would purchase at the Conversion Price on the Relevant
Date (or, in the case of Common Stock Equivalents, the number of shares of
Common Stock which the aggregate consideration received by the Corporation upon
the issuance of such Common Stock Equivalents and receivable by the Corporation
upon the conversion, exchange or exercise of such Common Stock Equivalents would
purchase at the Conversion Price on the Relevant Date) and (ii) the denominator
of which shall be the sum of the number of shares of Common Stock outstanding on
the Relevant Date plus the number of additional shares of Common Stock issued or
to be issued (or, in the case of Common Stock Equivalents, the maximum number of
shares of Common Stock into which such Common Stock Equivalents initially may
convert, exchange or be exercised).
(b) Such adjustment shall be made whenever such shares of Common
Stock or Common Stock Equivalents are issued, and shall become effective
retroactively (x) in the case of an issuance to the stockholders of the
Corporation, as such, to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
shares of Common Stock or Common Stock Equivalents and (y) in all other cases,
on the date (the "Issue Date") of such issuance; provided, however, that the
determination as to whether an adjustment is required to be made pursuant to
this Section 7(c)(ii) shall only be made upon the issuance of such shares of
Common Stock or Common Stock Equivalents, and not upon the issuance of any
security into which the Common Stock Equivalents convert, exchange or may be
exercised.
(c) In case at any time any shares of Common Stock or Common Stock
Equivalents or any rights or options to purchase any shares of Common Stock or
Common Stock Equivalents shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Corporation in connection therewith. In case any shares of Common Stock or
Common Stock Equivalents or any rights or options to purchase any Common Stock
or Common Stock Equivalents shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair market value of such consideration,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions or discounts paid or allowed by the Corporation in
connection therewith, as determined mutually by the Board of Directors and the
holders of a majority of the shares of Series C-1 Preferred Stock or, if the
Board of Directors and the holders of a majority of the shares of Series C-1
Preferred Stock shall fail to agree, at the Corporation's expense by an
appraiser chosen by the Board of Directors and reasonably acceptable to the
holders of a majority of the shares of Series C-1 Preferred Stock.
(d) If any Common Stock Equivalents (or any portions thereof) which
shall have given rise to an adjustment pursuant to this Section 7(c)(ii) shall
have expired or terminated without the exercise thereof and/or if by reason of
the terms of such Common Stock Equivalents there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Conversion Price hereunder shall be
readjusted (but to no greater extent than originally adjusted) in order to (A)
eliminate from the computation any additional shares of Common Stock
corresponding to such Common Stock Equivalents as shall have expired or
terminated, (B) treat the additional shares of Common Stock, if any, actually
9
issued or issuable pursuant to the previous exercise of such Common Stock
Equivalents as having been issued for the consideration actually received and
receivable therefor and (C) treat any of such Common Stock Equivalents which
remain outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time.
(iii) Certain Distributions. In case the Corporation
shall at any time or from time to time, prior to conversion of the
Series C-1 Preferred Stock, distribute to all holders of shares of
the Common Stock (including any such distribution made in connection
with a merger or consolidation in which the Corporation is the
resulting or surviving Person and the Common Stock is not changed or
exchanged) cash, evidences of indebtedness of the Corporation or
another issuer, securities of the Corporation or another issuer or
other assets (excluding dividends or distributions in which holders
of shares of Series C-1 Preferred Stock participate, in the manner
provided in Section 3, and dividends payable in shares of Common
Stock for which adjustment is made under another paragraph of this
Section 7(c) and any distribution in connection with an Excluded
Transaction) or rights or warrants to subscribe for or purchase of
any of the foregoing, then, and in each such case, the Conversion
Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) by multiplying the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the
Current Market Price of the Common Stock immediately prior to the
date of distribution less the then fair market value (as determined
by the Board of Directors in the exercise of their fiduciary duties)
of the portion of the cash, evidences of indebtedness, securities or
other assets so distributed or of such rights or warrants applicable
to one share of Common Stock and (y) the denominator of which shall
be the Current Market Price of the Common Stock immediately prior to
the date of distribution (but such fraction shall not be greater
than one); provided, however, that no adjustment shall be made with
respect to any distribution of rights or warrants to subscribe for
or purchase securities of the Corporation if the holder of shares of
Series C-1 Preferred Stock would otherwise be entitled to receive
such rights or warrants upon conversion at any time of shares of
Series C-1 Preferred Stock into Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become
effective retroactively to a date immediately following the close of
business on the record date for the determination of stockholders
entitled to receive such distribution.
(iv) Other Changes. In case the Corporation at any time
or from time to time, prior to the conversion of the Series C-1
Preferred Stock, shall take any action affecting its Common Stock
having an effect similar to any of the actions described in any of
Sections 7(c)(i), (ii) or (iii) above or Section 7(f) (but not
including any action described in any such Section) and the Board of
10
Directors in good faith determines that it would be equitable in the
circumstances to adjust the Conversion Price as a result of such
action, then, and in each such case, the Conversion Price shall be
adjusted in such manner and at such time as the Board of Directors
in good faith determines would be equitable in the circumstances
(such determination to be evidenced in a resolution, a certified
copy of which shall be mailed to the holders of the shares of Series
C-1 Preferred Stock).
(v) No Adjustment. Notwithstanding anything herein to
the contrary, no adjustment under this Section 7(c) need be made to
the Conversion Price if the Corporation receives written notice from
holders of a majority of the outstanding shares of Series C-1
Preferred Stock that no such adjustment is required.
(d) Abandonment. If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, and shall thereafter and before the distribution
to stockholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then no adjustment in the Conversion Price shall be required by
reason of the taking of such record.
(e) Certificate as to Adjustments. Upon any adjustment in the
Conversion Price, the Corporation shall within a reasonable period (not to
exceed ten (10) days) following any of the foregoing transactions deliver to
each registered holder of Series C-1 Preferred Stock a certificate, signed by
the Chief Financial Officer of the Corporation, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated and specifying the increased or decreased Conversion
Price then in effect following such adjustment.
(f) Reorganization, Reclassification. In case of any merger or
consolidation of the Corporation or any capital reorganization, reclassification
or sale of all or substantially all of the assets of the Corporation or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value) (each, a
"Transaction"), each holder of shares of Series C-1 Preferred Stock shall be
entitled to receive, upon conversion of the Series C-1 Preferred Stock, the
number of shares of Capital Stock, other security or other consideration or
property to which the holder of the number of shares of Common Stock deliverable
upon such conversion is entitled to receive upon the consummation of such
Transaction had such conversion occurred prior to such Transaction.
(g) Notices. In case at any time or from time to time:
(i) the Corporation shall declare a dividend (or any
other distribution) on its shares of Common Stock;
11
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock rights or warrants to subscribe for or
purchase any shares of Capital Stock of any class or of any other
rights or warrants; or
(iii) there shall be any Transaction;
then the Corporation shall mail to each holder of shares of Series C-1 Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of 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, distribution or granting of rights or warrants are to be
determined, or (B) the date on which such Transaction is expected to become
effective 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 shares of Capital
Stock or other securities or property or cash deliverable upon such Transaction.
(h) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available for issuance upon the conversion of the Series
C-1 Preferred Stock, such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Series C-1 Preferred Stock, and shall take all action to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
C-1 Preferred Stock; provided that the holders of shares of Series C-1 Preferred
Stock vote such shares in favor of any such action that requires a vote of
stockholders.
(i) No Conversion Tax or Charge. The issuance or delivery of
certificates for Common Stock upon the conversion of shares of Series C-1
Preferred Stock shall be made without charge to the converting holder of shares
of Series C-1 Preferred Stock for such certificates or for any tax in respect of
the issuance or delivery of such certificates or the securities represented
thereby, and such certificates shall be issued or delivered in the respective
names of, or (subject to compliance with the applicable provisions of federal
and state securities laws) in such names as may be directed by, the holders of
the shares of Series C-1 Preferred Stock converted; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the holder of the shares of Series C-1 Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
12
8. Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
9. Definitions. As used in this Certificate of Designations, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Affiliate" means any person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other
day on which commercial banks in the State of New York or the State of New
Jersey are authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security whether or not it is
exchangeable for or convertible into such capital stock).
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Common Stock Equivalent" shall mean any security or obligation
which is by its terms convertible or exchangeable into shares of Common Stock or
another Common Stock Equivalent, and any option, warrant or other subscription
or purchase right with respect to Common Stock.
"Conversion Price" shall have the meaning ascribed to it in Section
7(a) hereof.
"Corporation" shall have the meaning ascribed to it in the first
paragraph of this Certificate of Designation.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average of the daily Market Price under clause (a), (b)
or (c) of the definition thereof of the Common Stock during the immediately
preceding thirty (30) trading days ending on such date, and (b) if the Common
Stock is not then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, then the Market Price under
clause (d) of the definition thereof on such date.
13
"Excluded Transaction" means (a) any issuance of up to an aggregate
of 4,000,000 shares of restricted stock or options to purchase shares of Common
Stock (subject to adjustment in the event of stock splits, combinations or
similar occurrences) that have a purchase price or exercise price, as the case
may be, that is not less than the fair market value of the Common Stock on the
grant date thereof to employees, officers or directors of the Corporation
pursuant to a stock option plan or other employee benefit arrangement approved
by the Board of Directors, (b) any issuance of Common Stock (i) upon the
conversion of shares of Series C-1 Preferred Stock, (ii) as a dividend on shares
of Series C-1 Preferred Stock or (iii) upon conversion or exercise of any Common
Stock Equivalents and (c) any issuance of shares of Common Stock for an
aggregate consideration of up to $5,000,000 at a price per share of not less
than $0.714 (subject to adjustment in the event of stock splits, combinations or
similar occurrences).
"Issue Date" shall have the meaning set forth in Section 7(c)(ii)
hereof.
"Junior Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Liquidation" shall mean the voluntary or involuntary liquidation
under applicable bankruptcy or reorganization legislation, or the dissolution or
winding up of the Corporation.
"Liquidation Preference" shall have the meaning ascribed to it in
Section 4(a) hereof.
"Market Price" shall mean, as of the date of determination, (a) if
the Common Stock is listed on a national securities exchange, the closing price
per share of Common Stock on such date published in The Wall Street Journal
(National Edition) or, if no such closing price on such date is published in The
Wall Street Journal (National Edition), the average of the closing bid and asked
prices on such date, as officially reported on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading; or (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the National Association of Securities Dealers, Inc., the last trading price of
the Common Stock on such date; or (c) if there shall have been no trading on
such date or if the Common Stock is not designated as a national market system
security by the National Association of Securities Dealers, Inc., the average of
the reported closing bid and asked prices of the Common Stock on such date as
shown by the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotations System and reported by any member firm of the
New York Stock Exchange selected by the Corporation; or (d) if none of (a), (b)
or (c) is applicable, a market price per share determined in good faith by the
Board of Directors. Any determination of the Market Price by an appraiser shall
be based on a valuation of the Corporation as an entirety without regard to any
discount for minority interests or disparate voting rights among classes of
Capital Stock.
14
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Relevant Date" shall have the meaning set forth in Section 7(c)(ii)
hereof.
"Sale Transaction" shall mean (a) (i) the merger or consolidation of
the Corporation into or with one or more Persons, (ii) the merger or
consolidation of one or more Persons into or with the Corporation or (iii) the
completion of a tender offer by an unaffiliated party for at least a majority of
the outstanding shares of capital stock of the Company if, in the case of (i) or
(ii), the stockholders of the Corporation prior to such merger or consolidation
do not retain at least a majority of the voting power of the surviving Person or
(b) the voluntary sale, conveyance, exchange or transfer to another Person of
(i) the voting Capital Stock of the Corporation if, after such sale, conveyance,
exchange or transfer, the stockholders of the Corporation prior to such sale,
conveyance, exchange or transfer do not retain at least a majority of the voting
power of the Corporation or (ii) all or substantially all of the assets of the
Corporation; provided, that the transactions contemplated by that certain Stock
Purchase Agreement, dated as of August 23, 2001, by and among Vertex
Interactive, Inc., Plus Integration Supply Chain Solutions B.V., Stichting WPM
Plus and the shareholders of Plus Integration Supply Chain Solutions B.V. shall
not constitute a "Sale Transaction."
"Series C-1 Preferred Stock" shall have the meaning ascribed to it
in Section 1 hereof.
"Transaction" shall have the meaning ascribed to it in Section 7(f)
hereof.
15
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
certificate this 26th day of May 2004.
_________________________________
Chief Executive Officer
Exhibit 2B
VERTEX INTERACTIVE, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF
THE SERIES D CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
Pursuant to Section 14A:7-2, Corporations, General, of the New
Jersey Statutes,
The undersigned, Xxxxxxxx Xxxx, Chief Executive Officer of Vertex
Interactive, Inc., a New Jersey corporation (the "Corporation"), DOES HEREBY
CERTIFY that the following resolution, creating a series of 10,000 shares of
Preferred Stock was duly adopted by the Board of Directors, on May 26, 2004:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to provide by resolution or resolutions for the issuance of shares
of Preferred Stock, par value $.01 per share, of the Corporation, in one or more
classes or series with such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions as shall
be stated and expressed in the resolution or resolutions providing for the
issuance thereof adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of Preferred
Stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby created
and established a series of Preferred Stock designated as "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock"). The authorized number of
shares of Series D Preferred Stock shall be 10,000. Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in Section 9
below.
2
2. Rank.
(a) The Series D Preferred Stock shall with respect to
distributions of assets and rights upon the occurrence of a Liquidation rank (i)
senior to all classes of common stock of the Corporation (including, without
limitation, the Common Stock, par value $.005 per share (the "Common Stock"), of
the Corporation), and (ii) senior to each other class or series of Capital Stock
of the Corporation hereafter created which does not expressly rank pari passu
with or senior to the Series D Preferred Stock (the "Junior Stock").
(b) Notwithstanding anything to the contrary contained in the
Certificate of Incorporation of the Corporation, the vote of the holders of a
majority of the Series D Preferred Stock shall be a prerequisite to the
designation or issuance of any shares of Capital Stock ranking senior to the
Series D Preferred Stock in the event of a Liquidation.
3. Dividends. The holders of shares of Series D Preferred Stock
shall be entitled to receive dividends in the sum of 10% per annum on the
Liquidation Preference as defined below. Dividends shall be paid semi-annually.
If the Corporation declares and pays cash dividends or distributions on the
Common Stock, then, in that event, the holders of shares of Series D Preferred
Stock shall be entitled to share in such dividends or distributions on a pro
rata basis, as if their shares had been converted into shares of Common Stock
pursuant to Section 7(a) immediately prior to the record date for determining
the stockholders of the Corporation eligible to receive such dividends or
distributions.
4. Liquidation Preference.
(a) Priority Payment. Upon the occurrence of a Liquidation,
the holders of shares of Series D Preferred Stock shall be entitled to be paid
for each share of Series D Preferred Stock held thereby, out of, but only to the
extent of, the assets of the Corporation legally available for distribution to
its stockholders, an amount equal to $1000 (as adjusted for stock splits, stock
dividends, combinations or other recapitalizations of the Series D Preferred
Stock, the "Liquidation Preference") plus, as provided in Section 3 above, all
accrued and unpaid dividends, if any, with respect to each share of Series D
Preferred Stock, before any payment or distribution is made to any Junior Stock.
If the assets of the Corporation available for distribution to the holders of
Series D Preferred Stock shall be insufficient to permit payment in full to such
holders of the sums which such holders are entitled to receive in such case,
then all of the assets available for distribution to holders of the Series D
Preferred Stock shall be distributed among and paid to such holders ratably in
proportion to the amounts that would be payable to such holders if such assets
were sufficient to permit payment in full.
(b) No Additional Payment. After the holders of all shares of
Series D Preferred Stock shall have been paid in full the amounts to which they
are entitled in paragraph 4(a), the shares of Series D Preferred Stock shall not
be entitled to any further participation in any distribution of assets of the
Corporation and the remaining assets of the Corporation shall be distributed to
the holders of Junior Stock.
3
(c) Notice. Written notice of a Liquidation stating a payment
or payments and the place where such payment or payments shall be payable, shall
be delivered in person, mailed by certified mail, return receipt requested,
mailed by overnight mail or sent by telecopier, not less than ten (10) days
prior to the earliest payment date stated therein, to the holders of record of
the Series D Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
(d) Option. At the election of the holders of two-thirds (2/3)
of the Series D Preferred Stock, a Sale Transaction shall be deemed to be a
Liquidation pursuant to this Section 4. Any securities of the surviving Person
to be delivered to the holders of shares of Series D Preferred Stock pursuant to
this Section 4(d) shall be valued as follows:
(i) With respect to securities that do not constitute
"restricted securities," as such term is defined in Rule 144(a)(3)
promulgated under the Securities Act, the value shall be deemed to
be the Current Market Price of such securities as of three (3) days
prior to the date of distribution.
(ii) With respect to securities that constitute
"restricted securities," as such term is defined in Rule 144(a)(3)
promulgated under the Securities Act, and that are of the same class
or series as securities that are publicly traded, the value shall be
adjusted to make an appropriate discount from the value as set forth
above in clause (i) to reflect the appropriate fair market value
thereof, as mutually determined by the Board of Directors and the
holders of a majority of the shares of Series D Preferred Stock, or
if there is no active public market with respect to such class or
series of securities, such securities shall be valued in accordance
with clause (i) above, giving appropriate weight, if any, to such
restriction as mutually determined by the Board of Directors and the
holders of a majority of the shares of Series D Preferred Stock, or
if the Board of Directors and the holders of a majority of the
shares of Series D Preferred Stock shall fail to agree, at the
Corporation's expense by an appraiser chosen by the Board of
Directors and reasonably acceptable to the holders of a majority of
the shares of Series D Preferred Stock.
5. Redemption. The shares of Series D Preferred Stock shall be
subject to redemption, on such terms as may be duly authorized by the Board of
Directors of the Corporation.
4
6. Voting Rights; Election of Director.
In addition to any voting rights provided by law, the holders of
shares of Series D Preferred Stock shall have the following rights:
(a) So long as the Series D Preferred Stock is outstanding,
each share of Series D Preferred Stock shall entitle the holder thereof to vote,
in person or by proxy, at a special or annual meeting of stockholders, on all
matters voted on by holders of Common Stock voting together as a single class
with other shares entitled to vote thereon. With respect to any such vote, each
share of Series D Preferred Stock shall entitle the holder thereof to cast that
number of votes per share as is equal to the number of votes that such holder
would be entitled to cast had such holder converted his shares of Series D
Preferred Stock pursuant to Section 7(a) on the record date for determining the
stockholders of the Corporation eligible to vote on any such matters.
(b) Unless the consent or approval of a greater number of
shares shall then be required by law, the affirmative vote of the holders of at
least 51% of the outstanding shares of Series D Preferred Stock, voting
separately as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for the purpose, shall be necessary to authorize,
adopt or approve an amendment to the Certificate of Incorporation that would
increase or decrease the par value of the shares of Series D Preferred Stock, or
alter or change the powers, preferences or special rights of the shares of
Series D Preferred Stock, or otherwise affect the rights of the shares of Series
D Preferred Stock adversely, including, without limitation, the liquidation
preference provisions.
7. Conversion.
(a) Optional Conversion. Any holder of Series D Preferred
Stock shall have the right, at its option, at any time and from time to time, to
convert, subject to the terms and provisions of this Section 7, any or all of
such holder's shares of Series D Preferred Stock into such number of fully paid
and non-assessable shares of Common Stock as is equal to the product of the
number of shares of Series D Preferred Stock being so converted multiplied by
the quotient of (i) the Liquidation Preference divided by (ii) the conversion
price(as defined hereinbelow), subject to adjustment as provided in Section
7(c). Such conversion right shall be exercised by the surrender of
certificate(s) representing the shares of Series D Preferred Stock to be
converted to the Corporation at any time during usual business hours at its
principal place of business to be maintained by it (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of Series D Preferred Stock), accompanied by written notice that
the holder elects to convert such shares of Series D Preferred Stock and
specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Corporation) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds therefor,
if required pursuant to Section 7(h). All certificates representing shares of
5
Series D Preferred Stock surrendered for conversion shall be delivered to the
Corporation for cancellation and canceled by it. As promptly as practicable
after the surrender of any shares of Series D Preferred Stock, the Corporation
shall (subject to compliance with the applicable provisions of federal and state
securities laws) deliver to the holder of such shares so surrendered
certificate(s) representing the number of fully paid and nonassessable shares of
Common Stock into which such shares are entitled to be converted and, to the
extent funds are legally available therefor, an amount equal to the accrued and
unpaid dividends payable with respect to such shares in accordance with Section
3 above. At the time of the surrender of such certificate(s), the Person in
whose name any certificate(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to be the holder of record of such shares of
Common Stock on such date, notwithstanding that the share register of the
Corporation shall then be closed or that the certificates representing such
Common Stock shall not then be actually delivered to such Person.
(a)(i) The Conversion Price shall be the lesser of (i) the
Variable Conversion Price (as defined herein) and (ii) the Fixed Conversion
Price (as defined herein) (subject, in each case, to equitable adjustments for
stock splits, stock dividends or rights offerings relating to the Corporation's
securities or the securities of any subsidiary of the Corporation, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events). The "Variable Conversion Price" shall mean the Applicable Percentage
(as defined herein) multiplied by the Market Price (as defined herein). "Market
Price" means the average of the lowest three (3) Trading Prices (as defined
below) for the Common Stock during the twenty (20) Trading Day period ending one
Trading Day prior to the date notice of conversion is sent to the Corporation
(the "Conversion Date"). "Trading Price" means, for any security as of any date,
the intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB")
as reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Series D Preferred Stock.
If the OTCBB is not the principal trading market for such security, the intraday
trading price of such security on the principal securities exchange or trading
market where such security is listed or traded or, if no intraday trading price
of such security is available in any of the foregoing manners, the average of
the intraday trading prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Trading Price cannot be calculated for such security on such date in the manner
provided above, the Trading Price shall be the fair market value as mutually
determined by the Corporation and the holders of a majority in interest of the
Series D Preferred Stock being converted for which the calculation of the
Trading Price is required in order to determine the Conversion Price of such
Series D Preferred Stock. "Trading Day" shall mean any day on which the Common
Stock is traded for any period on the OTCBB, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded. "Applicable Percentage" shall mean 60.0%. The "Fixed Conversion Price"
shall mean $.30.
(a)(ii) Notwithstanding anything to the contrary, in the event
the Corporation (i) makes a public announcement that it intends to consolidate
or merge with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer to purchase 50% or more of the Corporation's
Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
6
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the Conversion
Price which would have been applicable for a conversion occurring on the
Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section 7(a)(i). For
purposes hereof, "Adjusted Conversion Price Termination Date" shall mean, with
respect to any proposed transaction or tender offer (or takeover scheme) for
which a public announcement as contemplated by this Section has been made, the
date upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or tender
offer (or takeover scheme) which caused this Section to become operative.
(b) Termination of Rights. On the date of such optional
conversion pursuant to Section 7(a) above, all rights with respect to the shares
of Series D Preferred Stock so converted, including the rights, if any, to
receive notices and vote, shall terminate, except only the rights of holders
thereof to (i) receive certificates for the number of shares of Common Stock
into which such shares of Series D Preferred Stock have been converted, (ii) the
payment of dividends, if any, pursuant to Section 3 above and (iii) exercise the
rights to which they are entitled as holders of Common Stock.
(c ) Antidilution Adjustments. The Conversion Price, and the
number and type of securities to be received upon conversion of the Series D
Preferred Stock, shall be subject to adjustment as follows:
(i) Dividend, Subdivision, Combination or
Reclassification of Common Stock. In the event that the Corporation
shall at any time or from time to time, prior to conversion of the
Series D Preferred Stock (w) pay a dividend or make a distribution
(other than a dividend or distribution in which holders of shares of
Series D Preferred Stock participate, in the manner provided in
Section 3) on the outstanding shares of Common Stock payable in
Capital Stock, (x) subdivide the outstanding shares of Common Stock
into a larger number of shares, (y) combine the outstanding shares
of Common Stock into a smaller number of shares or (z) issue any
shares of its Capital Stock in a reclassification of the Common
Stock (other than any such event for which an adjustment is made
pursuant to another clause of this Section 7(c)), then, and in each
such case, the Conversion Price in effect immediately prior to such
event shall be adjusted (and any other appropriate actions shall be
7
taken by the Corporation) so that the holder of any share of Series
D Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other
securities of the Corporation that such holder would have owned or
would have been entitled to receive upon or by reason of any of the
events described above, had such share of Series D Preferred Stock
been converted immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section 7(c)(i) shall become
effective retroactively (x) in the case of any such dividend or
distribution, to a date immediately following the close of business
on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case
of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action
becomes effective.
(ii) Issuance of Common Stock or Common Stock Equivalent
below Conversion Price.
(a) If the Corporation shall at any time or from time to time prior
to conversion of shares of Series D Preferred Stock, issue or sell any shares of
Common Stock or Common Stock Equivalents at a price per share of Common Stock
that is less than the Conversion Price then in effect as of the record date or
Issue Date (as defined below), as the case may be (the "Relevant Date")
(treating the price per share of Common Stock, in the case of the issuance of
any Common Stock Equivalent, as equal to (x) the sum of the price for such
Common Stock Equivalent plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such Common Stock Equivalent divided by (y) the number of shares of
Common Stock initially underlying such Common Stock Equivalent), other than (A)
issuances or sales for which an adjustment is made pursuant to another clause of
this Section 7(c) and (B) issuances in connection with an Excluded Transaction,
then, and in each such case, the Conversion Price then in effect shall be
adjusted by multiplying the Conversion Price in effect on the day immediately
prior to the Relevant Date by a fraction (i) the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the Relevant Date
plus the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of such additional shares of
Common Stock so issued would purchase at the Conversion Price on the Relevant
Date (or, in the case of Common Stock Equivalents, the number of shares of
Common Stock which the aggregate consideration received by the Corporation upon
the issuance of such Common Stock Equivalents and receivable by the Corporation
upon the conversion, exchange or exercise of such Common Stock Equivalents would
purchase at the Conversion Price on the Relevant Date) and (ii) the denominator
of which shall be the sum of the number of shares of Common Stock outstanding on
the Relevant Date plus the number of additional shares of Common Stock issued or
to be issued (or, in the case of Common Stock Equivalents, the maximum number of
shares of Common Stock into which such Common Stock Equivalents initially may
convert, exchange or be exercised).
(b) Such adjustment shall be made whenever such shares of Common
Stock or Common Stock Equivalents are issued, and shall become effective
retroactively (x) in the case of an issuance to the stockholders of the
8
Corporation, as such, to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
shares of Common Stock or Common Stock Equivalents and (y) in all other cases,
on the date (the "Issue Date") of such issuance; provided, however, that the
determination as to whether an adjustment is required to be made pursuant to
this Section 7(c)(ii) shall only be made upon the issuance of such shares of
Common Stock or Common Stock Equivalents, and not upon the issuance of any
security into which the Common Stock Equivalents convert, exchange or may be
exercised.
(c) In case at any time any shares of Common Stock or Common Stock
Equivalents or any rights or options to purchase any shares of Common Stock or
Common Stock Equivalents shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Corporation in connection therewith. In case any shares of Common Stock or
Common Stock Equivalents or any rights or options to purchase any Common Stock
or Common Stock Equivalents shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair market value of such consideration,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions or discounts paid or allowed by the Corporation in
connection therewith, as determined mutually by the Board of Directors and the
holders of a majority of the shares of Series D Preferred Stock or, if the Board
of Directors and the holders of a majority of the shares of Series D Preferred
Stock shall fail to agree, at the Corporation's expense by an appraiser chosen
by the Board of Directors and reasonably acceptable to the holders of a majority
of the shares of Series D Preferred Stock.
(d) If any Common Stock Equivalents (or any portions thereof) which
shall have given rise to an adjustment pursuant to this Section 7(c)(ii) shall
have expired or terminated without the exercise thereof and/or if by reason of
the terms of such Common Stock Equivalents there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Conversion Price hereunder shall be
readjusted (but to no greater extent than originally adjusted) in order to (A)
eliminate from the computation any additional shares of Common Stock
corresponding to such Common Stock Equivalents as shall have expired or
terminated, (B) treat the additional shares of Common Stock, if any, actually
issued or issuable pursuant to the previous exercise of such Common Stock
Equivalents as having been issued for the consideration actually received and
receivable therefor and (C) treat any of such Common Stock Equivalents which
remain outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time.
(iii) Certain Distributions. In case the Corporation
shall at any time or from time to time, prior to conversion of the
Series D Preferred Stock, distribute to all holders of shares of the
Common Stock (including any such distribution made in connection
with a merger or consolidation in which the Corporation is the
9
resulting or surviving Person and the Common Stock is not changed or
exchanged) cash, evidences of indebtedness of the Corporation or
another issuer, securities of the Corporation or another issuer or
other assets (excluding dividends or distributions in which holders
of shares of Series D Preferred Stock participate, in the manner
provided in Section 3, and dividends payable in shares of Common
Stock for which adjustment is made under another paragraph of this
Section 7(c) and any distribution in connection with an Excluded
Transaction) or rights or warrants to subscribe for or purchase of
any of the foregoing, then, and in each such case, the Conversion
Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) by multiplying the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the
Current Market Price of the Common Stock immediately prior to the
date of distribution less the then fair market value (as determined
by the Board of Directors in the exercise of their fiduciary duties)
of the portion of the cash, evidences of indebtedness, securities or
other assets so distributed or of such rights or warrants applicable
to one share of Common Stock and (y) the denominator of which shall
be the Current Market Price of the Common Stock immediately prior to
the date of distribution (but such fraction shall not be greater
than one); provided, however, that no adjustment shall be made with
respect to any distribution of rights or warrants to subscribe for
or purchase securities of the Corporation if the holder of shares of
Series D Preferred Stock would otherwise be entitled to receive such
rights or warrants upon conversion at any time of shares of Series D
Preferred Stock into Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business
on the record date for the determination of stockholders entitled to
receive such distribution.
(iv) Other Changes. In case the Corporation at any time
or from time to time, prior to the conversion of the Series D
Preferred Stock, shall take any action affecting its Common Stock
having an effect similar to any of the actions described in any of
Sections 7(c)(i), (ii) or (iii) above or Section 7(f) (but not
including any action described in any such Section) and the Board of
Directors in good faith determines that it would be equitable in the
circumstances to adjust the Conversion Price as a result of such
action, then, and in each such case, the Conversion Price shall be
adjusted in such manner and at such time as the Board of Directors
in good faith determines would be equitable in the circumstances
(such determination to be evidenced in a resolution, a certified
copy of which shall be mailed to the holders of the shares of Series
D Preferred Stock).
10
(v) No Adjustment. Notwithstanding anything herein to
the contrary, no adjustment under this Section 7(c) need be made to
the Conversion Price if the Corporation receives written notice from
holders of a majority of the outstanding shares of Series D
Preferred Stock that no such adjustment is required.
(d) Abandonment. If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, and shall thereafter and before the distribution
to stockholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then no adjustment in the Conversion Price shall be required by
reason of the taking of such record.
(e) Certificate as to Adjustments. Upon any adjustment in the
Conversion Price, the Corporation shall within a reasonable period (not to
exceed ten (10) days) following any of the foregoing transactions deliver to
each registered holder of Series D Preferred Stock a certificate, signed by the
Chief Financial Officer of the Corporation, setting forth in reasonable detail
the event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Price then in
effect following such adjustment.
(f) Reorganization, Reclassification. In case of any merger or
consolidation of the Corporation or any capital reorganization, reclassification
or sale of all or substantially all of the assets of the Corporation or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value) (each, a
"Transaction"), each holder of shares of Series D Preferred Stock shall be
entitled to receive, upon conversion of the Series D Preferred Stock, the number
of shares of Capital Stock, other security or other consideration or property to
which the holder of the number of shares of Common Stock deliverable upon such
conversion is entitled to receive upon the consummation of such Transaction had
such conversion occurred prior to such Transaction.
(g) Notices. In case at any time or from time to time:
(vi) the Corporation shall declare a dividend (or any
other distribution) on its shares of Common Stock;
(vii) the Corporation shall authorize the granting to
the holders of its Common Stock rights or warrants to subscribe for
or purchase any shares of Capital Stock of any class or of any other
rights or warrants; or
(viii) there shall be any Transaction;
then the Corporation shall mail to each holder of shares of Series D Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants or, if a record is not to be
11
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or granting of rights or warrants are to be
determined, or (B) the date on which such Transaction is expected to become
effective 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 shares of Capital
Stock or other securities or property or cash deliverable upon such Transaction.
(h) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available for issuance upon the conversion of the Series
D Preferred Stock, such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Series D Preferred Stock, and shall take all action to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
D Preferred Stock; provided that the holders of shares of Series D Preferred
Stock vote such shares in favor of any such action that requires a vote of
stockholders.
(i) No Conversion Tax or Charge. The issuance or delivery of
certificates for Common Stock upon the conversion of shares of Series D
Preferred Stock shall be made without charge to the converting holder of shares
of Series D Preferred Stock for such certificates or for any tax in respect of
the issuance or delivery of such certificates or the securities represented
thereby, and such certificates shall be issued or delivered in the respective
names of, or (subject to compliance with the applicable provisions of federal
and state securities laws) in such names as may be directed by, the holders of
the shares of Series D Preferred Stock converted; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the holder of the shares of Series D Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
8. Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
9. Definitions. As used in this Certificate of Designations, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Affiliate" means any person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended.
12
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other
day on which commercial banks in the State of New York or the State of New
Jersey are authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security whether or not it is
exchangeable for or convertible into such capital stock).
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Common Stock Equivalent" shall mean any security or obligation
which is by its terms convertible or exchangeable into shares of Common Stock or
another Common Stock Equivalent, and any option, warrant or other subscription
or purchase right with respect to Common Stock.
"Conversion Price" shall have the meaning ascribed to it in Section
7(a) hereof.
"Corporation" shall have the meaning ascribed to it in the first
paragraph of this Certificate of Designation.
"Issue Date" shall have the meaning set forth in Section 7(c)(ii)
hereof.
"Junior Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Liquidation" shall mean the voluntary or involuntary liquidation
under applicable bankruptcy or reorganization legislation, or the dissolution or
winding up of the Corporation.
"Liquidation Preference" shall have the meaning ascribed to it in
Section 4(a) hereof.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Relevant Date" shall have the meaning set forth in Section 7(c)(ii)
hereof.
"Sale Transaction" shall mean (a) (i) the merger or consolidation of
the Corporation into or with one or more Persons, (ii) the merger or
consolidation of one or more Persons into or with the Corporation or (iii) the
13
completion of a tender offer by an unaffiliated party for at least a majority of
the outstanding shares of capital stock of the Company if, in the case of (i) or
(ii), the stockholders of the Corporation prior to such merger or consolidation
do not retain at least a majority of the voting power of the surviving Person or
(b) the voluntary sale, conveyance, exchange or transfer to another Person of
(i) the voting Capital Stock of the Corporation if, after such sale, conveyance,
exchange or transfer, the stockholders of the Corporation prior to such sale,
conveyance, exchange or transfer do not retain at least a majority of the voting
power of the Corporation or (ii) all or substantially all of the assets of the
Corporation.
"Series D Preferred Stock" shall have the meaning ascribed to it in
Section 1 hereof.
"Transaction" shall have the meaning ascribed to it in Section 7(f)
hereof.
14
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
certificate this day of May , 2004
______________________________
Chief Executive Officer
Xxxxxxxx X.X. Xxxx
Exhibit 3
Voting Consent
This Voting Consent dated June , 2004 is provided to Vertex Interactive,
Inc. (Vertex hereafter referred to as the "Company"), by MidMark Capital, L.P.,
a Delaware limited partnership, and MidMark Capital II, L.P., a Delaware limited
partnership (the "Series C-1 Investors").
The Series C-1 Investors, having rights to cast 80,500,000 votes on all matters
voted on by holders of common stock do hereby consent to and vote such shares in
favor of the following:
1. To Amend the Company's Articles of Incorporation, as amended, to
increase the number of authorized shares of common stock, par value $.005 per
share, of the Company from 75,000,000 shares to 400,000,000 shares;
2. To ratify the selection of X.X. Xxxx LLP as independent auditors of the
Company for the year ending September 30, 2004; and
3. To adopt the Company's 2004 Stock Incentive Plan.
This Voting Consent is provided to the Company pursuant and subject to the terms
and conditions of a certain Investment Restructuring Agreement between the
Company, the Series C-1 Investors, and others, dated June , 2004.
Address for Notice: MidMark Capital, L.P.
MidMark Capital, L.P. by MidMark Associates, Inc., its
000 Xxxxxxx Xxxxxx general partner
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000 By:_________________________________
Name:
Title:
Address for Notice: MidMark Capital II, L.P.
MidMark Capital II, L.P. by MidMark Associates II, LLC
000 Xxxxxxx Xxxxxx its general partner
Xxxxxxxxxx, XX 00000
Fax (000) 000-0000 By:_________________________________
Name:
Title:
Exhibit 5
The undersigned, Xxxxxxxx Xxxx, Chief Executive Officer of Vertex
Interactive, Inc., a New Jersey corporation (the "Company"), DOES HEREBY CERTIFY
to the following representations:
1. The Company has distributed notice in the form of Exhibit 4 (the
"Shareholder Notice") to the shareholders of the Company of the proposed
effectiveness of the Certificate of Incorporation Amendment as required
under NJSA 14A:5-6 and Section 14 of the Securities Exchange Act of 1934
and Regulation 14C and Schedule 14C.
2. The Company has not received any significant challenges, including but not
limited to, any instituted lawsuits, injunctions, or written statements,
to the validity of the Certificate of Incorporation Amendment.
IN WITNESS WHEREOF, the undersigned has executed this certificate this __
day of June 2004.
______________________________
Chief Executive Officer
Schedule 9(a)
Vertex Interactive
Use of Proceeds from $3 million Loan
First Second Third
Traunche Traunche Traunche Totals
Loan Amounts $1,500,000 $ 750,000 $ 750,000 $3,000,000
Escrowed Interest:
6 months Prepaid $ 75,000 $ 37,500 $ 37,500 $ 150,000
18 months Escrow $ 225,000 $ 112,500 $ 112,500 $ 450,000
Commission @ 8% $ 120,000 $ 60,000 $ 60,000 $ 240,000
-------------------------------------- ----------
Net Proceeds $1,080,000 $ 540,000 $ 540,000 $2,160,000
-------------------------------------- ----------
Legal Fees:
Sichenzia $ 25,000 $ 15,000 $ 10,000 $ 50,000
Xxxxxxx (NIR) $ 25,000 $ 25,000
Vertex Counsel $ 15,000 $ 5,000 $ 10,000 $ 30,000
-------------------------------------- ----------
Subtotal $ 65,000 $ 20,000 $ 20,000 $ 105,000
-------------------------------------- ----------
-------------------------------------- ----------
Subtotal $1,015,000 $ 520,000 $ 520,000 $2,055,000
-------------------------------------- ----------
Bridge Note Payoff:
Areyh Trust-Princ $ 278,000 $ 278,000
Areyh Trust-Inter $ 42,000 $ 42,000
Midmark Interest $ 90,000 $ 90,000
-------------------------------------- ----------
Subtotal $ 410,000 $ 0 $ 0 $ 410,000
-------------------------------------- ----------
Balance to -------------------------------------- ----------
Working Capital $ 605,000 $ 520,000 $ 520,000 $1,645,000
-------------------------------------- ----------
Schedule 9(b)
Schedule 9(b) Vertex Subsidiary/Division List
Issued
Acquired, Authorized and
Purchased Jurisdiction Capital Outstanding Shares
or Merged Name of Subsidiary of Incorporation Stock Shares Owned Ownership%
Vertex Interactive,
Inc.
March 31, Data Control
2000 Systems, Inc. New York, USA 100%
(DCS)
September Renaissance
30, 2000 Software, Delaware, USA 100%
Inc.(RSI)
XeQute PLC United Kingdom 100%
XeQute Inc. Delaware, USA 100%
Vertex Interactive Ireland Ltd Ireland 5,000,000 2 100%
Vertex Interactive (Mfg) Ltd Ireland 5,000,000 5,200 100%
Trend Investments Ireland 500,000 100%
Ltd
ICS France Identcode-Systems
SA (ICS-France) France 500,000 FF 100%
Vertex Interactive
Italia SRL Italy 100%
Vertex Support Italy 100%
and Maintenance
Italia (VSM Italia)
October 5, Euronet Italy 100%
2001
