1
EXHIBIT 1
----------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
by and among
SCC INVESTMENT I, L.P.,
STERLING CITY CAPITAL, LLC
and
CANISCO RESOURCES, INC.
Dated as of April 16, 1999
----------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
----
ARTICLE I SALE AND PURCHASE OF SECURITIES...............................................1
1.1 Sale and Purchase of Purchased Securities............................1
1.2 Closing, Termination.................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF THE COMPANY................................................................2
2.1 Organization and Qualification.......................................3
2.2 Capitalization.......................................................3
2.3 Authority Relative to this Agreement.................................4
2.4 Issuance of Purchased Securities.....................................5
2.5 Reports..............................................................5
2.6 Absence of Certain Changes...........................................6
2.7 Proxy Statement......................................................7
2.8 Consents and Approvals, No Violation.................................7
2.9 Brokerage Fees and Commissions.......................................8
2.10 Litigation...........................................................8
2.11 Absence of Changes in Benefit Plans..................................8
2.12 ERISA Compliance.....................................................9
2.13 Taxes...............................................................11
2.14 No Excess Parachute Payments, Termination
Payments, Section 162(m) of the Code................................11
2.15 Compliance with Applicable Laws.....................................12
2.16 Contracts: Debt Instruments.........................................14
2.17 Labor Matters.......................................................14
2.18 Title to Properties.................................................15
2.19 Undisclosed Liabilities, Affiliated Transactions....................15
2.20 Patents, Trademarks, Trade Names, Etc...............................15
2.21 Certain Agreements..................................................16
2.22 Indemnification Claims..............................................16
2.23 Antitakeover Statute................................................16
2.24 No Integrated Offering..............................................16
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE INVESTOR..............................................................17
3.1 Authority Relative to this Agreement................................17
3.2 Proxy Statement.....................................................17
3.3 Consents and Approvals, No Violation................................17
3.4 Investment Intent...................................................18
3.5 Availability of Funds...............................................18
i
3
ARTICLE IV COVENANTS....................................................................18
4.1 Interim Operations..................................................18
4.2 No Solicitation.....................................................19
4.3 Access to Information...............................................20
4.4 Proxy Statement and Stockholder Meeting.............................21
4.5 Filing of Certificate of Designation................................21
4.6 NASDAQ, Listing.....................................................22
4.7 Reasonable Best Efforts.............................................22
4.8 Public Announcements................................................23
4.10 Disclosure Schedules................................................23
4.11 Stock Options.......................................................24
4.12 No Integration......................................................24
4.13 Maintenance of Control..............................................24
4.14 Registration Rights. ...............................................24
4.15 Ownership of Investor...............................................28
ARTICLE V CONDITIONS TO CONSUMMATION OF THE INVESTMENT
TRANSACTION..................................................................28
5.1 Conditions to the Investor's Obligations for the Initial Closing....28
5.2 Conditions to the Company's Obligations for the Initial Closing.....29
5.3 Procedures for Subsequent Closings..................................30
ARTICLE VI TERMINATION, AMENDMENT; INDEMNITY............................................30
6.1 Termination.........................................................30
6.2 Termination Fee and Expense Fee.....................................31
6.3 Amendment...........................................................32
6.4 Company's Obligation to Indemnify...................................32
6.5 Investor's and Sterling's Obligation to Indemnify...................32
6.6 Indemnity Procedures for Third Party Claims.........................32
6.7 Indemnity Procedures for Claims by the Parties......................33
6.8 Effect of Insurance.................................................34
ARTICLE VII MISCELLANEOUS................................................................34
7.1 Extension, Waiver...................................................34
7.2 Entire Agreement, Assignment........................................34
7.3 Survival............................................................35
7.4 Validity............................................................35
7.5 Notices.............................................................35
7.6 Governing Law.......................................................36
7.7 Disputes............................................................36
7.8 Descriptive Headings................................................38
7.9 Parties in Interest.................................................39
7.10 Counterparts........................................................39
ii
4
7.11 Expenses............................................................39
7.12 Decision Making.....................................................39
7.13 Certain Definitions.................................................39
EXHIBITS
Exhibit A Certificate of Designation for Series A Preferred Stock
Exhibit B Form of Warrant
Exhibit C Opinion of Counsel to the Company
Exhibit D Opinion of Counsel to the Investor
Exhibit F Form of Notice for Subsequent Closings
iii
5
DEFINED TERMS
Agreement ...................................................................1
Investor ....................................................................1
Sterling ....................................................................1
Company .....................................................................1
Common Stock.................................................................1
Preferred Stock .............................................................1
Warrant .....................................................................1
Purchased Securities ........................................................1
Investment Transactions .....................................................2
Initial Closing .............................................................2
Initial Closing Date ........................................................2
Subsequent Closing ..........................................................2
Closings ....................................................................2
Liens .......................................................................3
Significant Subsidiary ......................................................3
SEC .........................................................................3
1998 Plan ...................................................................4
Compensation Program ........................................................4
SAR Plan ....................................................................4
1990 Plan ...................................................................4
Equity Plans ................................................................4
Existing Warrants ...........................................................4
Conversion Shares ...........................................................4
DGCL ........................................................................5
Certificate of Designation ..................................................5
SEC Documents ...............................................................5
Securities Act ..............................................................5
Exchange Act ................................................................6
Governmental Entity .........................................................8
ERISA .......................................................................9
Code ........................................................................9
ERISA Affiliate .............................................................9
Benefit Plans ...............................................................9
Taxes ......................................................................11
Permits ....................................................................12
Environmental Permit .......................................................12
Environmental Laws .........................................................12
Release ....................................................................12
Hazardous Material .........................................................13
Environmental Claim ........................................................13
Environmental Liabilities ..................................................13
indebtedness ...............................................................14
iv
6
Millennial Dates ...........................................................17
takeover proposal ..........................................................19
Notice of Superior Proposal ................................................20
Superior Proposal ..........................................................20
Confidentiality Agreement ..................................................21
Proxy Statement ............................................................21
Stockholder Meeting ........................................................21
Designated Assignees .......................................................24
Registration Rights Expiration Date ........................................25
Initial Effective Date .....................................................26
Termination Fee ............................................................31
Investor Indemnified Party .................................................32
Losses .....................................................................32
Company Indemnified Party ..................................................32
Indemnified Party ..........................................................32
Asserted Liability .........................................................32
Claims Notice ..............................................................32
Indemnifying Party .........................................................32
Litigation Conditions ......................................................33
Claim Response .............................................................34
Response Period ............................................................34
Dispute ....................................................................36
Senior Party Representatives ...............................................36
Dispute Notice .............................................................36
Response ...................................................................36
AAA ........................................................................37
Initiating Party ...........................................................37
Recipient Party ............................................................37
Mediation Notice ...........................................................37
Counter-Notice .............................................................37
Expense Fee ................................................................39
affiliate ..................................................................39
control ....................................................................39
Material Adverse Effect ....................................................40
person .....................................................................40
subsidiary .................................................................40
v
7
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of April 16, 1999 (the
"Agreement"), by and among SCC Investment I, L.P., a Texas limited partnership
(the "Investor"), Sterling City Capital, LLC, a Texas limited liability company
("Sterling") and Canisco Resources, Inc., a Delaware corporation (the
"Company").
Background
A. The Company currently has issued and outstanding 2,526,565 shares of
Common Stock, par value $.0025 per share ("Common Stock"). Shares of the
Company's Common Stock are currently authorized for quotation on the NASDAQ
SmallCap Market of the NASDAQ Stock Market.
B. The Investor is a Texas limited partnership formed specifically for the
purpose of purchasing (i) not less than 80,000 shares and up to a total of
100,000 shares of 7 1/2% Series A Redeemable Convertible Preferred Stock,
liquidation preference $100 per share (the "Preferred Stock") and (ii) one
Series A Investment Incentive Warrant (the "Warrant") to purchase such number of
shares of the Company's Common Stock, as represent 11% of the Fully Diluted
Common Stock (as defined in the Warrant) at the Effective Date (as defined in
the Warrant), all subject to adjustment and such conditions as more fully
described therein. The Preferred Stock and Warrant to be purchased hereunder are
hereinafter collectively referred to as the "Purchased Securities".
C. SCC Investment II, LLC, a Texas limited liability company, is the
general partner of Investor. Sterling owns all of the equity in SCC Investment
II, LLC and Sterling will, directly or indirectly, hold the single largest
equity interest in the Investor.
Terms
THEREFORE, in consideration of the mutual covenants contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF SECURITIES
1.1 Sale and Purchase of Purchased Securities.
(a) Subject to the terms and conditions set forth herein, at the
Initial Closing (as defined in Section 1.2(a)), the Company will issue and sell
to the Investor, and the Investor will purchase, 80,000 shares of Preferred
Stock and the Warrant for an aggregate purchase price of $8,000,000.
-1-
8
(b) Subject to the terms and conditions set forth herein, at such
time or times as the Company shall elect pursuant to Section 5.3 within the
twelve month period subsequent to the Initial Closing, the Company will issue
and sell to the Investor, and Investor will purchase, such number of shares of
Preferred Stock, not in excess of 20,000 shares, as the Company shall specify in
the notice(s) delivered to the Investor pursuant to Section 5.3 that is not less
than the lessor of 5,000 shares or the remaining number of shares the Investor
is obligated to purchase under this Agreement. The per share purchase price for
the Preferred Stock to be paid by the Investor pursuant to this Section 1.1(b)
is $100.00.
(c) At each Closing (as hereinafter defined) the Investor shall
pay the aggregate purchase price for the Purchased Securities purchased by it
hereunder at such Closing by wire transfer of immediately available funds to an
account (to be designated by the Company at least two business days prior to
such Closing). The purchase and sale of Purchased Securities pursuant to
Sections 1.1 (a) and (b) hereof shall sometimes hereinafter be referred to as
the "Investment Transactions".
1.2 Closing, Termination.
(a) The closing of the purchase and sale of the Purchased
Securities referred to in Section 1.1(a) above (the "Initial Closing") will take
place on the third business day after the conditions to the Initial Closing set
forth in Sections 5.1 and 5.2 hereof shall have been satisfied or waived in
writing, or on such other date as may be agreed by the parties hereto (the
"Initial Closing Date").
(b) Each of the closings of the purchase and sale of the
Purchased Securities referred to in Section 1.l(b) above (each a "Subsequent
Closing" and, collectively together with the Initial Closing, the "Closings")
will take place on the date specified in the notice delivered pursuant to
Section 5.3, or on such other date as may be agreed by the parties hereto.
(c) At each Closing, the Company will deliver to the Investor
certificates evidencing the number of Purchased Securities to be purchased by
the Investor pursuant to Sections 1.1 (a) or (b), as applicable, against payment
of the purchase price therefor in cash, by wire transfer of immediately
available funds, with confirmed receipt.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Investor as follows:
-2-
9
2.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business as it is now
being conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing as a foreign corporation, in each jurisdiction
where the location or nature of its properties or of its business makes such
qualification necessary, except where the failure to be so qualified could not
reasonably be expected to result in a Material Adverse Effect (as defined in
Section 7.11).
(b) The only subsidiaries of the Company are those set forth on
Schedule 2.1(b) of this Agreement. Each subsidiary of the Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as it is now being conducted. Each such
subsidiary is duly qualified as a foreign corporation to do business, and is in
good standing as a foreign corporation, in each jurisdiction where the location
or nature of its properties or of its business makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect. Except as set forth on Schedule
2.l(b), all of the outstanding shares of capital stock of each such subsidiary
have been validly issued, are fully paid and non-assessable and are owned by the
Company, by another wholly owned subsidiary of the Company or by the Company and
another such wholly owned subsidiary, free and clear of all pledges, claims,
equities, options, liens, charges, rights of first refusal, "tag" or "drag"
along rights, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the capital stock of its
subsidiaries or as otherwise set forth in Schedule 2.1 (b), the Company does not
own, directly or indirectly, any capital stock or other ownership interest in
any corporation, limited liability company, partnership, joint venture or other
entity.
(c) The Company has delivered to the Investor complete and
correct copies of its Certificate of Incorporation, as amended, and Bylaws and
will promptly (but in any event within 10 days) after the date hereof deliver to
the Investor the comparable charters and bylaws or other organizational
documents of each of its Significant Subsidiaries, in each case as amended to
the date of this Agreement. For purposes of this Agreement, a "Significant
Subsidiary" means any subsidiary of the Company that constitutes a significant
subsidiary within the meaning of Rule 1-02 of Regulation S-X promulgated by the
U.S. Securities and Exchange Commission (the "SEC").
2.2 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 20,000,000 shares of Common Stock, of which 2,526,565 shares are issued and
outstanding, and 262,051 shares are held in the treasury of the Company; and
(ii) 5,000,000 shares of preferred stock, par value $1.00 per share of which,
except as contemplated by this Agreement, none have been designated,
-3-
10
issued or are outstanding. The relative rights, preferences, restrictions and
other matters relative to the Company's capital stock are reflected in the
Company's Certificate of Incorporation. All of the issued and outstanding shares
of Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable and are not subject to preemptive rights. Except (i) as
contemplated by this Agreement, (ii) for 750,000 shares of Common Stock reserved
in the aggregate for issuance pursuant to the Company's 1998 Stock
Option/Incentive Plan (the "1998 Plan") (which number in accordance with the
terms of the 1998 Plan increases by 2% annually), the Company's Senior Executive
Compensation Program (the "Compensation Program") the Company's Stock Option and
Director Stock Option Programs (the "Option Programs"), the Company's Stock
Appreciation Plan (the "SAR Plan") and the Nuclear Support Services, Inc. 1990
Stock Option Plan (the "1990 Plan" and, together with the 1998 Plan, the
Compensation Program, the Option Programs and the SAR Plan, the "Equity Plans"),
and (iii) for 110,000 shares of Common Stock reserved for issuance pursuant to
warrants to purchase Common Stock (the "Existing Warrants"), there are no
outstanding subscriptions, warrants, options, calls or other rights to purchase
or acquire any capital stock of the Company. Schedule 2.2(a) sets forth the
exercise prices and number of shares of Common Stock issuable in respect of
outstanding stock options and warrants under the Equity Plans and Existing
Warrants. There are no preemptive rights with respect to the issuance or sale of
any capital stock of the Company.
(b) There are no bonds, debentures, notes or other indebtedness
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or any of its
subsidiaries is a party or by which any of them is bound obligating the Company
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, directly or indirectly, additional shares of capital stock or
other voting securities of the Company or any of its subsidiaries, or obligating
the Company or any of its subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. There are not any outstanding contractual obligations of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire,
or providing preemptive or registration rights with respect to, any shares of
capital stock of the Company or any of its subsidiaries. Except as set forth on
Schedule 2.2, 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
Purchased Securities or any common stock issuable upon conversion of the
Preferred Stock or exercise of the Warrant (the "Conversion Shares"). The
Company and its subsidiaries do not have outstanding any loans to any person (as
defined in Section 7.11) in respect of the purchase of securities issued by the
Company and its subsidiaries.
2.3 Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and any other agreement required to be entered into hereunder and to consummate
the transactions contemplated hereby and thereby (subject to approval of this
Agreement and the transactions contemplated hereby by the requisite
-4-
11
holders of outstanding shares of Common Stock in accordance with the Delaware
General Corporation Law (the "DGCL") and applicable NASDAQ rules). The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby (including, without limitation,
the issuance of the Purchased Securities and the issuance and reservation for
issuance of the Conversion Shares) have been duly and validly authorized by the
Board of Directors of the Company, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or to consummate
the transactions so contemplated (other than the approval of this Agreement and
the transactions contemplated hereby by the requisite holders of outstanding
shares of Common Stock). This Agreement has been duly and validly executed and
delivered by the Company, and, assuming this Agreement constitutes a valid and
binding obligation of the Investor, this Agreement constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to applicable bankruptcy and other laws affecting
creditors rights generally and to general principles of equity. Upon the
execution and filing with the Secretary of State of Delaware (and acceptance for
filing) of the Certificate of Designation for the Preferred Stock in the form of
Exhibit A hereto (the "Certificate of Designation"), and upon issuance of the
Warrant such instruments will constitute legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with there terms,
subject to applicable bankruptcy and other laws affecting creditors rights
generally and to general principles of equity.
2.4 Issuance of Purchased Securities. The Purchased Securities and
the Preferred Stock and Warrant of which they comprise, upon issuance in
accordance with the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and will not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof and upon completion
of the transactions contemplated hereby and issuance of the Purchased Securities
in accordance with the terms hereof, the Conversion Shares will be duly
authorized and reserved for issuance, and, upon conversion of the Preferred
Stock and upon exercise of the Warrant in accordance with the respective terms
thereof, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights or stockholders of the Company and will not
impose personal liability upon the holder thereof.
2.5 Reports.
(a) Since July 1, 1996, except as set forth on Schedule 2.5, the
Company has filed all required forms, reports and documents with the SEC
required to be filed by it pursuant to the federal securities laws and the rules
and regulations promulgated thereunder (collectively, the "SEC Documents"), all
of which have complied as of their respective filing dates and in the case of
documents filed under the Securities Act as of their effective dates in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder. None of the SEC Documents at the time filed contained any
-5-
12
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. Except to
the extent that information contained in any SEC Document has been revised or
superseded by a later-filed SEC Document filed and publicly available prior to
the date hereof, none of the SEC Documents contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present 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).
(b) The interim financial statements for the Company for the
period ended December 31, 1998 previously provided to the Investor comply as to
form in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect to interim financial statements,
have been prepared in accordance with generally accepted accounting principles
(except as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position of the Company and its
consolidated subsidiaries as of the date thereof and the consolidated results of
their operations and cash flows for the periods then ended. Since the date of
such financial statements, there has been no material change in the Company's
liabilities other than in the ordinary course of the Company's business.
2.6 Absence of Certain Changes. Except as disclosed in the SEC
Documents or as contemplated by this Agreement or as set forth in Schedule 2.6,
since March 31, 1998, no event has occurred, and no circumstances exist, that
could reasonably be expected to result in a Material Adverse Effect. Except as
disclosed in the SEC Documents or as set forth in Schedule 2.6, since March 31,
1998, there has not been (a) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the Company or
any redemption or other acquisition by the Company of any shares of Common Stock
or other equity securities of the Company; (b) any entry into any agreement,
commitment or transaction by the Company or any of its subsidiaries which is
material to the Company and its subsidiaries taken as a whole, except
agreements, commitments or transactions in the ordinary course of business,
consistent with prior practice; (c) any split, combination or reclassification
of the Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (d)(i) any granting by the Company or any of
its subsidiaries to any officer or key employee of the Company or any of its
subsidiaries of any increase in compensation, except in the ordinary course of
business consistent with prior practice
-6-
13
or as was required under employment agreements in effect as of the date of the
most recent audited financial statements included in the SEC Documents, (ii) any
granting by the Company or any of its subsidiaries to any such officer or key
employee of any increase in severance or termination pay, except as was required
under employment, severance or termination agreements in effect as of the date
of the most recent audited financial statements included in the SEC Documents,
or (iii) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such officer or key
employee; (e) any damage, destruction or loss, whether or not covered by
insurance, that could reasonably be expected to have a Material Adverse Effect;
or (f) any change in accounting methods, principles or practices by the Company
materially affecting its assets, liabilities or business, except insofar as may
have been required by a change in generally accepted accounting principles.
2.7 Proxy Statement. The Proxy Statement (as defined in Section 4.4)
will comply in all material respects with the Exchange Act, except that no
representation is made by the Company with respect to information supplied by
the Investor in writing specifically for inclusion in the Proxy Statement. None
of the information supplied by the Company for inclusion in the Proxy Statement
shall, at the time the Proxy Statement is mailed or at the time of the
Stockholder Meeting (as defined in Section 4.4) relating thereto, contain any
untrue statement of a material fact or omit to state any 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.
2.8 Consents and Approvals, No Violation. Neither the execution and
delivery of this Agreement by the Company nor the consummation of the
transactions contemplated hereby (including the issuance of the Conversion
Shares) will conflict with, or result in any violation of the Certificate of
Incorporation, as amended, or Bylaws of the Company or the comparable charter or
organizational documents of any of its subsidiaries. Except as set forth in
Schedule 2.8, neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby (including
the issuance of the Conversion Shares) will conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets or the Company or any of its
subsidiaries under, (a) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its subsidiaries or their
respective properties or assets, or (b) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its subsidiaries or their respective properties or assets, other than, in
the case of clauses (a) or (b), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by
-7-
14
the Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated by this Agreement (including the issuance of the
Conversion Shares), except for (i) the filing with the SEC (and NASDAQ) of the
Proxy Statement, and such other reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (ii) the filing of the Certificate of Designation with the
Secretary of State of Delaware pursuant to the DGCL and (iii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made could not reasonably be
expected to have a Material Adverse Effect.
2.9 Brokerage Fees and Commissions. No person is entitled to receive
from the Company or its subsidiaries any investment banking, brokerage or
finder's fee in connection with this Agreement or the transactions contemplated
hereby.
2.10 Litigation. Except as disclosed in the SEC Documents or as set
forth in Schedule 2.10, there is no suit, action or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of its
subsidiaries or against any of their respective properties or, to the knowledge
of the Company, against any employee, officer or director, which in any case
could reasonably be expected to have a Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its subsidiaries that could
reasonably be expected to have a Material Adverse Effect.
2.11 Absence of Changes in Benefit Plans. Except as set forth in
Schedule 2.12(a), as disclosed in the SEC Documents or as required by applicable
law, since January 1, 1997, there has not been any adoption or amendment by the
Company or any of its subsidiaries of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director of the
Company or any of its subsidiaries or for which the Company or any of its
subsidiaries is liable which, under the applicable rules and regulations of the
SEC, is or was required to be disclosed in any SEC Document. Except as disclosed
in the SEC Documents, there exist no employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
between either of the Company or any of its subsidiaries and any current or
former officer or director of either of the Company or any of its subsidiaries
or for which either of the Company or any of its subsidiaries is liable which,
under the applicable rules and regulations of the SEC, is or was required to be
disclosed in any SEC Document.
-8-
15
2.12 ERISA Compliance.
(a) Schedule 2.12(a) sets forth a complete list of all "employee
benefit plans" (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), employment contracts, bonus,
pension, profit sharing, deferred compensation, incentive compensation, excess
benefit, stock, stock option, severance, termination pay, change in control or
other employee benefit plans, programs or arrangements, including, but not
limited to, those providing medical, dental, vision, disability, life insurance
and vacation benefits (other than those required to be maintained by law),
whether written or unwritten, qualified or unqualified, funded or unfunded,
foreign or domestic currently maintained, or contributed to, or required to be
maintained or contributed to, by the Company or any other person or entity that,
together with the Company, is treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended (the "Code") (each an "ERISA
Affiliate") for the benefit of any current or former employees, officers or
directors of the Company or any of its subsidiaries or with respect to which the
Company or any of its subsidiaries has any liability (collectively, with the
exception of union sponsored benefit plans and "multiemployer plans" (as defined
in Section 3 (37) of ERISA) the "Benefit Plans"). The Company has made available
to the Investor true, complete and correct copies of each Benefit Plan and
related trust agreement and annuity contract and (to the extent applicable) a
copy of each Benefit Plan's current summary plan description. In addition, to
the extent applicable, the Company will provide to the Investor where reasonably
requested by the Investor a copy of the most recent IRS determination letter
issued to each Benefit Plan and a copy of the most recently filed IRS Form 5500
together with all schedules, actuarial reports and accountants' statements for
each Benefit Plan.
(b) Except as set forth in Schedule 2.12(b), each Benefit Plan
has been administered in all material respects with its terms. The Company, each
ERISA Affiliate and all the Benefit Plans are all in compliance in all material
respects with the applicable provisions of ERISA, the Code, and other applicable
laws.
(c) Except as set forth in Schedule 2.12(c), all Benefit Plans
intended to be qualified under Section 401 (a) of the Code have been the subject
of determination letters from the Internal Revenue Service to the effect that
such Benefit Plans are qualified and exempt from Federal income taxes under
Section 401 (a) and 501 (a), respectively, of the Code and no such determination
letter has been revoked nor, to the knowledge of the Company, has revocation
been threatened, nor has any such Benefit Plan been amended or any other event
occurred since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
materially increase its costs.
(d) Except as set forth in Schedule 2.12(d), (i) no Benefit
Plan, had, as of it most recent valuation date, an "unfunded benefit liability"
(as such term is defined in Section 4001(a)(18) of ERISA), based on actuarial
assumptions which will be furnished to the Investor to the extent reasonably
requested by the Investor, and, to the knowledge of the Company, neither the
Company nor any of its subsidiaries is aware of any facts or circumstances that
would
-9-
16
materially change the funded status of any such Benefit Plans; (ii) no benefit
plan has suffered any "accumulated funding deficiency" within the meaning of
Section 412 of the Code and Section 302 of ERISA, whether or not waived; (iii)
no termination or partial termination of any existing Benefit Plan intended to
be qualified under Section 401(a) of the Code has occurred, nor has any notice
of intent to terminate any existing Benefit Plan been issued by the Company or
any ERISA affiliate; (iv) the Pension Benefit Guaranty Corporation ("PBGC") has
not instituted, and is not expected to institute, any proceedings to terminate
any Benefit Plan. There has been no "reportable event," as defined in Section
4043 of ERISA, with respect to any Benefit Plan, for which notice has not been
waived
(e) Except as set forth in Schedule 2.12(e), none of the
Company, any ERISA Affiliate, any officer of the Company or any of its
subsidiaries or any of the Benefit Plans, any trusts created thereunder or any
trustee or administrator thereof, has engaged in a non-exempt "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) or any other breach of fiduciary responsibility that could subject the
Company, any ERISA Affiliate or any officer of the Company or any of its
subsidiaries or the Investor to tax or penalty under ERISA, the Code or other
applicable law. Neither any of such Benefit Plans nor any of such trusts has
been terminated during the last five years.
(f) Except as set forth in Schedule 2.12(f), with respect to
any Benefit Plan that is an employee welfare benefit plan (as defined in Section
3(1) of ERISA), (i) no such Benefit Plan is funded through a "welfare benefit
fund", as such term is defined in Section 419(e) of the Code, (ii) each such
Benefit Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies in all material respects with the applicable
requirements of Section 4980B(f) and Sections 9801 et seq. of the Code, (iii) no
such Benefit Plan provides benefits, including without limitation, death or
medical benefits, beyond termination of employment or retirement other than (A)
coverage mandated by law or (B) death or retirement benefits under a Benefit
Plan qualified under Section 401(a) of the Code, and (iv) each such Benefit Plan
(including any such Plan covering retirees or other former employees) may be
amended or terminated without material liability to the Company or any of its
subsidiaries on or at any time after the consummation of the Investment
Transactions.
(g) Except as set forth in Schedule 2.12(g), there are no
pending investigations by any governmental agency involving the Benefit Plans,
no termination proceedings involving the Benefit Plans, and no threatened or
pending claims (except for claims, for benefits payable in the normal operation
of the Benefit Plans), suits or proceedings against any Benefit Plan or
asserting any rights or claims to benefits under any Benefit Plan which could
give rise to any material liability, nor, to the best of the Company's or any
affiliate's knowledge are there any facts which could give rise to any material
liability in the event of any such investigation, claim, suit or proceeding.
(h) Except as set forth on Schedule 2.12(h), to the knowledge
of the Company neither the Company nor any ERISA Affiliate has, at any time
since January 1, 1991 incurred any
-10-
17
material withdrawal liability within the meaning of ERISA Section 4201 to any
multiemployer plan as defined in ERISA Section 3(37).
2.13 Taxes. Since January 1, 1993, except as set forth in Schedule
2.13:
(a) The Company and each of its subsidiaries have filed all
Federal income tax returns and all other material tax returns and reports
required to be filed by it. All such returns are complete and correct in all
material respects. The Company and each of its subsidiaries have paid (or the
Company has paid on their behalf) all taxes due for the periods for which such
returns were filed and all material taxes for which no return was required to be
filed, and the most recent financial statements contained in the SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date of
such financial statements.
(b) No material deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries, and no
requests for waivers of the time to assess any such taxes are pending. The
Federal income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the Internal
Revenue Service for all years through 1993.
(c) As used in this Agreement, "Taxes" shall include all
Federal, state, local and foreign income, property, sales, excise and other
taxes, tariffs or governmental charges of any nature whatsoever.
(d) The Company is not a "real property holding corporation" as
defined in the Code.
2.14 No Excess Parachute Payments, Termination Payments,
Section 162(m) of the Code. Except as set forth in Schedule 2.14 of this
Agreement, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of either of the Company or any
of their affiliates who is a "disqualified individual" (as is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan would
not be characterized as an "excess parachute payment" (as is defined in Section
280G(b)(i) of the Code). Except as set forth in Schedule 2.14, there are no
payments that the Company or any of its subsidiaries is or would be required to
make to any of the Company's current or former employees or to any third party
which payment is contingent upon a change of control of the Company or any of
its subsidiaries or payable as a result of the transactions contemplated by this
Agreement. The disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any of its subsidiaries under any commitment, program, arrangement or
understanding.
-11-
18
2.15 Compliance with Applicable Laws.
(a) Except as disclosed on Schedule 2.15(a), the Company and its
subsidiaries have in effect all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights ("Permits") necessary for them to own, lease or operate their
properties and assets and to carry on their business as now conducted, and since
July 1, 1996 there has occurred no default under any such Permit, except for the
lack of Permits and for defaults under Permits which could not reasonably be
expected to have a Material Adverse Effect. Except as disclosed in the SEC
Documents or on Schedule 2.15(a) , each of the Company and its subsidiaries is
in compliance with all applicable statutes, laws, ordinances, rules, orders and
regulations of any Governmental Entity, except for possible noncompliance which
could not reasonably be expected to have a Material Adverse Effect. Except as
disclosed on Schedule 2.15(a), the Company and its subsidiaries have obtained
and maintained all Environmental Permits required with respect to their
respective properties, assets, businesses and operations, except where the
failure to obtain or maintain an Environmental Permit could not reasonably be
expected to have a Material Adverse Effect. The term "Environmental Permit"
means any permit, license, approval or other authorization under any
Environmental Law (as defined below).
(b) Since July 1, 1996, except as disclosed on Schedule 2.15(b),
each of the Company and its subsidiaries and their respective properties,
assets, businesses and operations is, and has been, and each of the Company's
former subsidiaries, while subsidiaries of the Company and their respective
properties, assets, businesses and operations, was, in compliance with all
applicable Environmental Laws and Environmental Permits, except for possible
noncompliance which would not have a Material Adverse Effect. The term
"Environmental Laws" means any Federal, state, local or foreign statute, code,
ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, injunction or other authorization,
including the requirement to register underground storage tanks, relating to:
(i) pollution or protection of health or the environment, the Release or
threatened Release of Hazardous Material (as hereinafter defined) into the
environment, including, without limitation, into ambient air, soil, sediments,
land surface or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land; or (ii) the generation,
treatment, storage, disposal, use, handling, manufacturing, transportation or
shipment of Hazardous Material.
(c) Since July 1, 1996, except as disclosed on Schedule 2.15(b),
during the period of ownership or operation by the Company and its subsidiaries
of any of their respective current or previously-owned properties, there have
been no Releases of Hazardous Material in, on, under or affecting such
properties or any surrounding site, except in each case for those which are not
reasonably likely to have a Material Adverse Effect. During such period, prior
to the ownership by the Company and its subsidiaries of any of their respective
current or previously-owned properties there were no releases of Hazardous
Material in, on, under or affecting any such property or any surrounding site,
except in each case for those which could not reasonably be expected to have a
Material Adverse Effect. The term "Release" means spilling, leaking,
-12-
19
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or depositing, and the term "Hazardous Material" means (i)
hazardous materials, pollutants or contaminants, medical, hazardous or
infectious wastes, hazardous waste constituents, hazardous chemicals, hazardous
or toxic pollutants, and hazardous or toxic substances as those terms are
defined in or regulated by Environmental Laws, including the following statutes
and their implementing regulations: the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 9601 et seq. Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Clean Water Act, 33 U.S.C. Section 1251
et seq. and the Clean Air Act, 42 U.S.C. Section 7401 et seq., (ii) petroleum,
including crude oil and any fractions thereof, (iii) natural gas, synthetic gas
and any mixtures thereof, (iv) radioactive materials including, without
limitation, source byproduct or special nuclear materials and (v) pesticides.
(d) Except as disclosed on Schedule 2.15(d), (i) the Company and
its subsidiaries and their respective properties, assets, businesses and
operations are not subject to any material Environmental Claims (direct or
contingent, and whether known or unknown) or material Environmental Liabilities
arising from or based upon any act, omission, event, condition or circumstance
occurring or existing on or prior to the date hereof, including without
limitation, any such Environmental Claims or Environmental Liabilities arising
from or based upon the ownership or operation of assets, businesses or
properties of the Company or any subsidiary or their respective predecessors,
and (ii) neither the Company nor any of its subsidiaries has received any notice
of any violation of any Environmental Law or Environmental Permit or any
Environmental Claim in connection with their respective assets, properties,
businesses or operations, or, in each case, those of their respective
predecessors, which could reasonably be expected to have a Material Adverse
Effect. The Company has disclosed on Schedule 2.15(d) all material environmental
assessment reports prepared by or for the Company's consultants since July 1,
1996 regarding the environmental condition of the Company's properties or
relating to its activities. The term "Environmental Claim" means any third party
(including governmental agencies, regulatory agencies and employees) action,
lawsuit, claim, proceeding (including claims or proceedings under the
Occupational Safety and Health Act or similar laws relating to safety of
employees) which seeks to impose liability for (i) noise; (ii) pollution or
contamination of the air surface water, ground water or land; (iii) solid,
gaseous or liquid waste generation, handling, treatment, storage, disposal or
transportation; (iv) exposure to Hazardous Material; or (v) the manufacture,
processing, distribution in commerce, use, or storage of chemical or other
Hazardous Material. An "Environmental Claim" includes, but is not limited, to, a
common law action, as well as a proceeding to issue, modify or terminate an
Environmental Permit of the Company or any of its subsidiaries, or to adopt or
amend a regulation to the extent that such a proceeding expressly attempts to
redress violations of such an Environmental Permit as alleged by a Federal,
state or local executive, legislative, judicial, regulatory or administrative
agency, board or authority. The term "Environmental Liabilities" includes all
costs arising from any Environmental Claim or violation or alleged violation or
circumstance or condition which would give rise to a violation or liability
under any Environmental Permit or Environmental Law under
-13-
20
any theory of recovery, at law or in equity, and whether based on negligence,
strict liability or other-wise, including but not limited to: remedial, removal,
response, abatement, investigative, monitoring, personal injury and damage to
property, and any other related costs, expenses, losses, damages, penalties,
fines, liabilities and obligations, including reasonable attorney's fees and
court costs.
2.16 Contracts: Debt Instruments.
(a) Except as actually filed as part of the SEC Documents or as
set forth on Schedule 2.16, there is no contract or agreement binding on the
Company or any of its subsidiaries or any of their assets or properties that is
or was required to be filed with any SEC Document. Neither the Company nor any
of its subsidiaries is in violation of or in default under (nor does there exist
any condition which upon the passage of time or the giving of notice, or both,
would cause such a violation of or default under) any loan or credit agreement,
note, bond, mortgage, indenture, lease, or any other contract, agreement,
arrangement or understanding, to which it is a party or by which it or any of
its properties or assets is bound, except for violations or defaults that could
not reasonably be expected to result in a Material Adverse Effect.
(b) Set forth on Schedule 2.16(b) of the Agreement is (i) a list
of all loan or credit agreements, notes, bonds, mortgages, indentures and other
agreements and instruments pursuant to which any indebtedness of the Company or
any of its subsidiaries in an aggregate principal amount in excess of $25,000 is
outstanding or may be incurred and (ii) the respective principal amounts
currently outstanding thereunder. For purposes of this Section 2.16,
"indebtedness" shall mean, with respect to any person, without duplication, (i)
all obligations of such person for borrowed money, or with respect to deposits
or advances of any kind to such person, (ii) all obligations of such person
evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such person upon which interest charges are customarily paid,
(iv) all obligations of such person under conditional sale or other title
retention agreements relating to property purchased by such person, (v) all
obligations of such person issued or assumed as the deferred purchase price of
property or services (excluding obligations of such person to creditors for raw
materials, inventory, services and supplies incurred in the ordinary course of
such person's business), (vi) all capitalized lease obligations of such person,
(vii) all obligations of others secured by any Lien on property or assets owned
or acquired by such person, whether or not the obligations secured thereby have
been assumed, (viii) all obligations of such person under interest rate or
currency hedging transactions (valued at the termination value thereof), (ix)
all letters of credit issued for the account of such person (excluding letters
of credit issued for the benefit of suppliers to support accounts payable to
suppliers incurred in the ordinary course of business) and (x) all guarantees
and arrangements having the economic effect of a guarantee of such person of any
indebtedness of any other person.
2.17 Labor Matters. Except to the extent set forth in Schedule 2.17
to this Agreement, (a) no employee of the Company or any of its subsidiaries is
represented by any union or other labor organization; (b) the Company and all of
its subsidiaries are in material compliance with
-14-
21
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practice; (c) there is no unfair labor practice complaint against the
Company or any of its subsidiaries pending before the National Labor Relations
Board; (d) there is no labor strike, or material dispute, slowdown,
representation campaign or work stoppage pending or threatened against or
affecting the Company or any of its subsidiaries; (e) no material grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is pending and no claim therefor has been asserted against the Company or its
subsidiaries; and (f) neither the Company or any of its subsidiaries has
experienced any material work stoppage since January 1, 1997.
2.18 Title to Properties.
(a) Schedule 2.18(a), sets forth a description of all material
real property owned or leased by the Company and its subsidiaries.
(b) Except as set forth in Schedule 2.18(b), the Company and its
subsidiaries have good, valid and marketable title to, or valid leasehold
interests in, all their material properties and assets except for such as are no
longer used or useful in the conduct of its businesses or as have been disposed
of in the ordinary course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances or impediments that,
in the aggregate, do not and will not materially interfere with its ability to
conduct its business as currently conducted. All such material properties and
assets, other than properties and assets in which the Company or any of its
subsidiaries has leasehold interests, are free and clear of all Liens, except
for Liens that, in the aggregate, do not and will not materially interfere with
the ability of the Company and its subsidiaries to conduct business as currently
conducted.
(c) The Company and each of its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a party
and under which it is in occupancy, and all such leases are in full force and
effect. The Company and each of its subsidiaries enjoy peaceful and undisturbed
possession under all such material leases.
2.19 Undisclosed Liabilities, Affiliated Transactions. Except as and
to the extent (i) disclosed in the SEC Documents, (ii) set forth in Schedule
2.19 and (iii) of liabilities incurred in the ordinary course of business and
otherwise not prohibited by this Agreement, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether absolute,
contingent or otherwise) that could reasonably be expected to have a Material
Adverse Effect.
2.20 Patents, Trademarks, Trade Names, Etc. The Company and its
subsidiaries own, or are licensed or otherwise have the right to use, all
patents, trademarks, trade names, copyrights, technology, know-how and processes
except where the lack of ownership, license or right to use could not reasonably
be expected to have a Material Adverse Effect, and the
-15-
22
consummation of the transactions contemplated by this Agreement will not alter
or impair any such rights. No claims have been asserted by any person to the use
of any such patents, trademarks, trade names, copyrights, technology, know-how
or processes owned or used by the Company or challenging or questioning the
validity or effectiveness of any license or agreement relating thereto to which
the Company is a party and which could reasonably be expected to have a Material
Adverse Effect.
2.21 Certain Agreements. Neither the Company nor any of its
subsidiaries is a party to, or bound by, any contract or agreement that
materially limits the ability of the Company directly or through any of its
subsidiaries to compete in any line of business or with any person in any
geographic area during any period of time.
2.22 Indemnification Claims. Other than as set forth on Schedule 2.10,
the Company is not aware of any indemnification, breach of contract or similar
claims by or against the Company or any of its subsidiaries which are pending or
threatened (or which could be reasonably expected to be made in the future), in
each case in excess of $50,000 in amount, with respect to any acquisition of any
business by the Company after January 1, 1996.
2.23 Antitakeover Statute. The Board of Directors of the Company has
taken all action necessary to approve the acquisition of Purchased Securities
(and Common Stock comprising the Conversion Shares) by the Investor pursuant to
this Agreement (which shares represent 15% or more of the voting stock of the
Company) in accordance with and pursuant to Section 203(a)(1) of the DGCL.
2.24 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
Securities Act of the issuance of the Purchased Securities (or Conversion
Shares) to the Investor. The issuance of the Purchased Securities (or Conversion
Shares) to the Investor will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities. Assuming the
information provided in writing pursuant to this Agreement by the Investor and
Sterling is correct and the Investor and Sterling have complied in full with the
terms of this Agreement (including the representations, warranties and covenants
contained herein) and the provisions of the Certificate of Designation and the
Warrant applicable to the holders thereof, the Company has complied with and
will have complied with all applicable state "blue sky" or securities laws in
connection with the issuance and sale of the Purchased Securities.
2.25 Employment Agreements. Schedule 2.25 hereto sets forth all the
employment, consulting, or change in control agreements to which the Company or
any subsidiary is a party or under which the Company or any subsidiary has
continuing obligations which individually, in the current financial year, will
require the Company to make payments in excess of $75,000.
-16-
23
2.26 Year 2000 Compliance. The operating system, applications and
other computer software owned by or licensed to the Company or its subsidiaries
used in the payroll, administrative, accounts receivable, accounts payable or
generation of the financial statements of the Company are Year 2000 Compliant,
or to the extent such software and hardware is not Year 2000 Compliant, the
Company has in place and is implementing plans to ensure that such software and
hardware will be Year 2000 Complaint before September 30, 1999. As used in this
Agreement, Year 2000 Compliant means that software, hardware and equipment will
create, store and generate output data relating to or including Millennial Dates
and leap year dates without material errors or omissions, and the occurrence in
or use by such software, hardware and equipment of Millennial Dates and leap
year dates (in any form, including two or four digits) will not materially and
adversely affect the performance of such software, hardware and equipment with
respect to date dependent data, compilations, output or other functions
(including, without limitation, calculating, computing, sequencing and storing
instructions). The term "Millennial Dates" means dates on or after January 1,
2000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE INVESTOR
Each of the Investor and Sterling jointly and severally represents and
warrants to the Company as follows:
3.1 Authority Relative to this Agreement. The Investor has the
requisite power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby without the consent of any other
person (except for such consents as have heretofore been obtained and the
consents referred to in Section 5.1 (1)). This Agreement has been duly and
validly executed and delivered by the Investor and, assuming this Agreement
constitutes a valid and binding obligation of the other parties hereto, this
Agreement constitutes a valid and binding agreement of the Investor, enforceable
against the Investor in accordance with its terms, subject to applicable
bankruptcy and other laws affecting creditors rights generally and to general
principles of equity.
3.2 Proxy Statement. None of the information supplied in writing by
the Investor and its affiliates specifically for inclusion in the Proxy
Statement, if required, shall, at the time the Proxy Statement is mailed, or at
the time of the Stockholder Meeting, contain any untrue statement of a material
fact or omit to state any 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. If, at any time prior to the Initial
Closing Date, any event relating to the Investor or any of its affiliates,
officers or directors is discovered by the Investor that should be set forth in
a supplement to the Proxy Statement, the Investor will promptly inform the
Company.
3.3 Consents and Approvals, No Violation. Neither the execution and
delivery of this Agreement by the Investor nor the consummation of the
transactions contemplated hereby will
-17-
24
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets or the Investor under, (a) the organizational documents of the Investor,
(b) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to the Investor or its properties or assets or (c) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Investor or its properties or assets, other than, in the case of Clauses (b) or
(c), any such conflicts, violations, defaults, rights or Liens that individually
or in the aggregate could not reasonably be expected to have a material adverse
effect on the ability of the Investor to consummate the transactions
contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by the Investor in connection with the execution and delivery of this Agreement
by the Investor or the consummation by the Investor of the transactions
contemplated by this Agreement, except for the filings referred to in Section
2.7 and any filing required under Section 13(d) of the Exchange Act.
3.4 Investment Intent. The Purchased Securities being purchased by
the Investor are being purchased by the Investor for its own account, and not
with a present view to any distribution thereof that would violate the
Securities Act, or the applicable state securities laws of any state. The
Investor will not distribute the Purchased Securities in violation of the
Securities Act or the applicable securities laws of any state. The Investor will
either (i) provide to counsel to the Company such information as may be
reasonably required for counsel to the company to confirm the foregoing
representations, subject to a confidentiality agreement pursuant to which only
such counsel, and not the Company or its officers, directors or employees, shall
have access to the materials provided, or (ii) provide to the Company an opinion
of counsel to the Investor with respect to the matters contemplated by this
paragraph which may be based on factual certificates provided by the Investor or
its representatives and which may be a "reasoned opinion".
3.5 Availability of Funds. Investor has sufficient funds on hand (or
contracts to obtain sufficient funds not subject to any condition other than
completion of the Investment Transactions) to consummate the Investment
Transactions.
ARTICLE IV
COVENANTS
4.1 Interim Operations. Except as contemplated by this Agreement or
as disclosed in writing to the Investor in Schedule 4.1, during the period from
the date of this Agreement to the earlier to occur of (i) the Initial Closing
Date or (ii) the termination of this Agreement pursuant to Section 6.1, the
Company and its subsidiaries will each conduct its operations according to its
ordinary and usual course of business and consistent with past practice. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, neither the Company nor any of its subsidiaries
shall, without the prior written consent of the
-18-
25
Investor, (a) enter into, or amend, any employment, severance or termination
agreement with any director, officer or employee of the Company or any of its
subsidiaries; (b) grant to any director or officer of the Company or its
subsidiaries any increase in compensation or grant any stock options or other
similar rights; (c) declare, set aside or pay any dividend or other distribution
(whether in cash or stock) with respect to any capital stock of the Company or
repurchase, redeem, or otherwise acquire for value any outstanding shares of
Common Stock or other equity security of the Company; or (d) incur any
indebtedness or enter into or extend any agreements or contracts other than in
the ordinary course of business (draw downs by the Company and other extensions
of credit to the Company under its existing credit lines and credit agreements
shall not be deemed to be an incurrence of additional debt or an extension of an
agreement).
4.2 No Solicitation.
(a) The Company shall not, nor shall it permit any of its
subsidiaries to, nor shall it authorize or permit any officer, director or
employee of or any investment banker, attorney or other advisor or
representative of the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate any inquiries or
the making of any proposal that constitutes or may reasonably be expected to
lead to any takeover proposal or (ii) participate in any discussions or
negotiations regarding, any takeover proposal; provided however, that prior to
the Stockholder Meeting, to the extent required by the fiduciary obligations of
the Board of Directors of the Company, as determined in good faith by the Board
of Directors based on the written advice of outside counsel that failure to do
so would be reasonably likely to constitute a breach of its fiduciary duties to
the Company's stockholders under applicable law, the Company may upon receipt by
the Company of an unsolicited takeover proposal, following delivery to the
Investor of the notice required pursuant to Section 4.2(d), participate in
negotiations regarding such takeover proposal and furnish information with
respect to the Company pursuant to a customary confidentiality agreement
(containing "standstill" provisions no less onerous than in the Confidentiality
Agreement (as defined in Section 4.3)). Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any officer, director or employee of the Company or any of its
subsidiaries or any investment banker, attorney or other advisor or
representative of the Company or any of its subsidiaries, whether or not such
person is purporting to act on behalf of the Company or any of its subsidiaries
or otherwise, shall be deemed to be a breach of this Section 4.2(a) by the
Company. For purposes of this Agreement, "takeover proposal" means any proposal
for a merger or other business combination involving the Company or any of its
Significant Subsidiaries or any proposal or offer to acquire in any manner
(including through a joint venture with the Company), directly or indirectly, an
equity interest in not less than 20% of the outstanding voting securities of, or
assets representing not less than 20% of the annual revenues or net earnings of
the Company or any of its Significant Subsidiaries.
(b) Neither the Board of Directors of the Company nor any
committee, thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to the Investor, the approval or recommendation by
such Board of Directors nor any such committee of
-19-
26
the transactions contemplated hereby, (ii) approve or recommend, or propose to
approve or recommend, any takeover proposal or (iii) enter into any agreement
with respect to any takeover proposal. Notwithstanding the foregoing, in the
event the Board of Directors of the Company receives an unsolicited takeover
proposal that, in the exercise of its fiduciary obligations (as determined in
good faith by the Board of Directors and based on the written advice of outside
counsel), it determines to be a Superior Proposal, the Board of Directors may
(subject to the following sentences) withdraw or modify its approval or
recommendation of this Agreement, approve or recommend any such Superior
Proposal, or terminate this Agreement in order to enter into an agreement with
respect to such a Superior Proposal, in each case at any time after the fifth
business day following the Investor's receipt of written notice (a "Notice of
Superior Proposal") advising the Investor that the Board of Directors has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal.
The Company may take any of the foregoing actions pursuant to the preceding
sentence only if the Company is not otherwise in material breach of this
Agreement, and the Company has paid to the Investor the Termination Fee (as
defined in Section 6.2) and the Expense Fee (as defined in Section 7.11). For
purposes of this Agreement, a "Superior Proposal" means any bona fide takeover
proposal on terms which the Board of Directors of the Company determines in its
good faith reasonable judgment (and based on the written advice of a financial
advisor of nationally recognized reputation) to be more favorable to the
Company's stockholders than the transactions contemplated hereby.
(c) Nothing contained in this Section shall prohibit the
Company from at any time taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act, provided,
however, that neither the Company nor its Board of Directors shall, except as
permitted by paragraph (b) of this section, propose to approve or recommend a
takeover proposal.
(d) In addition to the obligations of the Company set forth in
paragraph (b) above, the Company shall promptly (but in any event within one
day) advise the Investor orally and in writing of any request for information or
any takeover proposal, or any inquiry with respect to or which could lead to any
takeover proposal, the material terms and conditions of such request, takeover
proposal or inquiry, and the identity of the person making any such takeover
proposal or inquiry. The Company will keep the Investor fully informed of the
status and details of any such requests, takeover proposal or inquiry.
4.3 Access to Information.
(a) Between the date of this Agreement and the Initial Closing
Date, the Company will upon reasonable notice (i) give the Investor and its
authorized representatives access during regular business hours to all of the
Company's and its subsidiaries' equipment, plant, offices, warehouses and other
facilities and to all books, records, data and reports relating to the business
of the Company and its subsidiaries, (ii) permit the Investor to make such
inspections as it may require (and the Company shall cooperate with the Investor
in any inspections, samplings or analyses as it may require), and (iii) cause
its officers and those of its subsidiaries to furnish the
-20-
27
Investor with such financial and operating data and other information with
respect to the business and properties of the Company and their respective
subsidiaries as the Investor may from time to time request.
(b) Information obtained by the Investor pursuant to this
Section 4.3 shall be subject to the provisions of the confidentiality agreement
between the Company and Sterling, dated January 21, 1999 (the "Confidentiality
Agreement"), which remains in full force and effect.
4.4 Proxy Statement and Stockholder Meeting.
(a) As promptly as practicable after the execution and delivery
of this Agreement, the Company and the Investor will prepare and file with the
SEC preliminary proxy materials relating to the adoption of this Agreement, the
approval of the Investment Transactions and of the other transactions
contemplated hereby by the stockholders of the Company. As promptly as
practicable after comments are received from the SEC on the preliminary proxy
material, the Company and the Investor will file with the SEC the Proxy
Statement. As used herein, "Proxy Statement" means the letter to stockholders,
notice of meeting, proxy statement and form of proxy (and any schedule required
to be filed with the SEC in connection therewith) to be distributed to
stockholders of the Company in connection with the Stockholder Meeting. The
Company will make all necessary filings with respect to the transactions
contemplated by this Agreement under the Securities Act, the Exchange Act and
the rules and regulations thereunder, and applicable state securities laws, and
will use all reasonable efforts to obtain any required approvals or clearances
with respect thereto. Subject to Section 4.2, the Proxy Statement will include
the recommendation of the Board of Directors of the Company in favor of the
approval of the Investment Transactions and the other transactions contemplated
by this Agreement.
(b) Promptly after the execution and delivery of this Agreement,
the Company will take all action necessary in accordance with the DGCL and the
Company's Certificate of Incorporation, as amended, and Bylaws to convene a
special meeting of stockholders of the Company (the "Stockholder Meeting") to
adopt this Agreement and approve the Investment Transactions and the other
transactions contemplated hereby. The Company will not postpone or adjourn
(other than by reason of an absence of quorum) the Stockholder Meeting without
the consent of the Investor. The Company will use all reasonable efforts to
solicit from stockholders of the Company proxies in favor of this Agreement, the
Investment Transactions and the other transactions contemplated hereby and to
secure the vote or consent of stockholders required by the DGCL and the
Company's Certificate of Incorporation, as amended, and Bylaws to approve such
transactions.
4.5 Filing of Certificate of Designation. In the event the
stockholders of the Company approve this Agreement, the Investment Transactions
and the other transactions contemplated hereby at the Stockholder Meeting, or
any adjournment thereof, in accordance with the DGCL, the Board of Directors
will as soon as practicable thereafter adopt the resolutions in the form of
Exhibit A hereto approving the Certificate of Designation for the Preferred
Stock, and the
-21-
28
Company will as soon as practicable thereafter file such Certificate of
Designation with the Secretary of State of Delaware.
4.6 NASDAQ, Listing. The Company will use its best efforts to insure,
that if the shares of Common Stock are then listed or authorized to be quoted on
The NASDAQ Stock Market, Inc. or on any national securities exchange, the
Conversion Shares issuable with respect to the Purchased Securities are listed
or authorized to be quoted on The NASDAQ Stock Market, Inc. or such exchange
upon issuance.
4.7 Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided for the
Company, each of the parties hereto agrees to use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Investment Transactions and the
other transactions contemplated by this Agreement. In case at any time after
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary action. Such reasonable best
efforts shall include, without limitation, (i) the obtaining of all necessary
consents, approvals or waivers from third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this Agreement
and (ii) opposing vigorously any litigation or administrative proceeding
relating to this Agreement or the transactions contemplated hereby, including,
without limitation, promptly appealing any adverse court or agency order.
Notwithstanding the foregoing or any other provisions contained in this
Agreement to the contrary, neither the Investor nor any of its affiliates shall
be under any obligation of any kind to enter into any negotiations or to
otherwise agree with any Governmental Entity, including but not limited to any
governmental or regulatory authority with jurisdiction over the enforcement of
any applicable federal, state, local and foreign antitrust, competition or other
similar laws, or any other party to sell or otherwise dispose of, hold separate
(through the establishment of a trust or otherwise) particular assets or
categories of assets or businesses of any of the Company, the Investor or any of
the Investor's affiliates. Further, in the event the requisite approval of
stockholders is not obtained at the Stockholder Meeting, no party hereto will be
under any further obligation to cause the Closings to occur.
(b) The Company and its subsidiaries shall give and make all
required notices and reports to the appropriate persons with respect to the
Permits and Environmental Permits that may be necessary for the consummation of
the Investment Transactions.
(c) The Company and its Board of Directors shall (i) take all
action necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to this Agreement or any of the transactions
hereby and (ii) if any state takeover statute or similar statute or regulation
becomes applicable to this Agreement or any of the transactions contemplated
hereby, take all action necessary to ensure that the transactions contemplated
by this Agreement may be consummated as promptly as practicable on the terms
contemplated by
-22-
29
this Agreement and otherwise to minimize the effect of such statute or
regulation on the transactions contemplated by this Agreement.
(d) To the extent required by applicable law, the Company and
the Investor and its controlling shareholders shall use commercially reasonable
efforts to do each of the following:
(i) as soon as practicable after the date of this
Agreement, file with the appropriate governmental authority any notification
form required to be filed by such party under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act") with respect to this
Agreement and the transactions contemplated hereby, together with a request for
early termination of the applicable waiting period; and
(ii) after consultation with the other parties, make any
additional filing required to be made under the HSR Act and promptly furnish to
the appropriate governmental authority such additional information as may be
requested under the HSR Act;
4.8 Public Announcements. The Investor and the Company shall to the
fullest extent practicable consult with each other before issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated hereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law.
4.9 Stockholder Litigation. The Company shall give the Investor the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement until the purchase of Purchased
Securities at the Initial Closing, and thereafter, shall give the Investor the
opportunity to direct the defense of such litigation and, if the Investor so
chooses to direct such litigation, the Investor shall give the Company and its
directors an opportunity to participate in such litigation; provided, however,
that no settlement of any such litigation shall be agreed to without the
Investor's and the Company's consent, which consent shall not be unreasonably
withheld, and provided further that no settlement requiring a payment by a
director shall be agreed to without such director's consent.
4.10 Disclosure Schedules. The Company shall have the right, at any
time prior to the Initial Closing Date, to amend or update the disclosures
schedules to this Agreement; provided however, that the Investor shall have a
right to terminate this Agreement in the event any amendment or update reflects
a Material Adverse Effect. The liability of the Company for any breach of a
representation or warranty in this Agreement shall be determined with reference
to the disclosure schedules as most recently amended up to the Initial Closing
Date. The Company shall have no liability for a breach of any representation and
warranty if the Investor had knowledge of such breach at the time such
representation and warranty was made or deemed to be made. For the purposes of
this Section 4.10 the Investor shall be deemed to have knowledge of a breach or
an event or condition constituting a breach if any member of its or Sterling's
board
-23-
30
of managers, any of its or Sterling's senior executive officers or any of its
shareholders has actual knowledge of such breach, event or condition or
recklessly disregards facts which would lead to actual knowledge upon reasonable
investigation.
4.11 Stock Options. The Company will not take any action to
accelerate the exercisability or vesting of any outstanding options to purchase
Common Stock or modify any other terms of such options as a result of the
transactions contemplated hereby.
4.12 No Integration. The Company shall not make any offers or sales
of any security (other than the securities to be issued pursuant to the
Investment Transactions), prior to the completion of all Closings hereunder,
under circumstances that would require registration of the securities being
offered or sold hereunder under the Securities Act or cause the offering of
securities being offered or sold hereunder to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
4.13 Maintenance of Control. Until such time as all outstanding shares
of Preferred Stock have been converted or redeemed and the Warrant shall have
expired or been exercised, (i) the Investor shall own all of the Purchased
Securities, (ii) the general partner of the Investor shall have sole decision
making authority with respect to the Purchased Securities, and (iii) any general
partner of the Investor shall at all times be an entity directly or indirectly
owned wholly by Sterling. The foregoing shall not restrict the Investor's right
and power to distribute shares of Common Stock to its partners.
4.14 Registration Rights.
(a) "Piggyback" Registration Rights.
(i) If the Company proposes to register any of its Common
Stock on Forms X-0, X-0 or S-3, or any successor forms, under the Securities
Act, the Company shall give prompt written notice to the Investor of its
intention to do so and inform the Investor that it has the right to have the
Conversion Shares issued or issuable with respect to the Preferred Stock and the
Warrant included in such registration pursuant to the terms of this Subsection
4.14(a) held by it and/or held by up to thirty assignees of such Conversion
Shares designated by the Investor (the "Designated Assignees"). Upon the written
request of the Investor made within 20 days after the receipt of any such
notice, which written request shall specify the number of Conversion Shares the
Investor and such Designated Assignees desire to be registered and the names and
addresses of the Designated Assignees, the Company shall use reasonable
commercial efforts to cause all such Conversion Shares to be registered under
the Act to permit the sale of such shares of Conversion Shares in accordance
with the plan of distribution of the majority of the Common Stock to be
registered by such registration statement. Notwithstanding anything contained
herein to the contrary, the Company shall have the right to discontinue any
registration of such Conversion Shares of the Investor and such Designated
Assignees at any time prior to the effective date of such registration if the
proposed
-24-
31
registration of Common Stock giving rise to the Company's notice under this
Subsection 4.14(a) is discontinued.
(ii) If the Investor shall request inclusion of any
Conversion Shares held by it or the Designated Assignees in the registration of
other Common Stock of the Company and such proposed registration by the Company
is, in whole or in part, an underwritten public offering, and if the managing
underwriter determines and advises the Company in writing that inclusion in such
registration of all proposed securities (including Common Stock being offered by
or on behalf of the Company and securities covered by requests for registration)
would adversely affect the marketability of the offering of the Common Stock
proposed to be registered by the Company, then the Investor and the Designated
Assignees shall be entitled to participate pro rata (based on the number of
shares of Common Stock owned by or Conversion Shares issuable to the respective
holders) with the other shareholders having similar piggyback incidental
registration rights with respect to such registration to the extent the managing
underwriter determines that such shares may be included without such adverse
effect.
(iii) The registration rights with respect to each
Conversion Share shall expire when such Conversion Share may be transferred by
either the Investor or its then holder (including any Designated Assignee)
pursuant to the safe harbor provisions of Rule 144 under the Securities Act
without having to comply with any volume limitations under such rule (each a
"Registration Rights Expiration Date").
(b) Demand Registration Rights.
(i) At any time prior to the last Registration Rights
Expiration Date, the Company shall, upon receipt of a written request from the
Investor, promptly prepare and file under the Act a registration statement in
respect of the then registrable Conversion Shares held by the Investor and its
Designated Assignees and/or issuable with respect to the Preferred Stock and the
Warrant and shall use commercial reasonable efforts to cause such registration
statement to become effective promptly. The Investor shall have the right to
only one demand registration pursuant to this Subsection 4.14(b). In the event
that less than all of the Conversion Shares issued and issuable upon conversion
of Preferred Stock and/or exercise of the Warrant have been registered pursuant
to a request under this Subsection 4.14(b), the Company shall have no further
obligation to register the remaining balance of the Conversion Shares not so
registered, except pursuant to Subsection 4.14(a).
(ii) If at the time the Company is required to effect the
registration under the Securities Act of any Conversion Shares pursuant to this
Subsection 4.14(b), the Company is qualified to use Form S-3, or any successor
form, to conduct a "shelf registration" pursuant to the provisions Rule 415
under the Securities Act, the Company shall register such shares pursuant to the
shelf registration provisions and shall keep the registration statement covering
such Conversion Shares (the "Rule 415 Registration Statement") continuously
effective and supplement and amend it as required by the Securities Act and the
regulations thereunder from the date such Rule 415 Registration Statement is
declared effective (the "Initial Effective Date") until the earliest to occur
-25-
32
of the following events: (A) the Registration Rights Expiration Date; (B)
notification to the Company that all Conversion Shares registered thereunder
have been sold for the accounts of the participating shareholders; or (C)
receipt by the Company of a request by the Investor that the registration
statement be terminated (the period between the Initial Effective Date and
earliest to occur of such events is hereinafter referred to as the "Registration
Statement Period"). If the Rule 415 Registration Statement ceases to be
effective at any time during the Registration Statement Period, the Company, at
its expense, shall within thirty days of such cessation cause to be filed an
additional shelf registration statement covering the unsold balance of the
Conversion Shares so registered and shall use its best efforts to have such
registration statement declared effective as soon as practicable thereafter and
keep such registration statement effective until the end of the Registration
Statement Period.
(c) Expenses. The Company shall pay all expenses incident to its
performance of or compliance with the provisions of Subsections (a) and (b)
hereof, including, without limitation, all registration and filing fees, fees
and expenses of compliance with the Securities Act, fees and expenses of
compliance with state securities or "blue sky" laws, fees of securities
exchanges or the National Association of Securities Dealers, Inc., fees of
transfer agents and registrars, printing expenses, messenger and delivery
expenses, fees and disbursements of counsel for the Company (but not the legal
fees of the Investor or Designated Assignees) and all independent public
accountants and other persons retained by the Company, and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding underwriting commissions and discounts).
(d) Obligations of the Company.
(i) The Company will furnish to each seller of such
Conversion Shares under a registration statement such number of copies of such
registration statement and each such amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus), in
conformity with the requirements of the Securities Act, and such other documents
as such seller may reasonably request in order to facilitate the disposition of
the Conversion Shares owned by such seller;
(ii) The Company will notify each seller of any such
securities covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and each seller will discontinue any
sale of Conversion Shares until the seller has been advised that the
registration statement has been amended, supplemented or otherwise no longer
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. At the request of any such seller who has requested registration
of Conversion Shares pursuant to Subsection 4.14(b), during the
-26-
33
Registration Period the Company will as soon as reasonably
practicable prepare and furnish to such seller a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(e) Indemnification And Notification:
(i) The Company shall indemnify and hold harmless each
holder of any Conversion Shares included in the Company's registration statement
pursuant to this Agreement, and each person, if any, who controls such holder
within the meaning of Section 15 of the Securities Act, from and against any and
all losses, claims, damages, expenses and liabilities (including reasonable
attorneys' fees) caused by any untrue statement of a material fact contained in
any such registration statement, or contained in a prospectus furnished
thereunder, or in any amendment or supplement thereto or caused by any omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading (provided, however, that the foregoing
indemnification and agreement to hold harmless shall not apply insofar as such
losses, claims, damages, expenses, and liabilities are caused by any such untrue
statement or omission is based upon information furnished in writing to the
Company by or on behalf of any such holder expressly for use in any registration
statement or prospectus).
(ii) Promptly after receipt by any holder of any
Conversion Shares included in the Company's registration statement pursuant to
this Agreement of notice of the commencement of any action, said holder shall,
if a claim in respect thereof is to be made against the Company under this
Subsection 4.14(e), notify the Company in writing of the commencement thereof;
but the omission so to notify the Company shall not relieve it from any
liability which it may have to them under this Subsection 4.14(e). In case any
such action is brought against any holder of any Conversion Shares registered
pursuant to this Subsection 4.14(e) and the Company is notified of the
commencement thereof as provided herein, the Company shall be entitled to
participate in, and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to such holder, and after notice
from the Company to such holder of the Company's election so to assume the
defense thereof, the Company shall not be liable under this Agreement for any
legal or other expense subsequently incurred by such holder in connection with
the defense thereof other than reasonable costs of investigation.
(iii) Each holder of any Conversion Shares registered
pursuant to this Agreement agrees to cooperate fully with the Company in
effecting the registration and qualification of Conversion Shares and of such
distribution, and shall indemnify and hold harmless the Company and each person
who may control the Company within the meaning of Section 15 of the Act, each
director of the Company, and each officer who signed any registration statement
from and against any and all losses, claims, damages, expenses, and liabilities
(including reasonable attorneys' fees) caused by any untrue statement of a
material fact contained in any such registration statement, or contained in a
prospectus furnished thereunder, or any amendment or supplement thereto, or
caused
-27-
34
by any omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, to the extent that
such untrue statement or omission was made in reliance upon information
furnished to the Company by any such holder for inclusion therein; provided,
however, that to the extent permitted by public policy and applicable law, the
maximum amount of liability to the Company in respect of such indemnification by
such holder shall be limited to an amount equal to the net proceeds received by
such holder in respect of any Conversion Shares registered pursuant to this
Agreement.
4.15 Ownership of Investor. Schedule 4.15 sets forth the current
ownership structure of the Investor. For so long as the Investor owns any shares
of Preferred Stock and/or the Warrant, the Investor undertakes to inform the
Company of any change in its ownership structure promptly and in no event later
than 5 business days after the effective date for such change.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE INVESTMENT TRANSACTION
5.1 Conditions to the Investor's Obligations for the Initial Closing.
The obligation of the Investor to effect the purchase of Purchased Securities
contemplated by Section 1.1(a) of this Agreement are subject to the satisfaction
or written waiver of the following conditions:
(a) the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects, on and as
of the Initial Closing Date (irrespective of any notice delivered after the date
hereof), and the Company shall have performed in all material respects all of
its obligations under this Agreement required to be performed prior to the
Initial Closing Date;
(b) there shall not have occurred after the date hereof any
Material Adverse Effect;
(c) the Investor shall have received a certificate of the
President of the Company, on behalf of the Company, certifying as to the
fulfillment of the conditions set forth in clauses (a) and (b) above;
(d) all applicable waiting periods under the HSR Act relating
to transactions contemplated hereby shall have expired or been terminated.
(e) no statute, rule, regulation, judgment, order or
injunction shall be enacted, entered, promulgated or enforced (i) challenging
the transactions contemplated hereby, seeking to restrain or prohibit the
Investment Transactions or any other transactions contemplated hereby or seeking
any damages material in relation to the Company or the Investor, (ii) seeking to
impose limitations on the ability of the Investor to acquire or hold, or
exercise full rights of ownership of any of Purchased Securities, including the
right to vote such shares (or Conversion Shares) or (iii) which otherwise could
reasonably be expected to have a Material Adverse Effect;
-28-
35
(f) the Investor shall have been provided with evidence
reasonably satisfactory to the Investor that the Board of Directors of the
Company has approved the transactions contemplated by this Agreement for
purposes of Section 203 of the DGCL;
(g) the Investor shall have received a certificate, dated the
Closing Date, duly executed by the Secretary or an Assistant Secretary of the
Company certifying as to (i) the attached copy of resolutions of the Board of
Directors of the Company authorizing and approving the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and stating that such resolutions have not been modified,
amended, revoked or rescinded and (ii) the incumbency, authority and specimen
signature of each officer of the Company executing this Agreement and any other
document or instrument contemplated hereby;
(h) the Investor shall have received a certificate of the
Company's organization, valid existence and good standing as a domestic
corporation in the State of Delaware as of a date not more than thirty days
prior to the Initial Closing Date;
(i) the Investor shall have received an opinion of counsel to
the Company, dated the Initial Closing Date, in the form attached hereto as
Exhibit C;
(j) the Company and its subsidiaries shall have received (and
furnished to the Investor evidence thereof reasonably satisfactory to the
Investor) any necessary or required approvals or consents from all Governmental
Entities and other third parties (including any lender to the Company) necessary
or required to complete the transactions contemplated hereby, and such approvals
and consents shall not have been withdrawn or expired as of the Initial Closing
Date (and the Certificate of Designation shall have been duly filed and accepted
for filing with the Secretary of State of Delaware);
(k) the Company shall have entered into an agreement with the
Investor reasonably acceptable to the Investor and the Company providing for an
annual administration fee to the Investor of $100,000; and
(l) this Agreement and the transactions contemplated hereby,
the Certificate of Designation and the the Warrant shall have been adopted and
approved by the requisite vote of stockholders of the Company in accordance with
the DGCL and the Company's Certificate of Incorporation, as amended, and Bylaws,
and the Certificate of Designation shall have been duly filed and accepted for
filing with the Secretary of State of Delaware;
5.2 Conditions to the Company's Obligations for the Initial Closing.
The obligation of the Company to effect the sale of Purchased Securities
contemplated by Section 1.1(a) of this Agreement are subject to the satisfaction
or written waiver of the following conditions:
(a) the representations and warranties of the Investor and
Sterling contained in this Agreement shall be true and correct in all material
respects, on and as of the Initial Closing Date
-29-
36
(irrespective of any notice delivered after the date hereof), and the Investor
and Sterling shall have performed in all material respects all of its
obligations under this Agreement required to be performed prior to the Initial
Closing Date;
(b) the Company shall have received a certificate of an officer
of the Investor certifying as to the fulfillment of the condition set forth in
clause (a) above;
(c) the Company shall have received a certificate from each of
the then partners, officers or managers of the Investor who is then or was
previously an employee, officer or director of the Company, certifying on behalf
of himself and the Investor, that to his knowledge the Company is not in breach
of any of the representations and warranties or covenants contained in this
Agreement and such closing certificates shall be deemed a representation and
warranty by the Investor as to the accuracy of the statements made therein;
(d) the Company shall have received an opinion of counsel to
the Investor, dated the Initial Closing Date, in the form attached hereto as
Exhibit D;
(e) this Agreement and the transactions contemplated hereby, the
Certificate of Designation and the Warrant shall have been adopted and approved
by the requisite vote of stockholders of the Company in accordance with the DGCL
and the Company's Certificate of Incorporation, as amended, and Bylaws; and
(f) the Company shall have received a certificate of an officer
of the Investor certifying as to the ownership structure of the Investor as of
the Closing Date.
5.3 Procedures for Subsequent Closings. The parties shall be
obligated to effect the Investment Transactions contemplated by Section 1.1(b)
of this Agreement provided the Investor shall have received notice from the
Company, in the form attached hereto as Exhibit E, at least fourteen (14) days
prior to date specified for the Subsequent Closing, requesting the Subsequent
Closing, setting forth the date, time and place of the Subsequent Closing and
the number of Purchased Securities to be sold by the Company and purchased by
the Investor on such Subsequent Closing Date in an amount that is not less than
the lessor of 5,000 shares of Preferred Stock or the remaining number of shares
the Investor is obligated to purchase under this Agreement.
ARTICLE VI
TERMINATION, AMENDMENT; INDEMNITY
6.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Initial Closing Date, notwithstanding approval thereof by the stockholders of
the Company:
(a) by mutual written consent of the Company and the Investor;
-30-
37
(b) by either the Company or the Investor:
(i) if the Initial Closing does not occur by the date
that is one hundred and twenty (120) days after the date hereof, provided,
however, that the right to terminate this Agreement pursuant to this Section
6.1(b)(i) shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement results in the failure of the Initial
Closing to occur prior to such date;
(ii) if any court of competent jurisdiction or any other
governmental body shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
Investment Transactions and the other transactions contemplated hereby and such
order, decree, ruling or other action shall have become final and nonappealable;
or
(iii) if the Company has entered into a definitive
agreement with respect to a Superior Proposal.
(c) by the Investor (i) if the Company fails to perform in any
material respect any of its obligations under this Agreement or breaches in any
material respect any of its representations and warranties hereunder; or (ii) in
the circumstances referred to in Section 4.10.
(d) by the Company if the Investor fails to perform in any
material respect any of its obligations under this Agreement or breaches in any
material respect any of its representations and warranties hereunder.
6.2 Termination Fee and Expense Fee.
(a) If (i) there shall be a material breach by the Company of
this Agreement, or (ii) the Company shall have delivered (or been obligated to
deliver) to the Investor a Notice of Superior Proposal, then the Company shall
promptly, but in no event later than five business days after the first to occur
of any such event described in clauses (i) and (ii) (or earlier if required
pursuant to Section 6.1 (c)) (the "Payment Date"), pay the Investor a fee of
$300,000 (the "Termination Fee") on the Payment Date in cash in immediately
available funds by wire transfer to an account designated by the Investor and
the Company shall also pay the Investor the Expense Fee (as defined in Section
7.11).
(b) If this Agreement is terminated by the Company for any reason
other than a material breach by the Investor of their obligations hereunder, in
no event later than five business days after the date of such termination, the
Company shall pay to the Investor the Expense Fee, such amount to be paid in
cash in immediately available funds by wire transfer to an account designated
by the Investor (provided that the Expense Fee shall not be payable under this
Section 6.2(b) if it has been paid pursuant to Section 6.2(a)).
-31-
38
(c) Nothing in this Section 6.2 or in Section 7.11 is intended
to require the Company to pay to the Investor as reimbursement for their
expenses an amount which exceeds the amount of such expenses.
6.3 Amendment. To the extent permitted by applicable law, this
Agreement may be amended at any time before or after approval of this Agreement
by the stockholders of the Company. This Agreement may not be amended except by
an instrument in writing signed on behalf of all the parties.
6.4 Company's Obligation to Indemnify. The Company shall indemnify,
defend and hold harmless the Investor and its affiliates, and its directors,
officers, employees and representatives (each, an "Investor Indemnified Party")
from and against any and all claims, losses, settlements, fines, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties and
attorneys' fees and disbursements) (collectively, "Losses") suffered, sustained,
incurred or required to be paid by any such Investor Indemnified Party due to,
based upon, arising out of or otherwise in respect of (a) any inaccuracy in, or
any breach of, any representation or warranty of any of the Company contained in
this Agreement (or any disclosures schedule or supplemental disclosures schedule
hereto or any certificate or other document delivered on behalf of the Company
hereunder), or (b) any breach of any covenant or agreement of the Company
contained in this Agreement.
6.5 Investor's and Sterling's Obligation to Indemnify. The Investor
and Sterling shall jointly and severally indemnify, defend and hold harmless the
Company and its affiliates, and their respective directors, officers, employees
and representatives (each, a "Company Indemnified Party"'), from and against any
and all Losses suffered, sustained, incurred or required to be paid by any such
Company Indemnified Party due to, based upon, arising out of or otherwise in
respect of (a) any inaccuracy in, or any breach of, any representation or
warranty of the Investor contained in this Agreement (or any disclosures
schedule or supplemental disclosures schedule hereto or any certificate or other
document delivered on behalf of the Investor hereunder), or (b) any breach of
any covenant or agreement of the Investor contained in this Agreement.
6.6 Indemnity Procedures for Third Party Claims. The obligations and
liabilities of any party hereto against which indemnification is sought
hereunder with respect to claims resulting from the assertion of liability by
third parties shall be subject to this Section 6.6.
(a) Promptly (but in no event later than 30 days) after receipt
by any indemnified party hereunder (an "Indemnified Party") of notice of any
demand or claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that could reasonably be
expected to result in a Loss, the Indemnified Party shall give written notice
thereof (a "Claims Notice") to any other party obligated to provide
indemnification pursuant to Section 6.4 or 6.5 (each, an "Indemnifying Party").
Each Claims Notice shall describe the Asserted Liability in reasonable detail,
and shall indicate the amount (estimated, if necessary) of the Loss that has
been or may be suffered by the Indemnified Party. The rights of any Indemnified
Party to be indemnified hereunder shall not be adversely affected by its failure
to give, or its failure to timely
-32-
39
give, a Claims Notice with respect thereto unless, and if so, only to the extent
that, the Indemnifying Party is prejudiced thereby.
(b) The Indemnifying Party may elect to compromise or defend, at
its own expense and by its own counsel, any Asserted Liability if (i) the claim
involves (and continues to involve) solely monetary damages and the Indemnifying
Party's assumption of the defense or settlement of such claim will not have a
material adverse effect on the Indemnified Party's business, (ii) the
Indemnifying Party expressly agrees in writing to the Indemnified Party that, as
between the two, the Indemnifying Party is solely obligated to satisfy and
discharge the claim, and (iii) the Indemnifying Party makes reasonably adequate
provision to satisfy the Indemnified Party of the Indemnifying Party's ability
to satisfy and discharge the claim (the foregoing collectively, the "Litigation
Conditions"); provided however that if the parties in any action shall include
both an Indemnifying Party and an Indemnified Party, and the Indemnified Party
shall have reasonably concluded that counsel selected by the Indemnifying Party
has a conflict of interest because of the availability of different or
additional defenses to the Indemnified Party, the Indemnified Party shall have
the right to select separate counsel to participate in the defense of such
action on its behalf, at the expense of the Indemnifying Party; and provided
further, however, that the Indemnifying Party shall forfeit the right to control
the defense or settlement of any such claim if, at any time after assuming the
defense or settlement thereof, the Indemnifying Party no longer satisfies the
Litigation Conditions. Subject to the foregoing, if the Indemnifying Party
elects to compromise or defend such Asserted Liability, it shall within 30 days
(or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnified Party of its intent to do so, and the Indemnified Party shall
cooperate, at the expense of the Indemnifying Party, in the compromise of or
defense against, such Asserted Liability. If the Indemnifying Party elects not
to compromise or defend the Asserted Liability, fails to notify the Indemnified
Party of its election as herein provided, or fails to satisfy the Litigation
Conditions, the Indemnified Party may pay, compromise or defend such Asserted
Liability. The Indemnified Party and the Indemnifying Party may participate, at
their own expense, in the defense of any Asserted Liability as to which such
party does not control the defense or settlement. If the Indemnifying Party
chooses to defend any claim, the Indemnified Party shall, subject to receipt of
a reasonable confidentiality agreement, make available to the Indemnifying Party
any books, records or other documents within its control, and the reasonable
assistance of its employees, for which the Indemnifying Party shall be obliged
to reimburse the Indemnified Party the reasonable out-of-pocket expenses of
making them available. Neither party will consent to any settlement of any claim
without the consent of the other party, which consent will not be unreasonably
withheld (except that no consent will be required if such settlement does not
require any payment or otherwise impose any obligation on the other party and
the other party is released from liability in respect of such claim).
6.7 Indemnity Procedures for Claims by the Parties. In the event that
any party incurs or suffers any Losses with respect to which indemnification may
be sought by such party pursuant to this Article VI (other than in respect of
third party claims), the Indemnified Party must assert the claim by a Claims
Notice to the Indemnifying Party. The Claims Notice must state the nature and
basis of the claim in reasonable detail based on the information available to
the Indemnified Party. Each Indemnifying Party to whom a Claims Notice is given
shall respond to any Indemnified Party
-33-
40
that has given a Claims Notice (a "Claim Response") within 30 days (the
"Response Period") after the date that the Claims Notice is received. Any Claim
Response shall specify whether or not the Indemnifying Party given the Claim
Response disputes the claim described in the Claims Notice (including as to
whether the Indemnifying Party is required to provide indemnification
hereunder). If any Indemnifying Party elects not to dispute a claim described in
a Claims Notice, whether by failing to give a timely Claim Response or
otherwise, then the amount of such claim shall be deemed to be an obligation of
such Indemnifying Party. If the Indemnifying Party disputes the claim, the
parties will try in good faith for a period not to exceed 60 days to settle the
dispute by mediation administered by the American Arbitration Association under
its Commercial Mediation Rules. Thereafter, any party hereto will be free to
pursue litigation or any other remedies available to such party in accordance
with applicable law (it being understood, however, that if the Indemnified Party
does not prevail in any litigation to enforce its claim for indemnification
hereunder, such party shall reimburse the Indemnifying Party for any attorneys'
fees expended by the Indemnifying Party in defending such claim).
6.8 Effect of Insurance. In computing an Indemnified Party's Losses
hereunder, full allowance shall be made for any proceeds actually recovered by
such party from such party's insurance policies.
ARTICLE VII
MISCELLANEOUS
7.1 Extension, Waiver. The parties hereto, may (a) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
7.2 Entire Agreement, Assignment. This Agreement (including the
disclosure schedules hereto) and the other documents and instruments
contemplated hereby and, to the extent contemplated in Section 4.3(b), the
Confidentiality Agreement, (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof, including but not limited to
the Letter of Intent, dated February 20, 1999, and (b) shall not be assigned by
operation of law or otherwise.
7.3 Survival. The representations and warranties in this Agreement
shall survive the Initial Closing for a period of 18 months; provided, however,
that the representations and warranties in Sections 2.12 and 2.13 shall survive
until the expiration of the statute of limitations applicable to such matters
and Sections 2.1 and 2.3 and 3.1 shall survive indefinitely.
-34-
41
7.4 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
7.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram, facsimile transmission
with confirmation of receipt, or telex, or by registered or certified mail
(postage prepaid, return-receipt requested) to the respective parties as
follows:
if to the Investor:
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx. XX 00000
Attention: Mr. C. Xxxxx Xxxxxx
Fax: (713) 243 -7333
with a copy to:
Bracewell & Xxxxxxxxx, L.L.P.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx. XX 00000
Attention: Xxxx X Xxxxxxxxxxxx, Esquire
Fax: (000) 000-0000
if to Sterling:
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx. XX 00000
Attention: Mr. C. Xxxxx Xxxxxx
Fax: (713) 243 -7333
with a copy to:
Bracewell & Xxxxxxxxx, L.L.P.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx. XX 00000
Attention: Xxxx X Xxxxxxxxxxxx, Esquire
Fax: (000) 000-0000
-35-
42
if to the Company:
Canisco Resources, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: President
Fax: 000-000-0000
with a copy to:
Wolf, Block, Xxxxxx and Xxxxx-Xxxxx LLP
at its then current principal office in
Philadelphia, PA
Attention: Xxxx X. Xxxxxxxxx, Esq.
Fax: 000-000-0000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
7.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Delaware regardless of
the laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
7.7 Disputes.
(a) Negotiation Between Senior Executives.
(i) The parties shall attempt in good faith to resolve
any controversy, claim or dispute of whatever nature arising between the parties
arising out of or relating to this Agreement (including as to the terms of the
Purchased Securities or the rights of the holders thereof), the construction,
interpretation, performance, breach, termination, enforceability or validity
thereof, or the materiality of any event or condition relating thereto (a
"Dispute"), promptly by negotiation between a representative of the Company, on
the one hand and a senior executive of the Investor on the other hand, both of
whom shall have authority to settle the Dispute ("Senior Party
Representatives").
(ii) Either party may give the other party written notice
(a "Dispute Notice") of any Dispute which has not been resolved in the normal
course of business. Within 15 days after delivery of the Dispute Notice, the
receiving party shall submit to the other a written response (the "Response").
The Dispute Notice and the Response shall include (i) a statement setting forth
the position of the party giving such notice and a summary of arguments
supporting such position, and (ii) the name and title of such party's Senior
Party Representative and any other persons who will
accompany the Senior Party Representative at the meeting at which the parties
will attempt to settle the Dispute. Within 30 days after delivery of the Dispute
Notice, the Senior Party Representatives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they
-36-
43
reasonably deem necessary, to attempt to resolve the Dispute. All reasonable
requests for information made by one party to the other will be honored.
(iii) If the Dispute has not been resolved within 60 days
after delivery of the Dispute Notice, or if the parties fail to meet within 30
days after delivery of the Dispute Notice as hereinabove provided, either party
may initiate mediation of the Dispute as hereinafter provided.
(iv) All negotiations pursuant to this Section 7.7(a)
shall be treated as compromise and settlement negotiations. Nothing said or
disclosed, nor any document produced, in the course of such negotiations which
is not otherwise independently discoverable shall be offered or received as
evidence or used for impeachment or for any other purpose in any current of
future arbitration or litigation.
(b) Mediation
(i) If the Dispute has not been resolved by negotiation
as hereinabove provided, the parties shall make a good faith attempt to settle
the Dispute by mediation pursuant to the provisions of this Section 7.7(b)
before resorting to arbitration, litigation or any other dispute resolution
procedure.
(ii) Unless the parties agree otherwise, the mediation
shall be conducted in accordance with the Commercial Mediation Rules of the
American Arbitration Association (the "AAA") then in effect by a mediator who
(x) has the qualifications and experience set forth in paragraph (iii) of this
Section 7.7(b) and (y) is selected as provided in paragraph (iv) of this Section
7.7(b).
(iii) Unless the parties agree otherwise, the mediator
shall be a neutral and impartial lawyer with excellent academic and professional
credentials (i) who is or has been practicing law for at least 15 years,
specializing in either general commercial litigation or general corporate and
commercial matters, and (ii) who has had both training and experience as a
mediator.
(iv) Either party (the "Initiating Party") may initiate
mediation of the Dispute by giving the other party (the "Recipient Party")
written notice (a "Mediation Notice") setting forth a list of the names and
resumes of qualifications and experience of three impartial persons who the
Initiating Party believes would be qualified as a mediator pursuant to the
provisions of paragraph (iii) hereof. Within 15 days after the delivery of the
Mediation Notice, the Recipient Party shall give a counter-notice (the
"Counter-Notice") to the Initiating Party in which the Recipient Party may
designate a person to serve as the mediator from among the three persons listed
by the Initiating Party in the Mediation Notice (in which event such designated
person shall be the mediator). If none of the persons listed in the Mediation
Notice is designated by the Recipient Party to serve as the mediator, the
Counter-Notice should set forth a list of the names and resumes of three
impartial persons who the Recipient Party believes would be qualified as a
mediator pursuant to the provisions of paragraph (iii) hereof. Within 10 days
after the delivery of the Counter-Notice, the Initiating Party
-37-
44
may designate a person to serve as the mediator from among the three persons
listed by the Recipient Party in the Counter-Notice (in which event such
designated person shall be the mediator). If the parties cannot agree on a
mediator from the three impartial nominees submitted by each party, each party
shall strike two names from the other party's list, and the mediator shall be
selected by lot between the two remaining persons on both lists and the two
remaining persons on both lists will jointly select as the mediator any person
who has the qualifications and experience set forth in paragraph (iii) hereof.
If they are unable to agree, then the President of the Wilmington, Delaware, Bar
Association shall select as the mediator any person who, in his or her opinion,
has such qualifications and experience, who is located in either Philadelphia,
Pennsylvania or Wilmington, Delaware or any of their respective suburban areas.
(v) Within 30 days after the mediator has been selected
as provided above, both parties and their respective attorneys shall meet with
the mediator for one mediation session of at least four hours, it being agreed
that each party representative attending such mediation session shall be a
Senior Party Representative with authority to settle the Dispute. If the Dispute
cannot be settled at such mediation session or at any mutually agreed
continuation thereof, either party may give the other and the mediator a written
notice declaring the mediation process at an end, in which event the Dispute
shall then be resolved by arbitration as hereinafter provided.
(vi) All conferences and discussions which occur in
connection with the mediation conducted pursuant to this Agreement shall be
deemed settlement discussions, and nothing said or disclosed, nor any document
produced, which is not otherwise independently discoverable shall be offered or
received as evidence or used for impeachment or for any other purpose in any
current or future arbitration or litigation.
(vii) The costs of the mediation shall be shared equally
between the parties.
(c) Submission to Jurisdiction. If the Dispute has not been
resolved by negotiation as provided in Section 7.7(a) or mediation as provided
in Section 7.7(b), then, such Dispute may be submitted by any party to the State
or Federal courts of and for the State of Delaware and all parties hereby
irrevocably agree to submit to the jurisdiction of such State or Federal courts
and agree that any action or proceeding arising between them may only be heard
in such State or Federal courts. Investor and Sterling hereby irrevocably waive,
to the fullest extent each may effectively do so, the defense of inconvenient
forum to the maintenance of any such action or proceeding.
7.8 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
7.9 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement (except
as expressly contemplated by Sections 6.5 and 6.6).
-38-
45
7.10 Counterparts. This Agreement may be executed in two or more
Counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
7.11 Expenses. The Company will reimburse the Investor for all
reasonable out-of-pocket expenses and fees payable by the Investor or its
affiliates (including, without limitation, fees and expenses of all counsel,
printers, banks, financial advisors and other financial institutions, and their
respective agents) related to the transactions contemplated by this Agreement in
an amount not to exceed $90,000 (the "Expense Fee"), in the event a Closing
occurs and in the circumstances described in Section 6.2.
7.12 Decision Making. All decisions to be made by the Company with
respect to this Agreement, including the determination of (i) who will be
nominated as Common Stock Directors (as defined in the Certificate of
Designation), (ii) whether dividends of the Preferred Stock are to be paid in
additional shares of Preferred Stock, (iii) whether the Company is to exercise
its options to call for the redemption or conversion of the Preferred Stock,
(iv) whether to amend or waive any of the covenants, conditions, representations
and warranties or terms of this Agreement and (v) when and if the Company is to
make the election to require any Subsequent Closings pursuant to Sections 1.1(b)
and 5.3 on and after the date of the Initial Closing, shall be made by the
Common Stock Directors, who shall at all times include at least two directors
who (x) are not directly or indirectly owners (including, but not limited to, as
shareholders of the Investor) of the Purchased Securities or Conversion Shares,
or (y) affiliates of Sterling or the Investor. The Common Stock Directors shall
function as a committee of Board of Directors with irrevocably delegated
authority with respect to the foregoing matters, provided, however, that with
respect to item (v) above, the Common Stock Directors shall invite the full
Board of Directors to attend a meeting of the Common Stock Directors and afford
the other directors the opportunity to express their views, prior to taking any
decision.
7.13 Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings ascribed to them below:
(a) "affiliate" of a person shall mean (i) a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person, and (ii) an
"associate" shall have the meaning set forth in Rule 12b-2 promulgated under the
Exchange Act as in effect on the date of this Agreement.
(b) "control" (including the terms "controlling", "controlled by"
and "under common control with" or correlative terms) shall mean the possession,
direct or indirect, of the power to direct
-39-
46
or cause the direction of the management and policies of a person, whether
through ownership of voting securities, by contract, or other-wise.
(c) "Material Adverse Effect" shall mean (i) any adverse change
in the condition (financial or otherwise), assets, liabilities, business, or
results of operations of the Company and its subsidiaries, which change is
material, individually or in the aggregate, to the Company and its subsidiaries
taken as a whole, or (ii) any event, matter, condition or effect which
materially impairs the ability of the Company to perform on a timely basis its
obligations under this Agreement or the consummation of the transactions
contemplated by this Agreement.
(d) "person" shall mean a natural person, company, corporation,
partnership, association, limited liability company, trust or any unincorporated
organization.
(e) "subsidiary" shall mean, when used with reference to a person
means a corporation the majority of the outstanding voting securities of which
are owned directly or indirectly by such person.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, on the day and
year first above written.
CANISCO RESOURCES, INC.
By
---------------------------------
SCC INVESTMENT I, L.P.
By
---------------------------------
STERLING CITY CAPITAL, LLC
By
---------------------------------
-40-
47
EXHIBIT A
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF 7 1/2% SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
CANISCO RESOURCES, INC.
Canisco Resources, Inc., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151(g) of the General Corporation Law of
the State of Delaware, hereby certifies that, pursuant to the authority vested
in the Board of Directors of the Corporation by the provisions of the
Certificate of Incorporation, as amended, the Board of Directors on _________,
1999 duly adopted the following resolutions:
RESOLVED, that pursuant to Article Third of the Certificate of
Incorporation, as amended the Board of Directors hereby establishes a series of
Preferred Stock, par value $1.00 per share, with the following voting powers,
designations, preferences and relative participating, optional and other special
rights and qualifications, limitations and restrictions:
I. 7 1/2% Series A Redeemable Convertible Preferred Stock.
1. Designation, Number of Shares, Definitions.
(a) Designation. The series of Preferred Stock shall be
designated as the "7 1/2% Series A Redeemable Convertible Preferred Stock"
(referred to herein as the "Series A Preferred Stock"). Each share of Series A
Preferred Stock shall be identical in all respects to every other share of
Series A Preferred Stock.
(b) Number of Shares. The number of Series A Preferred Stock
shall be 150,000. The authorized number of shares of Series A Preferred Stock
may be increased (but not above the total number of authorized shares of
Preferred Stock) or decreased (but not below the number of shares Series A
Preferred Stock outstanding) by resolution of the Board of Directors and such
formalities as may be required by the provisions of Section 151(g) of the
General Corporation Law of the State of Delaware or any successor provision.
(c) Definitions. Certain definitions used in this Certificate
of Designation are set forth in Paragraph II hereof.
2. Rank. With respect to dividend rights and rights on
liquidation, winding up and dissolution of the Corporation, Series A Preferred
Stock shall rank senior to (i) the Common Stock, par value $.0025 per share
("Common Stock") of the Corporation and (ii) each other class of capital stock
or class or series of preferred stock issued by the Corporation after the date
hereof the terms of which specifically provide that such class or series shall
rank junior to Series A Preferred Stock as to dividend distributions or
distributions upon liquidation, winding
-1-
48
up and dissolution of the Corporation (each of the securities in clauses (i) and
(ii) collectively referred to as "Series A Junior Securities"). For so long as
any class of Series A Preferred Stock is outstanding the Corporation shall not,
without the consent of the holders of at least a majority of all outstanding
shares of Series A Preferred Stock, authorize, create or issue (x) any class or
series of capital stock that shall rank senior to, or on a parity with, the
Series A Preferred Stock as to voting rights, dividend distributions or
distributions upon liquidation, winding up and dissolution of the Corporation,
or (y) any class or series of Series A Junior Securities with a cumulative
dividend that would be payable in cash at such time as the dividend on the
Series A Preferred Stock is payable in shares of Series A Preferred Stock
(pursuant to the provisions of Paragraph I(3)(c)).
3. Dividend Provisions.
(a) (i) Each holder of Series A Preferred Stock shall be
entitled to receive dividends per annum per share as set forth below, when, as
and if declared by the Board of Directors, out of funds legally available
therefor. Such dividends shall be payable in equal amounts quarterly in arrears
on each Quarterly Dividend Payment Date (as defined in Paragraph II), commencing
on the first Quarterly Dividend Payment Date after the date of issuance of such
Series A Preferred Stock.
(ii) Each dividend on Series A Preferred Stock shall be
payable to the holders of record of Series A Preferred Stock as they appear on
the stock register of the Corporation on such record date as may be fixed by the
Board of Directors, which record date shall not be less than fifteen (15) nor
more than thirty (30) days prior to the applicable Quarterly Dividend Payment
Date. Dividends shall commence to accrue in respect of any shares of Series A
Preferred Stock on the date such shares are issued and shall cease to accrue on
the date such shares are converted to shares of Common Stock in accordance with
Paragraph I (5) hereof or redeemed in accordance with Paragraph I (6) hereof.
Dividends on each share of Series A Preferred Stock shall accrue at a rate equal
to $7.50 per share per annum. Accrued dividends on the Series A Preferred Stock
if not paid on the first or any subsequent Quarterly Dividend Payment Date
within a Dividend Period following accrual shall thereafter accrue additional
dividends ("Additional Dividends") in respect thereof compounded annually, at
the rate of 7 1/2% per annum.
(iii) Notwithstanding the forgoing no dividend shall
accrue or be payable with respect to any Dividend Period following the second
Anniversary Date (as defined in Paragraph II) (other than Additional Dividends
with respect to dividends for any prior Dividend Period which were accrued in
accordance with the terms hereof, but were unpaid as of the Dividend Period in
question) unless, during such Dividend Period, for a period of forty (40)
consecutive trading days (on each of which trading days no purchases were made
(other than through the exercise of options or warrants granted by the Company)
by the holders or beneficial owners (including any limited partner, shareholder
or member of any entity that is a holder) of the Series A Preferred Stock or any
of their respective affiliates, other than in compliance with
-2-
49
the procedures set forth in Rule 10b-18 under the Exchange Act (as defined in
Paragraph II)), the Common Stock Market Price was equal to or greater than the
target prices set forth below:
Dividend Period commencing the second Anniversary Date $4.00
Dividend Period commencing the third Anniversary Date $5.00
Dividend Period commencing the fourth Anniversary Date $6.00
The foregoing target prices shall be adjusted proportionately to reflect any
adjustment in the Conversion Price of the Series A Preferred Stock pursuant to
Paragraph I(5). If a target price is achieved at any time within a Dividend
Period all dividends with respect to such Dividend Period shall be due and
payable (including any dividends with respect to any prior Quarterly Dividend
Payment Dates with respect to such Dividend Period that had theretofore not been
paid because such target price had not been achieved). The fact that a target
price is achieved in a subsequent Dividend Period shall not change the
determination of whether or not a dividend was payable with respect to a prior
Dividend Period.
(b) All dividends paid with respect to shares of Series A
Preferred Stock pursuant to Paragraph I(3)(a) shall be paid pro rata to the
holders of Series A Preferred Stock entitled thereto.
(c) Dividends on the Series A Preferred Stock will, unless
otherwise provided, be payable in cash. The Corporation (as determined by the
Common Stock Directors) may, at any time prior to the date which is ten (10)
days prior to the date such dividend is scheduled to be paid (such scheduled
date a "Dividend Payment Date"), elect to pay all or a portion of such dividend
in additional shares of Series A Preferred Stock in which event, if more than
sixty percent (60%) of such dividend is payable in additional shares of Series A
Preferred Stock, the Corporation shall mail not later than ten (10) days prior
to such Dividend Payment Date, to each holder of record on the record date for
such dividend payment, a notice (the "Dividend Payment Election Notice") stating
the date such dividend is to be paid, the percentage of such dividend that will
be payable in additional shares of Series A Preferred Stock and that each holder
of the Series A Preferred Stock has the right, to the extent permitted by
applicable law, to elect to receive up to forty percent (40%) of such dividend
in cash by delivering to the Corporation, not later than five days prior to the
applicable Dividend Payment Date, a duly completed Dividend Payment Election
Notice specifying the name of the holder, the number of shares covered by such
Dividend Payment Election Notice and the percentage (not in excess of forty
percent (40%)) of such dividend such holder has elected to receive in cash.
(d) Dividends on account of arrears for any past Dividend
Period may be declared and paid at any time, without reference to any Quarterly
Dividend Payment Date, to the holders of Series A Preferred Stock of record on
any date as may be fixed by the Board of Directors, which date is not more than
fifteen (15) days prior to the Dividend Payment Date.
-3-
50
(e) The holders of Series A Preferred Stock shall be entitled
to receive the dividends provided for in Paragraph I(3)(a) hereof in preference
to and in priority over any dividends upon any of the Series A Junior
Securities. Such dividends on the Series A Preferred Stock shall be cumulative,
whether or not earned or declared, so that if at any time full Accumulated
Dividends on all shares of Series A Preferred Stock then outstanding have not
been paid for all Dividend Periods then elapsed and a prorated dividend on the
Series A Preferred Stock at the rate aforesaid from the Dividend Payment Date
immediately preceding the Series A Junior Payment Date (as defined below) to the
Series A Junior Payment Date have not been paid or set aside for payment, the
amount of such unpaid dividends shall be paid before any sum shall be set aside
for or applied by the Corporation to the purchase, redemption or other
acquisition for value of any shares of Series A Junior Securities (either
pursuant to any applicable sinking fund requirement or otherwise) or any
dividend or other distribution shall be paid or declared and set apart for
payment on any Series A Junior Securities (the date of any such actions to be
referred to as the "Series A Junior Payment Date"); provided, however, that the
restrictions set forth in this sentence shall not apply to the purchase or other
acquisition of Series A Junior Securities (A) pursuant to any employee or
director incentive or benefit plan or arrangement (including any employment,
severance or consulting agreement) of the Corporation or any subsidiary of the
Corporation heretofore or hereafter adopted, (B) solely in exchange for or upon
conversion into Series A Junior Securities or (C) pursuant to a redemption at
the stated redemption price of any rights granted to holders of Common Stock
pursuant to a stockholder rights plan.
(f) Dividends payable on Series A Preferred Stock for any
period less than one quarter shall be computed on the basis of the actual number
of days elapsed in the period for which such dividends are payable.
4. Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of all shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
distribution is made on any Series A Junior Securities, an amount in cash equal
to $100.00 in cash per share (the "Liquidation Preference"), plus an amount
equal to Accrued Dividends (whether or not earned or declared) accrued and
unpaid thereon, including Additional Dividends, to the date of final
distribution and no more. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the application of all amounts
available for payments with respect to Series A Preferred Stock would not result
in payment in full of Series A Preferred Stock, the holders of Series A
Preferred Stock shall share equally and ratably in any distribution of assets of
the Corporation in proportion to the full liquidation preference to which each
is entitled. After payment in full pursuant to this Paragraph I(4)(a), the
holders of Series A Preferred Stock shall not be entitled to any further
participation in any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation.
-4-
51
5. Conversion.
(a) Right of Conversion. Each share of Series A Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series A Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
$100.00 by the Conversion Price. The "Conversion Price" for the Series A
Preferred Stock shall initially be $3.00 which shall be subject to adjustment as
set forth in Paragraph I(5)(c) hereof.
(b) Procedures for Voluntary Conversion. Before any holder of
shares of Series A Preferred Stock shall be entitled to convert any of such
shares into shares of Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series A Preferred Stock, and shall give written
notice by mail, postage prepaid, or hand delivery, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter but in no event later than three (3) business days following receipt
by the Corporation of the Series A Preferred Stock certificates surrendered for
conversion, issue and deliver at such office to such holders of shares of Series
A Preferred Stock, or to the nominee or nominees of such holders, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series A Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering the Series A Preferred Stock for conversion, be conditioned
upon the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive Common Stock issuable
upon such conversion of the Series A Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock until immediately prior to the closing
of such sale of securities.
(c) Adjustments of Conversion Price. The Conversion Price of
the Series A Preferred Stock shall be subject to adjustment from time to time as
follows provided, however, that no adjustment of the Conversion Price for Series
A Preferred Stock shall be made in an amount less than one-half of one cent
($0.005) per share, provided, that any adjustments that are less than less than
one-half of one cent ($0.005) per share shall be carried forward and shall be
taken into account in any subsequent adjustment to the Conversion Price:
(i) (A) Upon each issuance (or deemed issuance pursuant to
the provisions hereof) by the Corporation of any Additional Stock after the date
of issuance of Series
-5-
52
A Preferred Stock, the Conversion Price for the Series A Preferred Stock in
effect immediately prior to each issuance (or deemed issuance) shall be adjusted
to a price determined by multiplying such Conversion Price by a fraction, (1)
the numerator of which shall be the number of Common Stock Equivalents (as
defined in Paragraph II) outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received (or
deemed received) by the Corporation for such issuance would purchase at such
Conversion Price; and (2) the denominator of which shall be the number of Common
Stock Equivalents outstanding immediately after such issuance.
(B) In the case of the issuance of
securities of the Corporation for cash, the amount of consideration received by
the Corporation for such securities shall be deemed to be the amount of cash
paid therefor before deducting any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(C) In the case of the issuance of
securities of the Corporation for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to have a dollar value
equal to the fair market value of such non-cash consideration, irrespective of
any accounting treatment thereof, as determined by a majority of the Board of
Directors (including a majority of the Common Stock Directors), or, in the
alternative, a qualified independent appraiser selected by the Board of
Directors.
(D) In the case of the issuance after the
date of issuance of Series A Preferred Stock of Options or Convertible
Securities (as such terms are defined in paragraph (B)), the following
provisions shall apply for all purposes of this Paragraph I(5)(c)(i) and
Paragraph I(5)(c)(ii) hereof
(1) With respect to Options to purchase any common stock of
the Corporation, the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such Options shall be deemed to have been
issued at the time such Options were issued and for a consideration
equal to the consideration (determined in the manner provided in
Paragraph I(5)(c)(i)(B) and Paragraph I(5)(c)(i)(C) hereof), if any,
received by the Corporation for such Options plus the minimum exercise
price provided in such Options for the common stock issuable
thereunder.
(2) With respect to Convertible Securities and Options to
purchase Convertible Securities, the aggregate maximum number of shares
of common stock of the Corporation deliverable upon the conversion or
exchange of any such Convertible Securities and the aggregate maximum
number of shares of common stock of the Corporation issuable upon the
exercise of such Options to purchase Convertible Securities and the
subsequent conversion or exchange of such Convertible Securities shall
be deemed to have been issued at the time such
-6-
53
Convertible Securities or such Options were issued and for a
consideration equal to the consideration, if any, received by the
Corporation for any such Convertible Securities and Options, plus the
minimum additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such Convertible
Securities or the exercise of such Options and the conversion or
exchange of the Convertible Securities issuable upon exercise of such
Options (the consideration in each case to be determined in the manner
provided in Paragraph I(5)(c)(i)(B) and A(5)(c)(i)(C) hereof).
(3) The Conversion Price shall be adjusted, to the extent
provided herein, only at the time of the initial issuance of an Option
or Convertible Security, but not thereafter (as a result of the
exercise of the rights evidenced by such Option or Convertible Security
or otherwise) except as contemplated by Paragraph I(5)(c)(i)(D)(4).
(4) Upon the expiration or termination of any such Options or
any such rights to convert or exchange Convertible Securities, the
Conversion Price of the Series A Preferred Stock, to the extent in any
way affected by or computed using such Options or Convertible
Securities, shall be recomputed to reflect the issuance of only the
number of shares of common stock of the Corporation (and Options and
Convertible Securities which remain in effect) that were actually
issued upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities.
(5) The number of shares of common stock of the Corporation
deemed issued and the consideration deemed paid therefor pursuant to
Paragraph I(5)(c)(i)(D)(1) and (2) hereof shall be appropriately
adjusted to reflect any change, termination or expiration of the type
described in either Paragraph I(5)(c)(i)(D)(3) or (4) hereof.
Notwithstanding the foregoing, no adjustment of the Conversion Price pursuant to
this Paragraph I(5)(c)(i) shall have the effect of adjusting the Conversion
Price above $3.00 (such amount being subject to a proportionate adjustment to
reflect any event of the type described in Paragraph I(5)(c)(iii) and I(5)(d)
hereof), but an adjustment deferred under this sentence may be carried forward
to offset any future downward adjustment.
(ii) "Additional Stock" shall mean any shares of
common stock of the Corporation issued (or deemed to have been issued pursuant
to Paragraph I(5)(c)(i)(D) hereof) by the Corporation after the date of
issuance of Series A Preferred Stock, except:
(A) common stock of the Corporation issued
pursuant to a transaction described in Paragraph I(5)(c)(iii) hereof,
-7-
54
(B) Common Stock or options to purchase such
Common Stock issued to officers, employees or directors of, or consultants to,
the Corporation, pursuant to any agreement, plan or arrangement approved by the
Board of Directors of the Corporation;
(C) Common Stock issued or issuable upon
conversion of shares of Series A Preferred Stock;
(D) rights to purchase Common Stock issued
in connection with any stockholder rights plan approved by the Board of
Directors of the Corporation and which attaches to all shares of common stock
equally.
(E) Common Stock, Options or Conversion
Securities the issuance of which has not been approved by a majority of the
Board of Directors (including a majority of the Common Stock Directors).
(iii) In the event the Corporation at any time or
from time to time after the date of issuance of Series A Preferred Stock fixes a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of shares of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or Common Stock Equivalents without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be increased in proportion to such
increase in the aggregate number of shares issuable with respect to Common Stock
Equivalents, with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Paragraph I(5)(c)(i)(D) hereof.
(iv) If the number of shares of Common Stock
outstanding at any time after the date of issuance of Series A Preferred Stock
is decreased by a combination or reverse stock split of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be decreased in proportion to such
decrease in the outstanding shares of Common Stock.
(d) Recapitalization. If at any time or from time to time
there shall be a recapitalization or reclassification of Common Stock (other
than a subdivision, combination or consolidation, merger or sale of assets or
stock transaction provided for in Paragraph I(4) hereof), provision shall be
made so that each holder of shares of Series A Preferred Stock shall thereafter
be entitled to receive, upon conversion of the Series A Preferred Stock, the
number of
-8-
55
shares of stock or other securities or property of the Corporation or otherwise,
receivable upon such recapitalization or reclassification by a holder of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock could have been converted immediately prior to such recapitalization. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Paragraph I(5) with respect to the rights of the holders of
shares of Series A Preferred Stock after the recapitalization or
reclassification to the end that the provisions of this Paragraph I(5)
(including adjustments of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series A Preferred Stock) shall be
applicable after that event as nearly equivalently as may be practicable.
(e) No Impairment. The Corporation will not, by amendment of
this Certificate of Incorporation or through any reorganization,
recapitalization or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Paragraph I(5) and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of shares of Series A Preferred Stock against
impairment.
(f) No Fractional Shares. No fractional shares shall be issued
upon conversion of the Series A Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded down to the nearest whole share, and
there shall be no payment to a holder of shares of Series A Preferred Stock for
any such rounded fractional share. Whether or not fractional shares result from
such conversion shall be determined on the basis of the total number of shares
of Series A Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(g) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series A Preferred
Stock pursuant to this Paragraph I(5), the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of shares of Series A Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of shares
of Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustment and readjustment, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock. Unless a
holder of Series A Preferred Stock objects to the computation in such
certificate within thirty (30) days of its issuance, it shall be deemed binding
on the holders of the Series A Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any
-9-
56
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of shares of Series A Preferred Stock, at
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
(i) Reservation of Stock Issuable. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Preferred Stock, then
in addition to such other remedies as shall be available to the holder of such
shares of Series A Preferred Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes.
(j) Mandatory Conversion. (i) At any time after the third
Anniversary Date any share of Series A Preferred Stock shall, at the option of
the Corporation (as determined by the Common Stock Directors), automatically be
converted into fully paid and nonassessable shares of Common Stock at the
Conversion Price then in effect, provided, the Common Stock Market Price has
been greater than or equal to $6.00 (such amount being subject to a
proportionate adjustment to reflect any event of the type described in Paragraph
I(5)(c)(iii) and I(5)(d) hereof), (A) at any time during the preceding 12
months for forty (40) consecutive trading days, and (B) on the trading day
immediately preceding the day the Corporation exercises such option.
(ii) If the Corporation has elected to convert Series
A Preferred Stock into Common Stock pursuant to Paragraph I(5)(j)(i) above, the
Corporation will provide prior notice of mandatory conversion of shares of
Series A Preferred Stock to each holder of record of Series A Preferred Stock
not less than fifteen nor more than sixty (60) days prior to the date fixed for
conversion by first class mail, postage prepaid, to each holder at such holder's
address as it appears on the stock register of the Corporation. The
Corporation's obligation to deliver shares of Common Stock shall be deemed
fulfilled if, on the mandatory conversion date, the Corporation shall deposit
with a bank or trust company in Philadelphia, Pennsylvania having a capital of
at least $50,000,000, such number of shares of Common Stock as are required to
be delivered by the Corporation upon the conversion of Series A Preferred Stock
in trust for the account of holders of the shares to be converted, with
irrevocable instructions and authority to such bank or trust company that such
shares be delivered upon conversion of the shares of Series A Preferred Stock so
called for conversion. Provided the Corporation has fulfilled its obligation to
deposit shares as provided in the foregoing sentence, effective on the
conversion date fixed by
-10-
57
the Corporation and notified to the holders of Series A Preferred Stock, each
outstanding share of Series A Preferred Stock shall be converted into fully paid
and non-assessable shares of Common Stock at the Conversion Price then in
effect, automatically and without any action on the part of any holder of shares
of Series A Preferred Stock, and such shares of Common Stock shall be deemed
outstanding from and after the conversion date.
6. Redemption.
(a) Optional Redemption. (i) The Series A Preferred Stock may
be redeemed, at the option of the Corporation (as determined by the Common Stock
Directors), in whole or in part, at the Liquidation Preference on the date on
which such redemption is to be effective (the "Redemption Date"), plus an amount
equal to Accrued Dividends (whether or not earned or declared) accrued and
unpaid thereon, including Additional Dividends, to the Redemption Date and no
more, at any time after the third Anniversary Date provided that during the 12
months immediately preceding the Redemption Date for a period forty (40)
consecutive trading days the Common Stock Market Price has been greater than or
equal to $6.00 (such amount being subject to a proportionate adjustment to
reflect any event of the type described in Paragraph I(5)(c)(iii) and I(5)(d)
hereof).
(ii) If less than all of the shares of Series A
Preferred Stock are to be redeemed such shares shall be redeemed pro rata among
the outstanding shares of Series A Preferred Stock, with any fractional shares
rounded to the nearest whole share.
(b) Mandatory Redemption. Each share of Series A Preferred
Stock shall be redeemed by the Corporation, together with a redemption premium
equal to the Liquidation Preference on the Redemption Date, plus an amount equal
to Accrued Dividends (whether or not earned or declared) accrued and unpaid
thereon, including Additional Dividends, to the Redemption Date and no more, on
the fifth Anniversary Date.
(c) Procedure for Redemption. If the Corporation has elected
to redeem any shares of Series A Preferred Stock pursuant to Paragraph
I(6)(a)(i) above or is required to redeem all shares of Series A Preferred Stock
into Common Stock pursuant to Paragraph I(6)(b) above, the Corporation shall
cause to be mailed to each holder of Series A Preferred Stock, at their last
addresses as they shall appear upon the Series A Preferred Stock register, at
least 15 days prior to the Redemption Date, a notice stating the date on which
such redemption is to be effective. Failure to give any such notice, or any
defect therein, shall not affect the validity of such a redemption. Any holder
of Series A Preferred Stock shall continue to have the right to convert such
stock in accordance with the provisions of Paragraph I(5) at any time on or
prior to the Redemption Date.
On or after the Redemption Date, the holders of Series A Preferred
Stock which have been redeemed shall surrender their certificates representing
such shares to the Corporation at its principal place of business or as
otherwise notified, and thereupon the redemption price of such
-11-
58
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the Redemption Date, unless there
shall have been a default in payment of the redemption price upon tender of the
shares for payment, all rights of the holders of such shares of Series A
Preferred Stock, except the right to receive the redemption price without
interest upon surrender of their certificate or certificates, shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever.
7. Status of Converted and Redeemed Stock. In the event any
shares of Series A Preferred Stock are converted to Common Stock pursuant to
Paragraph I(5) hereof or redeemed pursuant to Paragraph I(6) hereof, the shares
so converted or redeemed shall be canceled and shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series.
8. Voting Rights.
(a) General. Other than as set forth below and except as
provided by applicable law, the holders of Series A Preferred Stock shall be
entitled to vote together with the holders of Common Stock on all matters to be
voted on by the Corporation's holders of Common Stock. When voting together with
the holders of Common Stock on any matter, each share of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such share is convertible as provided in Paragraph I (5)
hereof as of the record date applicable to such vote (with any fractional share
determined on an aggregate conversion basis being rounded down to the nearest
whole share).
(b) Class Voting Rights. (i) Except as otherwise provided
below, a vote of at least a majority of the Series A Preferred Stock then
outstanding shall be sufficient to take any action requiring the vote of the
Series A Preferred Stock as a separate class. At any meeting where the Series A
Preferred Stock shall have the right to vote as a separate class, the presence,
in person or by proxy, of a majority of the outstanding shares of Series A
Preferred Stock shall constitute a quorum of such class.
(ii) So long as any Series A Preferred Stock is
outstanding, the Corporation shall not, without the affirmative vote or consent
of the holders of at least a majority (unless a higher percentage shall then be
required by applicable law) of all outstanding shares of Series A Preferred
Stock voting separately as a class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting called for this
purpose (A) amend, alter or repeal any provision of the Certificate of
Incorporation of the Corporation, as amended, so as to affect, in any manner
adverse to the holders of Series A Preferred Stock, the relative rights,
preferences, qualifications, limitations or restrictions of the Series A
Preferred Stock; (B) issue any Common Stock Equivalents in an amount excess of
twenty percent (20%) of the Common Stock outstanding on the date such Common
Stock Equivalents are issued; (C) incur any indebtedness for money borrowed in
excess of twenty percent (20%) of the
-12-
59
indebtedness outstanding on the date such debt is incurred (for this purpose
outstanding indebtedness shall include the maximum amount that can be drawn by
the Company under its then existing credit lines and credit agreements and draw
downs under such credit lines and agreements shall not be deemed to be an
incurrence of additional debt); (D) sell all or substantially all of the assets
of the Corporation; (E) voluntarily liquidate the Corporation; or (F) take any
other action on which the holders of Series A Preferred Stock shall be entitled
by law to vote separately as a class. The holders of at least a majority (unless
a higher percentage shall then be required by applicable law) of all outstanding
shares of Series A Preferred Stock voting separately as a class may waive any or
all of the rights and privileges of Series A Preferred Stock hereunder,
including the right to receive any dividend or liquidation preference otherwise
due.
(c) Board of Directors. During such time as any share of
Series A Preferred Stock is outstanding:
The Board of Directors of the Corporation shall
consist of not less than nine directors. At each annual meeting of the
stockholders of the Corporation, and at each special meeting of the stockholders
of the Corporation called for the purpose of electing directors of the
Corporation, and at any time at which stockholders of the Corporation shall have
the right to, or shall, vote for or consent in writing to the election of
directors of the Corporation, then, and in each such event, (i) the holders of
record of shares of Common Stock, voting together as a single class, shall elect
three directors (collectively, the "Common Stock Directors"), (ii) the holders
of record of shares of Series A Preferred Stock, voting together as a separate
class, shall be entitled to elect the following number of directors (the "Series
A Preferred Stock Directors") at such time as there are the number of shares of
Series A Preferred Stock outstanding set forth below:
60,000 shares or more 6 directors
50,000 shares or more but less than 60,000 shares 5 directors
40,000 shares or more but less than 50,000 shares 4 directors
30,000 shares or more but less than 40,000 shares 3 directors
20,000 shares or more but less than 30,000 shares 2 directors
10,000 shares or more but less than 20,000 shares 1 director.
Directors who are not classified as Common Stock Directors or Series A Preferred
Stock Directors shall be elected by the holders of Common Stock and shall be
classified as "Other Directors". At any such meeting called for the purpose of
electing directors, the presence, in person or by proxy, of (i) the holders of
record of a majority of the shares of Series A Preferred Stock then outstanding,
in the case of the election of the Series A Preferred Stock Directors, and (ii)
the holders of record of a majority of the shares of Common Stock then
outstanding, in the case of the election of the Common Stock Directors and Other
Directors, shall constitute a quorum for the election of directors to be elected
by such holders. The nominations presented by the Board of Directors to the
stockholders at any such meeting shall with respect to Common Stock Directors be
determined by the Common Stock Directors, with respect to Series A
-13-
60
Preferred Stock Directors by the Series A Preferred Stock Directors and with
respect to Other Directors by the Board of Directors. A vacancy among the Series
A Preferred Stock Directors shall be filled only by the remaining Series A
Preferred Stock Directors or by vote of the holders of record of shares of
Series A Preferred Stock in the manner set forth herein. A vacancy among the
Common Stock Directors shall be filled only by the remaining Common Stock
Directors or by vote of the holders of record of shares of Common Stock in the
manner set forth herein. A vacancy among the Other Directors, whether created by
an increase in number of directors on the Board of Directors or by a reduction
in the number of Series A Preferred Stock Directors pursuant to the provisions
hereof, shall be filled by the Board of Directors or by vote of the holders of
record of shares of Common Stock in the manner set forth herein. Each Common
Stock Director who shall have been elected as provided in this Paragraph I(8)
may be removed during his term of office, whether with or without cause, only by
the holders of record of a majority of shares of Common Stock then outstanding,
and each Series A Preferred Stock Director who shall have been elected as
provided in this Paragraph I(8) may be removed during his term of office,
whether with or without cause, only by the holders of record of a majority of
the shares of Series A Preferred Stock then outstanding. At elections of Series
A Preferred Stock Directors, each holder of Series A Preferred Stock shall be
entitled to one vote per share. Each Common Stock Director, each Series A
Preferred Stock Director and each Other Director shall be entitled to one vote
on all matters on which directors are entitled to vote.
9. Notices. Any notice required to be given to the holders of
shares of Series A Preferred Stock shall be deemed given when received if
delivered via courier or sent by facsimile, by telex, or by United States mail,
postage prepaid, and addressed to each holder of record at his, her or its
address appearing on the books of the Corporation.
10. Transfer Restrictions. (a) Each certificate for each share of
Series A Preferred Stock shall bear the following legend:
The shares represented hereby are not registered under the
Securities Act of 1933, are "restricted securities" as defined
under that Act and are held subject to the terms, covenants
and conditions set forth in the Certificate of Designation
establishing the 7 1/2% Series A Redeemable Convertible
Preferred Stock, and may not be transferred or disposed of
except in accordance with the terms and provisions thereof and
in compliance with appropriate legal requirements.
Any share certificate issued at any time in exchange or substitution
for any share certificate bearing such legend shall also bear such legend.
(b) Shares of Series A Preferred Stock and the rights
evidenced thereby shall not be assignable or transferrable by the holder without
the consent of the Corporation (as determined by the Common Stock Directors);
provided, however, that the foregoing shall not
-14-
61
limit or restrict (i) the assignment or transfer of Common Stock into which
Series A Preferred Stock shall have been converted or (ii) the distribution of
the proceeds of (x) cash dividends on the Series A Preferred Stock or (y)
proceeds from any redemption of the Series A Preferred Stock. Nothing herein
shall be deemed to imply any restriction on the transfer of ownership interests
in a holder that is a limited partnership.
II. Definitions. As used herein, the following terms shall have the
following definitions:
(a) "Accumulated Dividends" means with respect to any share of
Series A Preferred Stock, the dividends that have accrued on such shares as of
such specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid, including Additional Dividends.
(b) "Additional Dividends" has the meaning given to such term
in Paragraph I (3)(a).
(c) "Additional Stock" has the meaning set forth in Paragraph
I (5)(c)(ii) hereof.
(d) "Anniversary Date" means the anniversary of the date of
issuance of the first share of Series A Preferred Stock.
(e) "Common Stock"shall have the meaning set forth in
Paragraph I (2) hereof.
(f) "Common Stock Market Price" for any day means:
(i) if the shares of Common Stock are listed or
admitted to trading on any national securities exchange, the last sale price
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices regular way, in either case as reported on the
principal national securities exchange on which such shares are listed or
admitted to trading; or,
(ii) if shares of Common Stock are not so listed or
admitted but are designated as national market system securities by the NASD the
last sale price, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, in either case as reported on the NASD
Automated Quotation/National Market System; or
(iii) if shares of Common Stock are not so designated
as national market system securities, the average of the highest reported bid
and lowest reported asked prices as furnished by the NASD (or any similar
organization if the NASD is no longer reporting such information) or as
determined by the Common Stock Directors if no such report is available.
-15-
62
(g) "Common Stock Directors" has the meaning set forth in
Paragraph I(8)(b) hereof.
(h) "Common Stock Equivalents" means any shares of any class
of common stock of the Corporation and any other securities or rights
convertible into, or entitling the holder thereof to receive, directly or
indirectly, additional shares of any class of common stock of the Corporation.
(i) "Conversion Price" has the meaning set forth in
Paragraph I(5)(a) hereof.
(j) "Conversion Price Adjustment Date" has the meaning set
forth in Paragraph I(5)(a) hereof.
(k) "Convertible Securities" means any indebtedness or shares
of stock convertible into or exchangeable for shares of any class of common
stock of the Corporation; provided, however, that any series of Preferred Stock
of the Corporation expressly contemplated as being issued pursuant to the
Securities Purchase Agreement, dated as of April ___, 1999, among the
Corporation and the investors named therein shall not constitute Convertible
Securities.
(l) "Corporation" has the meaning set forth in preamble
hereto.
(m) " Dividend Payment Date" has the meaning set forth in
Paragraph I(3)(c) hereof.
(n) "Dividend Payment Election Notice" has the meaning set
forth in Paragraph I(3)(c) hereof.
(o) "Dividend Period" means the means the annual period
commencing on the later of date of the issuance of the first share of Preferred
Stock or the most recent anniversary thereof and ending on the day immediately
the next anniversary thereof.
(p) "Effective Price" of shares of Additional Stock means the
quotient determined by dividing (i) the total number of such shares of
Additional Stock issued or sold, or deemed to have been issued or sold, by the
Corporation under Paragraph I(5) hereof, into (ii) the consideration received
by the Corporation under Paragraph I(5) hereof for the issuance of such shares
of Additional Stock.
(q) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(r) "Liquidation Preference" has the meaning set forth in
Paragraph I(4) hereof.
-16-
63
(s) "NASD"means the National Association of Securities
Dealers, Inc.
(t) "Option" means rights, options or warrants to subscribe
for, purchase or otherwise acquire shares of any class of common stock of the
Corporation or Convertible Securities; provided, however, that any series of
warrants or Convertible Securities of the Corporation expressly contemplated as
being issued pursuant to the Securities Purchase Agreement, dated as of April
___, 1999, among the Corporation and the investors named therein shall not
constitute Options.
(u) "Quarterly Dividend Payment Date" means [insert dates of
end of each of quarter] of each year (or, if any such day is not a business day,
the next succeeding day that is a business day).
(v) "Redemption Date" has the meaning set forth in
Paragraph I(6)(a) hereof.
(w) "Series A Junior Payment Date" has the meaning set forth
in Paragraph I(3)(e) hereof.
(x) "Series A Junior Securities" has the meaning set forth in
Paragraph I(2) hereof.
(aa) "Series A Preferred Stock"shall have the meaning set
forth in Paragraph I(1)(b) hereof.
(bb) "Series A Preferred Stock Director" shall have the
meaning set forth in Paragraph I(8)(b) hereof.
(cc) "Other Director" shall have the meaning set forth in
Paragraph I(8)(b) hereof.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed on the ___ day of ________________, 199__.
------------------------------
-17-
64
EXHIBIT B
THE INVESTMENT INCENTIVE WARRANT REPRESENTED HEREBY AND THE
SHARES ISSUABLE UPON EXERCISE THEREOF ARE NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR DISPOSED OF
EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS SET FORTH IN THIS
WARRANT CERTIFICATE AND IN COMPLIANCE WITH APPROPRIATE LEGAL
REQUIREMENTS.
SERIES A INVESTMENT INCENTIVE WARRANT
TO PURCHASE SHARES OF COMMON STOCK OF
CANISCO RESOURCES, INC.
Certificate No. ____ Dated:________ , 1999
This Series A Investment Incentive Warrant
Shall be Void after 5:00 p.m.,
Wilmington, Delaware time,
____________, 2006
THIS IS TO CERTIFY THAT, for value received, SCC INVESTMENT I,
L.P. (the "Holder") is entitled to purchase from Canisco Resources, Inc., a
Delaware corporation ("Company"), for the Series A Investment Incentive Warrant
(the "Investment Incentive Warrant") represented by this certificate (the
"Warrant Certificate"), at any time on and after the Effective Date (as defined
in Article 1.2) and at or prior to 5:00 p.m., Wilmington, Delaware time, on
____________, 2006 (the "Expiration Time"), at the par value per share (the
"Exercise Price") such number of shares of Common Stock, par value $.0025 per
share (the "Common Stock"), of the Company as represent 11% of the Fully Diluted
Common Stock (as defined in Article 1.2) at the Effective Date, all subject to
adjustment and upon the terms and conditions as hereinafter provided, and is
entitled also to exercise the other rights described below. To the extent not
exercised previously, the Holder's rights under the Investment Incentive Warrant
represented by this Warrant Certificate will become void at the Expiration Time.
65
ARTICLE I
EXERCISE OF INVESTMENT INCENTIVE WARRANT
1.1. Method of Exercise. To exercise the Investment Incentive
Warrant, the Holder shall deliver to Company, at the principal office of
Company, (a) this Warrant Certificate, (b) a written notice, in substantially
the form of the Subscription Notice attached hereto, of such Holder's election
to exercise the Investment Incentive Warrant, (c) payment of the Exercise Price
with respect to such shares, and (d) the representation required by Section 2.3
hereof. Payment of the Exercise Price may be made, at the option of the Holder,
by cash, certified or bank cashier's check or wire transfer.
As promptly as practicable after receipt of the items referred
to above, Company shall execute and deliver to the Holder, in accordance with
such notice, a certificate or certificates representing the aggregate number of
shares of fully paid and non-assessable Common Stock the Investment Incentive
Warrant is exercisable for pursuant to Section 1.2. Such certificate or
certificates shall be deemed to have been issued, and such Holder shall be
deemed for all purposes to have become a holder of record of such shares, as of
the date the Subscription Notice and payment in full of the Exercise Price is
received by Company. In the event of an overpayment with respect to the Exercise
Price, Company will promptly reimburse Holder for any amount representing an
overpayment. In the event of an underpayment with respect to the Exercise Price,
Company will issue a certificate or certificates representing the aggregate
number of shares for which payment has been received in full and Company will
advise Holder of the amount underpaid and, upon payment of the balance due,
issue the remaining shares. In the event of an underpayment Holder will have no
rights as a shareholder with respect to any of the shares issuable upon exercise
for which the Exercise Price has not been paid in full until such payment has
been received by Company at which time Holder shall be deemed for all purposes
to have become a holder of record of such shares. Company shall pay all
expenses, taxes (if any) and other charges payable in connection with the
preparation, issuance and delivery of all share certificates.
1.2. Exercisability.
The Investment Incentive Warrant shall become exercisable
subject to the conditions set forth below:
(i) As used herein:
(A) "EBITDA" means for any period, the sum of (i) net income,
plus (ii), to the extent deducted in determining net income, (A) consolidated
interest expense, (B) taxes and (C) depreciation, amortization and non-recurring
non-cash charges, in each case as determined in accordance with generally
accepted accounting principles in the United States ("GAAP"), applied on a
consistent basis and in accordance with the accounting policies used by the
Company in the preparation of its consolidated annual financial statements.
-2-
66
(B) "Effective Date" is the month ending date of the internal
financial statements of Company that evidences for the 12 month period ending on
the date of the financial statements, that Company's Revenues exceed $200
million and also EBITDA for Company for such period exceeds $12.0 million. For
this purpose a 12 month period may include portions of two fiscal years.
(C) "Revenues" means, for any period, the revenues for such
period, as determined in accordance with GAAP, applied on a consistent basis and
in accordance with the accounting policies used by the Company in the
preparation of its consolidated annual financial statements.
(D) "Fully Diluted Common Stock" means the aggregate number of
shares of common stock of any class of the Company outstanding at the Effective
Date, assuming and after giving effect to the full exercise or conversion of all
options, warrants, rights and securities exercisable or convertible into common
stock on the Effective Date, but excluding all shares of common stock issued or
issuable (x) upon the exercise of the options issued in connection with the
Consulting Employee Agreement, dated April 14, 1999, between the Company and the
Company's then President, (y) upon the exercise of the Investment Incentive
Warrant, and (z) upon conversion of Company's 7 1/2% Series A Redeemable
Convertible Preferred Stock.
(ii) The Investment Incentive Warrant may be exercised only on
or after the Effective Date and at or prior to the Expiration Time. Company
shall notify Holder promptly of the occurrence of the Effective Date and the
number of shares for which the Investment Incentive Warrant has become
exercisable.
(iii) The Investment Incentive Warrant shall be exercisable at
the Exercise Price for such number of shares of Common Stock of the Company as
represent 11% of the Fully Diluted Common Stock at the Effective Date, subject
to adjustment as set forth in Article III.
1.3. No Fractional Shares to Be Issued. Company shall not be
required to issue fractions of shares of Common Stock upon exercise of the
Investment Incentive Warrant. If any fraction of a share would, but for this
Section, be issuable upon any exercise of the Investment Incentive Warrant, if
the fraction shall be less than one-half, the number of shares issuable shall be
rounded downward to the nearest whole number; otherwise the number of shares
issuable shall be rounded upward to the nearest whole number.
1.4. Share Legend. Each certificate for shares of Common Stock
issued upon exercise of the Investment Incentive Warrant shall bear the
following legend, unless at the time of exercise such shares are registered
under the Securities Act:
The shares represented hereby are not registered under
the Securities Act of 1933 and are "restricted
securities" as defined under that Act.
-3-
67
Any share certificate issued at any time in exchange or
substitution for any share certificate bearing such legend (except a new
certificate issued upon completion of a public distribution pursuant to a
registration statement under the Securities Act of 1933 - the "Securities Act")
shall also bear such legend unless the holder thereof shall deliver an opinion
of counsel, which is satisfactory in form and substance to counsel for Company,
that the shares represented thereby are no longer subject to restrictions on
resale under the Securities Act or the agreement referred to in such legend.
ARTICLE II
TRANSFER, EXCHANGE AND REPLACEMENT
OF WARRANT
2.1. Ownership of Investment Incentive Warrant. Company may
deem and treat the Holder as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by any person) for all purposes
and shall not be affected by any notice to the contrary, until presentation of
this Warrant Certificate for transfer as provided in this Article II.
2.2. Loss, Theft, Destruction or Mutilation of Warrant
Certificate. Upon receipt of evidence satisfactory to Company of the loss,
theft, destruction or mutilation of this Warrant Certificate and, in the case of
any such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to Company or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant Certificate, Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant
Certificate, a new Warrant Certificate of like tenor and representing the
Investment Incentive Warrant as provided for herein.
2.3. Transfer Restrictions. The Investment Incentive Warrant
may not be assigned or transferred without the consent of the Company. Nothing
herein shall be deemed to imply any restriction on the transfer of limited
partnership interests of the Holder. By acceptance of this Warrant Certificate
and the Investment Incentive Warrant it represents, the Holder acknowledges that
it is acquiring the Investment Incentive Warrant for such Holder's own
individual account, and not with a view to distribution or resale in violation
of the registration requirements Securities Act and applicable state securities
law. Upon exercise of the Investment Incentive Warrant, the Holder will make a
similar written representation with respect to the shares to be received upon
exercise unless, in an opinion of counsel which is satisfactory in form and
substance to counsel for Company, such representation is not necessary or
appropriate to assure compliance with the registration provisions of the
Securities Act or any applicable state securities laws. Notwithstanding anything
herein to the contrary, no transfer may be made of the shares acquired on the
exercise hereof (except a sale of shares registered under the Securities Act)
unless Company has received an opinion of counsel which is satisfactory in form
and substance to counsel for Company that such transfer can be made in
compliance with the Securities Act or such applicable state securities laws.
-4-
68
ARTICLE III
ANTIDILUTION PROVISIONS
3.1 Certain Adjustments. If, after the Effective Date and
prior to the date the Investment Incentive Warrant is exercised Company (i) pays
a dividend in shares of Common Stock or makes a distribution in shares of Common
Stock, in either case to holders of Common Stock, (ii) subdivides its
outstanding shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv) issues, by
reclassification or reorganization, other securities of Company or property to
all holders of Common Stock, an adjustment shall be made in the number of shares
issuable hereunder so that Holder shall be entitled to receive the kind and
number of shares of Common Stock or other securities of Company which he would
have owned or have been entitled to receive if the shares had been issued to him
immediately prior to any such event or any record date with respect thereto,
whichever first occurs, and his shares had participated in such event. The
principle set forth in this paragraph shall apply successively to each event
described in this paragraph. Company will advise the Holder on request about any
adjustments that have been made and the number of shares or other securities
that are issuable upon exercise, as well as any adjustments that have been made
in the Exercise Price.
ARTICLE IV
MISCELLANEOUS
4.1. Notices. All notices, requests, demands and other
communications required or permitted to Company hereunder shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or three days after being deposited in the United States mails,
registered or certified mail, postage prepaid, return receipt requested,
addressed to (i) if to Company, at its then principal executive office, marked
to the attention of its President, and (ii) if to Holder, at his most recent
residence address supplied in writing to Company by Holder.
4.2. Amendments. The provisions of the Investment Incentive
Warrant represented hereby may be amended, modified or waived by written consent
of Company and Holder.
4.3. No Rights as Shareholder. The Investment Incentive
Warrant shall not entitle the Holder to any rights as a shareholder of Company
either in law or in equity, unless and until the Holder exercises the right to
purchase Common Stock as provided herein and subject to the provisions of
Section 1.1 hereof.
4.4. Decision Making. For so long as any shares of Company's
7 1/2% Series A Redeemable Convertible Preferred Stock remain outstanding, all
decisions to be made by the Company with respect to the Investment Incentive
Warrant shall be made by the Common Stock Directors (as defined in the
Certificate of Designation for such preferred stock).
-5-
69
IN WITNESS WHEREOF, Company has caused this Warrant
Certificate to be executed on _________ , 1999.
CANISCO RESOURCES, INC.
By:
--------------------------
Xxxxx X. Xxxxxx, President
-6-
70
SUBSCRIPTION NOTICE
(To be executed for exercise of the Investment Incentive Warrant)
To: Canisco Resources, Inc.
The undersigned hereby irrevocably elects to exercise the
right of purchase under the Investment Incentive Warrant represented by the
attached Warrant Certificate, and to purchase thereunder, the number of shares
of Common Stock such Investment Incentive Warrant may be exercised for, and
tenders herewith payment of the Exercise Price in full in the form of cash,
certified or bank cashier's check or wire transfer in the amount of $_____. *
* Complete this number based on the number of shares each
Investment Incentive Warrant may be exercised for and the Exercise Price.
Company will issue the number of shares corresponding to the Exercise Price paid
up to the maximum number due upon exercise and promptly reimburse any
overpayment. In the event of an underpayment Company will advise Holder and upon
payment of the balance due issue the remaining shares. Holder will have no
rights as a shareholder with respect to any of the shares issuable upon exercise
until payment in full of the Exercise Price for such shares.
Company will notify Holder promptly of the occurrence of the
Effective Date and the number of shares for which each Investment Incentive
Warrant may be exercised, thereafter Company will advise the Holder on request
about any adjustments that have been made and the number of shares or other
securities that are issuable upon exercise, as well as any adjustments that have
been made in the Exercise Price.
Note: An investment representation must be attached if
required by Section 2.3 of the Warrant Certificate.
Dated: _________________
Note: The above signature should correspond exactly with the
name on the face of the attached Warrant Certificate or with the name of the
assignee appearing in the assignment form below.
-7-
71
EXHIBIT C
FORM OF OPINION OF COUNSEL TO THE COMPANY
SCC Investment I, L.P.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx. XX 00000
Ladies and Gentlemen:
We have acted as counsel for Canisco Resources, Inc., a Delaware
corporation (the "Company"), in connection with the execution and delivery of a
Securities Purchase Agreement (the "Agreement") dated as of April 16, 1999 by
and among SCC Investment I, L.P., a Texas limited partnership (the "Investor"),
Sterling City Capital LLC, a Texas limited liability company ("Sterling") and
the Company. This opinion is delivered to you pursuant to Section 5.1(i) of the
Agreement. All capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement.
In connection with the rendering of the opinion set forth below, we
have examined originals, or copies certified or otherwise identified to our
satisfaction, of the following documents:
(a) the Agreement and its Exhibits and Schedules;
(b) the Certificate of Incorporation and the By-laws, each as
amended, of the Company;
(c) resolutions of the Board of Directors and Shareholders of the
Company; and
(d) such other documents, corporate records, certificates or other
instruments as we have deemed necessary or appropriate for the
purpose of this opinion.
In rendering this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as facsimile
or photostatic copies and the authenticity of the originals of such latter
documents. Also, we have assumed that the Agreement and all documents delivered
pursuant thereto have been duly authorized by, and are legally valid, binding
and enforceable on, each signatory thereto other than the Company.
As to questions of fact material to the opinions hereinafter expressed,
we have relied solely and without investigation upon certificates of public
officials, certificates of officers of the Company and the factual
representations of the Company contained in the Agreement (including the
Exhibits and Schedules thereto) and the documents delivered pursuant thereto.
72
Based upon the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the full
legal right and power required to execute and deliver the Agreement and
to perform its obligations thereunder.
2. The execution, delivery and performance of the Agreement by the Company
and each of the documents to be delivered by the Company thereunder has
been duly authorized by the directors of the Company and, to the extent
required by applicable law, by the shareholders and by all necessary
corporate action.
3. The Agreement is a legally valid and binding obligation of the Company
enforceable in accordance with its terms, except that (i) such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application
relating to or affecting the rights and remedies of creditors, and by
general principles of equity (whether considered in an action at law or
in equity), and (ii) certain remedial, waiver and other provisions
contained in the Agreement may be unenforceable, limited by applicable
law or subject to the discretion of courts in enforcing such
provisions.
4. The execution and delivery of the Agreement, the consummation of the
transactions provided for therein, and the fulfillment of the terms
thereof will not breach any of the terms and provisions of, or conflict
with, the Certificate of Incorporation or By-Laws of the Company.
5. The issuance of the Purchased Securities is not subject to preemptive
or other similar rights arising by law or, to our knowledge, otherwise.
6. The Preferred Stock has been duly authorized by the Company and
reserved for issuance and, when issued and delivered by the Company in
accordance with the provisions of the Agreement, such shares of
Preferred Stock will be legally issued, fully paid and nonassessable.
7. The Preferred Stock when issued will be a valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditor's rights generally and
general principles of equity (whether considered in an action at law or
in equity).
8. The Warrant is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws
73
affecting the enforcement of creditor's rights generally and general
principles of equity (whether considered in an action at law or in
equity).
9. The Company has authorized and reserved for issuance the Conversion
Shares issuable upon conversion of the Preferred Stock and upon
exercise of the Warrants and, assuming the Preferred Stock is converted
and the Warrants are exercised in accordance with their respective
terms, the Conversion Shares issued in respect thereto will be legally
issued, fully paid and nonassessable.
10. To our knowledge, except as set forth in the Agreement or the Schedules
thereto, the Company is not a party to, or threatened with, any suit,
action, arbitration, administration or other proceeding, or
governmental investigation, and, to our knowledge, there is no judgment
decree, award or order outstanding against the Company, in each case
which would have a material adverse effect on the Company's ability to
execute the Agreement or to carry out its obligations thereunder.
The opinions expressed herein are also subject to the following
assumptions, qualifications, limitations and exceptions:
(a) wherever we have stated we assumed any matter, it is
intended to indicate that we have assumed such matter without making any
factual, legal or other inquiry or investigation, and without expressing any
opinion or conclusion of any kind concerning such matter;
(b) whenever our opinion herein with respect to the existence
or absence of facts is qualified by the phrase "to our knowledge" or words of
similar import, it is intended to indicate that no information has come to the
attention of lawyers currently with our Firm who have worked on the transactions
contemplated by the Agreement which would give them actual knowledge of the
existence or absence of such fact, as appropriate; moreover, we have not
undertaken any independent investigation to determine the existence or absence
of such facts, and any limited inquiries made by us during the presentation of
this opinion should not be regarded as such an investigation;
(c) with respect to Section 4.14 of the Agreement which
relates to the benefits of the registration rights available with respect to the
Conversion Shares, we disclaim any opinion as to the validity or enforceability
of the indemnification and contribution provisions contained in such section.
(d) the opinions set forth herein are limited to the laws of
Pennsylvania, the federal laws of the United States of America and the General
Corporation Law of Delaware;
(e) this opinion is given as of the date hereof and we assume
no obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur; and
74
(f) this opinion is solely for your benefit in connection with
the above-referenced transaction and it may not be relied upon by, nor may
copies be delivered to, any other person, and it may not be used for any other
purpose without our prior written consent.
Very truly yours,
WOLF, BLOCK, XXXXXX and XXXXX-XXXXX LLP
75
EXHIBIT D
FORM OF OPINION OF COUNSEL TO THE INVESTOR AND STERLING
Canisco Resources, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Ladies and Gentlemen:
We have acted as counsel to SCC Investment I, L.P., a Texas limited
partnership (the "Investor"), SCC Investment II, L.L.C., a Texas limited
liability company ("General Partner") and Sterling City Capital LLC, a Texas
limited liability company ("Sterling" and, together with the Investor and
General Partner, the "Investor Entities") in connection with a Securities
Purchase Agreement dated as of April 16, 1999, (the "Agreement") by and among
the Investor, Sterling and Canisco Resources, Inc., a Delaware corporation (the
"Company"). This opinion is furnished to you pursuant to Section 5.2(e) of the
Agreement. All capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement.
In connection with the rendering of the opinion set forth below, we
have examined originals, or copies certified or otherwise identified to our
satisfaction, of the following documents:
(a) the Agreement and its Exhibits and Schedules;
(b) the governing documents, each as amended, of each of the
Investor Entities;
(c) resolutions of the board or equivalent entity of each of the
Investor Entities; and
(d) such other documents, corporate records, certificates or other
instruments as we have deemed necessary or appropriate for the
purpose of this opinion.
In rendering this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as facsimile
or photostatic copies and the authenticity of the originals of such latter
documents. Also, we have assumed that the Agreement and all documents delivered
pursuant thereto have been duly authorized by, and are legally valid, binding
and enforceable on, each signatory thereto other than the Investor and Sterling.
As to questions of fact material to the opinions hereinafter expressed,
we have relied solely and without investigation upon certificates of public
officials, certificates of officers of the Investor Entities and the factual
representations of the Investor and Sterling contained in the Agreement
(including the Exhibits and Schedules thereto) and the documents delivered
pursuant thereto.
76
Based upon the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
1. Each of the Investor Entities is duly formed, validly existing and in
good standing under the laws of the State of Texas, with all requisite
power and authority to own its properties and to carry on the business
in which it is now engaged.
2. The execution, delivery and performance of the Agreement and each of
the documents to be delivered by each of the Investor Entities
thereunder has been duly authorized by all requisite partnership
corporate action on the part of the Investor and Sterling, as
applicable, and has been duly executed and delivered.
3. To our knowledge, the Agreement is a legally valid and binding
obligation of the Investor and Sterling enforceable in accordance with
its terms, except that (i) such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws of general application relating to or affecting the rights
and remedies of creditors, and by general principles of equity (whether
considered in an action at law or in equity), and (ii) certain
remedial, waiver and other provisions contained in the Agreement may be
unenforceable, limited by applicable law or subject to the discretion
of courts in enforcing such provisions.
4. The execution and delivery of the Agreement, the consummation of the
transactions provided for therein, and the fulfillment of the terms
thereof, will not breach any of the terms and provisions of, or
conflict with, the governing documents of the Investor Entities.
5. To our knowledge, none of the Investor Entities is an "investment
company" or a company "controlled by" an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder.
6. To our knowledge, none of the Investor Entities is a party to, or
threatened with, any suit, action, arbitration, administrative or other
proceeding, or governmental investigation, and, to our knowledge, there
is no judgment, decree, award or order outstanding against any of the
Investor Entities, in each case which would have a material adverse
effect on the Investor Entities' ability to execute the Agreement or to
carry out their obligations thereunder.
The opinions expressed herein are also subject to the following
assumptions, qualifications, limitations and exceptions:
(a) wherever we have stated we assumed any matter, it is
intended to indicate that we have assumed such matter without making any
factual, legal or other inquiry or
77
investigation, and without expressing any opinion or conclusion of any kind
concerning such matter;
(b) whenever our opinion herein with respect to the existence
or absence of facts is qualified by the phrase "to our knowledge" or words of
similar import, it is intended to indicate that no information has come to the
attention of lawyers currently with our Firm who have worked on the transactions
contemplated by the Agreement which would give us actual knowledge of the
existence or absence of such fact, as appropriate, moreover, we have not
undertaken any independent investigation to determine the existence or absence
of such facts, and any limited inquiries made by us during the presentation of
this opinion should not be regarded as such an investigation;
(c) the opinions set forth herein are limited to the laws of
Texas, the federal laws of the United States of America and the General
Corporation Law of Delaware;
(d) this opinion is given as of the date hereof and we assume
no obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur; and
(e) this opinion is solely for your benefit in connection with
the above-referenced transaction and it may not be relied upon by, nor may
copies be delivered to, any other person, and it may not be used for any other
purpose without our prior written consent.
Very truly yours,
XXXXXXXXX & XXXXXXXXX, L.L.P.
78
EXHIBIT E
FORM OF NOTICE FOR SUBSEQUENT CLOSINGS
SCC Investment I, L.P.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx. XX 00000
Attention: Mr. C. Xxxxx Xxxxxx
Fax: (713) 243 -7333
This notice is given pursuant to the Securities Purchase Agreement (the
"Agreement") dated as of April 16 , 1999 by and among SCC Investment I, L.P., a
Texas limited partnership (the "Investor"), Sterling City Capital L.L.C., a
Texas limited liability company ("Sterling") and Canisco Resources, Inc., a
Delaware corporation (the "Company"). All capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Agreement.
Pursuant to Section 5.3 of the Agreement the Company hereby elects to exercise
its right to require the Investor to purchase _________* shares of 7 1/2% Series
A Redeemable Convertible Preferred Stock for an aggregate purchase price of
$_____.
Date of the Subsequent Closing: ________________**
The aggregate purchase price should be transferred on or prior to such
Subsequent Closing Date in funds that will be immediately available as of such
Subsequent Closing Date to the following account:
Bank:
Account number:
Account name:
ABA No:
Reference:
CANISCO RESOURCES, INC.
By:
---------------------
Name:
Title:
* This number may not be less than the lesser of 5,000 shares of
Preferred Stock or the remaining number of shares the Investor is obligated to
purchase under the Agreement.
** This date must be at least fourteen (14) days after the date the
Investor shall have received the notice.
