Exhibit 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February 11,
1999, by and among Infonautics, Inc., a Pennsylvania corporation, with
headquarters located at 000 Xxxx Xxxxxx Xxxx, Xxxxx 000, Xxxxx, Xxxxxxxxxxxx
00000 (the "COMPANY"), and RGC International Investors, LDC (the "BUYER").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Buyer desires to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) convertible
debentures of the Company, in the form attached hereto as EXHIBIT "A", in the
aggregate principal amount of $3,000,000 (the "DEBENTURES") convertible into
shares of Class A Common Stock, no par value per share, of the Company (the
"COMMON STOCK") upon the terms and subject to the limitations and conditions set
forth in such Debentures and (ii) warrants, in the form attached hereto as
EXHIBIT "B", to purchase an aggregate of Five Hundred Twenty-Two Thousand, Four
Hundred Forty-Nine (522,449) shares of Common Stock (the "WARRANTS");
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. PURCHASE OF DEBENTURES AND WARRANTS. The Company shall issue and
sell to the Buyer and the Buyer agrees to purchase from the
Company such principal amount of Debentures and number of
Warrants as is set forth on the signature page hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below), (i) the
Buyer shall pay the purchase price for the Debentures and the
Warrants to
be issued and sold to it at the Closing (as defined below) by
wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions,
against delivery of the Debentures in the principal amount equal
to the purchase price and the number of Warrants as is set forth
on the signature page hereto, and (ii) the Company shall deliver
such Debentures and Warrants duly executed on behalf of the
Company, to the Buyer, against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Debentures and
the Warrants pursuant to this Agreement (the "CLOSING DATE")
shall be 12:00 noon Eastern Standard Time on February 11, 1999 or
such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall
occur on the Closing Date at the offices of the Company, or at
such other location as may be agreed to by the parties.
2. BUYER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The
Buyer represents and warrants to the Company and covenants and agrees
solely as to the Buyer that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable
upon conversion of or otherwise pursuant to the Debentures
(including, without limitation, such additional shares of Common
Stock, if any, as are issuable as a result of the events
described in Sections 1.3 and 1.4(e) of the Debentures and
Section 2(b) of the Registration Rights Agreement, such shares of
Common Stock being referred to herein as the "CONVERSION SHARES")
and the Warrants and the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants (the "WARRANT
SHARES" and, collectively with the Debentures, Warrants and
Conversion Shares, the "SECURITIES") for its own account for
investment only and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered
or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Buyer
does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and/or
any applicable state securities laws.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
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c. RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances
and operations of the Company and materials relating to the offer
and sale of the Securities which have been requested by the Buyer
or its advisors. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have
received what the Buyer believes to be satisfactory answers to
any such inquiries. As a result, the Buyer and its advisors, if
any, are able to evaluate the merits and risks of purchasing the
Debentures and the Warrants in order to make a fully informed
decision with respect to such purchase. Neither such inquiries
nor any other due diligence investigation conducted by Buyer or
any of its advisors or representatives shall modify, amend or
affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. The Buyer understands
that its investment in the Securities involves a significant
degree of risk, and is able to bear the economic risk of such
investment. In connection with the investment contemplated by
this Agreement, the Buyer has reviewed the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997
(the "FORM 10-K").
e. GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement
of the Securities.
f. TRANSFER OR RESALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities
have not been and are not being registered under the 1933 Act or
any applicable state securities laws, and may not be sold or
transferred unless (a) subsequently included in an effective
registration statement thereunder, (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion
shall be reasonably acceptable to the Company) to the effect that
the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration, (c)
sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("RULE
144")) or (d) sold pursuant to Rule 144; (ii) any sale of such
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Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule
is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under
the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder (in each case,
other than pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing or anything else contained herein
to the contrary, the Securities may be pledged as collateral in
connection with a BONA FIDE margin account or other lending
arrangement, PROVIDED, HOWEVER, that the Buyer hereby covenants
and agrees that such pledge shall be in conformity with Rule 144.
g. LEGENDS. The Buyer understands that the Debentures and the
Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the Conversion
Shares and Warrant Shares, may bear a restrictive legend in
substantially the following form (and a stop-transfer order may
be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under said Act,
or an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required under
said Act or unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an
effective registration statement filed under the 1933 Act, or (b) such
holder provides the Company with an opinion of counsel, in form, substance
and scope reasonably acceptable to the Company, to the effect that a public
sale or transfer of such Security may be made without registration under
the 1933 Act and such sale or transfer is effected or (c) such holder
provides the Company with reasonable assurances that such Security can be
sold pursuant to Rule 144 under the 1933 Act (or a successor rule thereto)
without any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold. The Buyer covenants and
agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
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h. AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding
agreements of the Buyer enforceable in accordance with their
terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or
affecting creditors' rights from time to time in effect, and
subject to general equity principals.
i. LEGAL POWER. The Buyer has the requisite corporate, partnership,
trust or fiduciary power, as appropriate, and is authorized, if
the Buyer is a corporation, partnership, trust, to enter into
this Agreement and the Registration Rights Agreement, to purchase
the Debentures and Warrants hereunder, and to carry out and
perform its obligations under the terms of this Agreement and the
Registration Rights Agreement.
j. RESIDENCY. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages
hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below) is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, has all requisite
corporate power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(a) sets forth a
list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated. The Company and each
of its Subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such
qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, operations, assets or financial condition
of the Company or its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith.
"SUBSIDIARIES" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, more than 50% of the outstanding
equity or other ownership interests in such corporation or other
organization, including but
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not limited to each of the Subsidiaries listed in Exhibit 21 to
the Form 10-K.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and
the Warrants and to consummate the transactions contemplated
hereby and thereby and to issue the Securities, in accordance
with the terms hereof and thereof, except for any shareholder
approval that may be required pursuant to applicable rules of The
Nasdaq Stock Market, (ii) the execution and delivery of this
Agreement, the Registration Rights Agreement, the Debentures and
the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without
limitation, the issuance of the Debentures and the Warrants and
the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise
thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company,
its Board of Directors, or its shareholders is required, except
for any shareholder approval that may be required pursuant to
applicable rules of The Nasdaq Stock Market, (iii) this Agreement
has been duly executed and delivered and (iv) this Agreement
constitutes, and upon execution and delivery by the Company of
the Registration Rights Agreement, the Debentures and the
Warrants, each of such instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors' rights from time to time
in effect, and subject to general equity principals.
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 25,000,000 shares of Common
Stock of which 11,622,692 shares are issued and outstanding,
2,600,000 shares are reserved for issuance pursuant to the
Company's stock option plans, 1,127,868 shares are reserved for
issuance pursuant to securities (other than the Debentures and
the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 1,561,051 shares are
reserved for issuance upon conversion of the Debentures and
exercise of the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); (ii) 100,000
shares of Class B Common Stock, 100,000 of which shares are
issued and outstanding; and (iii) 1,250,000 shares of preferred
stock, 283 of which shares are issued and outstanding. All of
such outstanding shares of capital stock are, or upon issuance
will be, duly authorized, validly issued, fully paid and
nonassessable. The terms, designations, powers, preferences and
relative, participating and
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optional or special rights, and the qualifications, limitations
and restrictions of each series of preferred stock of the Company
are as stated in the Articles of Incorporation, filed on or prior
to the date hereof, and the Bylaws. No shares of capital stock of
the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the
Company. Except as disclosed in SCHEDULE 3(c), as of the
effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for
any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of
any of its or their securities under the 1933 Act (except the
Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the
issuance of the Debentures, the Warrants, the Conversion Shares
or Warrant Shares. The Company has furnished to the Buyer true
and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof ("ARTICLES OF INCORPORATION"), the
Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company
shall provide the Buyer with a written update of this
representation signed by the Company's President and Chief
Executive Officer on behalf of the Company as of each Closing
Date.
d. ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance by all requisite
corporate action of the Company and, upon conversion of the
Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of shareholders of the
Company. The term Conversion Shares and Warrant Shares includes
the shares of Common Stock issuable upon conversion of the
Debentures or exercise of the Warrants, including without
limitation, such additional shares, if any, as are issuable as a
result of the events described in Sections 1.3 and 1.4(e) of the
Debentures and Section 2(b) of the Registration Rights Agreement.
The
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Company understands and acknowledges the potentially dilutive
effect to the Common Stock upon the issuance of the Conversion
Shares and Warrant Shares upon conversion or exercise of the
Debentures or Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Debentures or exercise of the Warrants in
accordance with and subject to the terms of this Agreement, the
Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
e. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Debentures and
the Warrants by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance of
the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of
Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default
(or an event which with notice or lapse of time or both could
become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company
or any of its Subsidiaries is a party, or result in a violation
of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries
is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Articles of Incorporation,
By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither
the Company nor any of its Subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company
or any of its Subsidiaries is a party or by which any property or
assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually
or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not
being conducted in violation of any material law, ordinance or
regulation of any governmental entity (except for such violations
which would not, individually or in the aggregate, have a
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Material Adverse Effect). Except as specifically contemplated by
this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Debentures or the Warrants
in accordance with the terms hereof or thereof. Except as
disclosed in SCHEDULE 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected
on or prior to the date hereof. The Company is not in material
violation of the listing requirements of the Nasdaq SmallCap
Market ("NASDAQ") and does not reasonably anticipate that the
Common Stock will be delisted by the Nasdaq in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing.
f. SEC DOCUMENTS, FINANCIAL STATEMENTS. Since December 31, 1996, the
Company has timely filed all reports and all other material
required to be filed by it with the SEC pursuant to the reporting
requirements under Sections 13, 14 and 15(d) of the Exchange Act
of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other
than exhibits) incorporated by reference therein, being
hereinafter referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to the Buyer true and complete copies of
the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been,
required to be amended or updated under applicable law (except
for such statements as have been amended or updated in subsequent
filings prior to the date hereof). As of their respective dates,
the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied,
during the
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periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and
fairly present in all material respects the consolidated
financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business
subsequent to December 31, 1997 and (ii) obligations under
contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting
principles to be reflected in such financial statements, which,
individually or in the aggregate, would not have a Material
Adverse Effect.
g. ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has
been no material adverse change and no material adverse
development in the assets, liabilities, business, properties,
operations, financial condition or results of operations of the
Company or any of its Subsidiaries.
h. ABSENCE OF LITIGATION. Except as set forth on SCHEDULE 3(h),
there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries that
could have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
i. PATENTS, COPYRIGHTS, ETC. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights
to use all patents, patent rights, inventions, know-how, trade
secrets, trademarks, service marks, service names, trade names
and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it
to conduct its business; there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company's
knowledge threatened which challenges the right of the Company or
of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business; and to the
Company's knowledge, the Company's or its Subsidiaries', current
and intended products, services and processes do not infringe on
any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its
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Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of their Intellectual
Property.
j. TAX STATUS. Except as set forth on SCHEDULE 3(j), the Company and
each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, except for
any returns, reports or declarations as to which the consequences
of any failure to file would not have a Material Adverse Effect
on the Company, and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no
basis for any such claim. Except as set forth on Schedule 3(j),
to the knowledge of the Company, none of the Company's tax
returns is presently being audited by any taxing authority.
k. CERTAIN TRANSACTIONS. Except as set forth in the Company's Proxy
Statement for the 1998 Annual Meeting of Shareholders held on May
28, 1998 dated April 30, 1998 (the "Proxy Statement") and except
for arm's length transactions pursuant to which the Company or
any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of
its Subsidiaries could obtain from third parties and other than
the grant of stock options disclosed on SCHEDULE 3(c), none of
the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
l. DISCLOSURE. All information relating to or concerning the Company
or any of its Subsidiaries set forth in this Agreement and
provided to the Buyer pursuant to Section 2(d) hereof and
otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has
not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists
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with respect to the Company or any of its Subsidiaries or its or
their business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company prior
to the date hereof but which has not been so publicly announced
or disclosed (assuming for this purposes that the Company's
reports filed under the 1934 Act are being incorporated into an
effective registration statement filed by the Company under the
1933 Act).
l. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The
Company acknowledges and agrees that the Buyer is acting solely
in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company
further acknowledges that the Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated
hereby and any statement made by the Buyer or any of its
representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Buyer's purchase
of the Securities. The Company further represents to the Buyer
that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives and on the representations, warranties and
covenants of the Buyer.
m. 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 1933 Act of the
issuance of the Securities to the Buyer. The issuance of the
Securities to the Buyer will not be integrated with any other
issuance of the Company's securities (past, current or future)
which requires shareholder approval under the rules of The Nasdaq
Stock Market.
n. NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's
fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
o. PERMITS; COMPLIANCE. The Company and each of its Subsidiaries is
in possession of all material franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and
operate its properties and to carry on its business as it is now
being conducted (collectively, the "COMPANY PERMITS"), and there
is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries
is in
-12-
conflict with, or in default or violation of, any of the Company
Permits, except for any such conflicts, defaults or violations
which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since December 31,
1997, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts,
defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material
Adverse Effect.
p. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3(Q),
there are, to the Company's knowledge, with respect to the
Company or any of its Subsidiaries, no past or present violations
of Environmental Laws (as defined below), or releases of any
Hazardous Material (as defined below) into the environment, which
are likely to give rise to any common law environmental liability
or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state
or local laws. Neither the Company nor any of its Subsidiaries
has received any notice by governmental authorities with respect
to any of the foregoing, nor is any action pending or, to the
Company's knowledge, threatened in connection with any of the
foregoing. The term "ENVIRONMENTAL LAWS" means all federal, state
or local laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals,
pollutants contaminants, or toxic or hazardous substances or
wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
q. TITLE TO PROPERTY. The Company and its Subsidiaries have good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects
except such as would not have a Material Adverse Effect. Any
facilities held under lease by the Company and its Subsidiaries
are held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a Material Adverse Effect.
The Company owns no real property.
r. INSURANCE. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such
losses and
-13-
risks and in such amounts as management of the Company believes
to be prudent and customary in the businesses in which the
Company and its Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
s. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that transactions are
executed in accordance with management's general or specific
authorizations and transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability.
t. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in
the course of his actions for, or on behalf of, the Company, used
any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political
activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official
or employee.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of
this Agreement.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to
provide a copy thereof to the Buyer promptly after such filing.
The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyer at the applicable
closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence
of any such action so taken to the Buyer on or prior to the
Closing Date.
-14-
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The Company's
Common Stock is registered under Section 12(g) of the 1934 Act.
So long as the Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under
the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet,
the "registrant eligibility" requirements set forth in the
general instructions to Form S-3.
d. USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Debentures and the Warrants for working capital and
general corporate purposes.
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject to the
exceptions described below, the Company will not, without the
prior written consent of the Buyer, negotiate or contract with
any party to obtain additional equity financing (including debt
financing with an equity component) that involves (i) (A) the
issuance of Common Stock (whether upon conversion or exercise of
a security convertible into or exercisable for Common Stock or
otherwise) at a discount to the market price of the Common Stock
on the date of issuance thereof or, in the case of a security
convertible into or exercisable for Common Stock, the date of
issuance of such convertible security (taking into account the
value of any warrants or options to acquire Common Stock issued
in connection therewith) or (B) the issuance of convertible
securities that are convertible into an indeterminate number of
shares of Common Stock and (ii) public resales of such Common
Stock (whether such Common Stock is issued upon conversion or
exercise of a security convertible into or exercisable for Common
Stock or otherwise) during the 270-day period (the "LOCKUP
PERIOD") following the date any Registration Statement (as
defined in the Registration Rights Agreement) is declared
effective. In addition, subject to the exceptions described
below, the Company will not conduct any equity financing
(including debt financing with an equity component) ("FUTURE
OFFERINGS") during the period beginning on the Closing Date and
ending 180 days following the date any Registration Statement is
declared effective, unless it shall have first delivered to the
Buyer, at least fifteen (15) days prior to the closing of such
Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof and proposed
definitive documentation to be entered into in connection
therewith, and providing the Buyer an option during the five (5)
day period following delivery of such notice to purchase the
securities being offered in the Future Offering on the same terms
as contemplated by such Future Offering
-15-
(the limitations referred to in this sentence and the preceding
sentence are collectively referred to as the "CAPITAL RAISING
LIMITATIONS"). In the event the terms and conditions of a
proposed Future Offering are amended in any material respect
after delivery of the notice to the Buyer concerning the proposed
Future Offering, the Company shall deliver a new notice to the
Buyer describing the amended terms and conditions of the proposed
Future Offering and the Buyer thereafter shall have an option
during the ten (10) day period following delivery of such new
notice to purchase the securities being offered on the same terms
as contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the
terms and conditions of any proposed Future Offering. The Capital
Raising Limitations shall not apply to any transaction involving
(i) issuances of securities in a firm commitment underwritten
public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act), or (ii) issuances of securities as
consideration for a merger, acquisition, consolidation or
purchase of assets, or in connection with any strategic
investments, joint venture or similar commercial relationship
(the primary purpose of which is not to raise equity capital).
The Capital Raising Limitations also shall not apply to (i) the
issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities
outstanding as of the date hereof, (ii) the grant of additional
options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan or
agreement or (iii) the issuance of securities as consideration
for services rendered by a third party provided that such
issuance is approved by a majority of the Company's disinterested
directors.
f. EXPENSES. The Company shall reimburse Xxxx Xxxx Capital
Management, L.P. ("Xxxx Xxxx") for all expenses incurred by it in
connection with the negotiation, preparation, execution, delivery
and performance of this Agreement and the other agreements to be
executed in connection herewith, including, without limitation,
attorneys' and consultants' fees and expenses. The Company's
obligation to reimburse Rose Glen's expenses under this Section
4(f) shall be limited to Twenty-Five Thousand Dollars ($25,000).
g. FINANCIAL INFORMATION. If requested by the Buyer, the Company
agrees to forward promptly the following reports to the Buyer
until the Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K; (ii)
within one (1) day after release, copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the
shareholders of the Company,
-16-
copies of any notices or other information the Company makes
available or gives to such shareholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the
full conversion or exercise of the outstanding Debentures and
Warrants and issuance of the Conversion Shares and Warrant Shares
in connection therewith (based on the Conversion Price of the
Debentures or Exercise Price of the Warrants in effect from time
to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of Debentures
and exercise of the Warrants without the consent of the Buyer.
The Company shall use its best efforts at all times to maintain
the number of shares of Common Stock so reserved for issuance at
no less than 1.25 times the number that is then actually issuable
upon full conversion of the Debentures and exercise of the
Warrants (based on the Conversion Price of the Debentures or
Exercise Price of the Warrants in effect from time to time). If
at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares
and Warrant Shares issued and issuable upon conversion of the
Debentures and exercise of the Warrants (based on the Conversion
Price of the Debentures or Exercise Price of the Warrants then in
effect), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of
shareholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an
insufficient number of authorized shares, and using its best
efforts to obtain shareholder approval of such an increase in the
authorized number of shares.
i. LISTING. The Company shall, on or before the Closing Date, file
for, and shall thereafter promptly secure, the listing of the
Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as the Buyer owns any of the
Securities, shall use its best efforts to maintain, so long as
any other shares of Common Stock shall be so listed, such listing
of all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Debentures or exercise of the
Warrants. The Company will obtain and, so long as the Buyer owns
any of the Securities, use its best efforts to maintain the
listing and trading of its Common Stock on Nasdaq, the Nasdaq
National Market ("NASDAQ NMS"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply
in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National
-17-
Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to the Buyer
copies of any notices it receives from Nasdaq and any other
exchanges or quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock
for listing on such exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as the Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the
Company's assets, except in the event of a merger, consolidation
or sale of all or substantially all of the Company's assets,
where the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith
and (ii) is a publicly traded corporation whose Common Stock is
listed for trading on Nasdaq, Nasdaq NMS, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or
sold hereunder under the 1933 Act or cause the offering of the
Securities to be integrated with any other offering of securities
by the Company for the purpose of any shareholder approval
provision applicable to the Company or its securities.
l. SOLVENCY. The Company (both before and after giving effect to the
transactions contemplated by this Agreement) is solvent (I.E.,
its assets have a fair market value in excess of the amount
required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has
no information that would lead it to reasonably conclude that the
Company would not have, nor does it intend to take any action
that would impair, its ability to pay its debts from time to time
incurred in connection therewith as such debts mature. The
Company did not receive a qualified opinion from its auditors
with respect to the fiscal year ended December 31, 1997 and does
not expect to receive a qualified opinion from its auditors with
respect to the fiscal year ended December 31, 1998.
m. TRADING GUIDELINES. The Buyer will conduct all transactions in
the Common Stock in accordance with applicable securities laws.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered
in the name of the Buyer or its nominee, for the Conversion Shares and
Warrant Shares in such amounts as specified from time to time by the
Buyer to the Company upon
-18-
conversion of the Debentures or exercise of the Warrants in accordance
with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares and
Warrant Shares under the 1933 Act, all such certificates shall bear
the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the
case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the
1933 Act), will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section shall
affect in any way the Buyer's obligations and agreements set forth in
Sections 2(f), 2(g) and 4(m) hereof to comply with Rule 144 and all
applicable prospectus delivery requirements, if any, upon resale of
the Securities and the trading restrictions applicable to the Buyer.
If the Buyer provides the Company with (i) an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope,
that registration of a resale by the Buyer of any of the Securities is
not required under the 1933 Act or (ii) reasonable assurances that the
Securities can be sold pursuant to Rule 144 under the 1933 Act (or a
successor rule thereto) without any restriction as to the number of
Securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates, free from
restrictive legend, in such name and in such denominations as
specified by the Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Debentures and Warrants to the
Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions thereto, provided
that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the
Company.
b. The Buyer shall have delivered the Purchase Price in accordance
with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct in
all material respects as of the date
-19-
when made), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed,
satisfied or complied with by the Buyer at or prior to the
Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The obligation of
the Buyer hereunder to purchase the Debentures and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date
of each of the following conditions thereto, provided that these
conditions are for the Buyer's sole benefit and may be waived by the
Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the
Buyer.
b. The Company shall have delivered to the Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to
and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct in
all material respects as of the date when made) and the Company
shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed on behalf of the
Company by the President and Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by
the Buyer including, but not limited to similar certificates with
respect to the Company's Articles of Incorporation,
-20-
Bylaws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
f. The Company shall have filed with Nasdaq to have the Conversion
Shares and the Warrant Shares included for quotation on Nasdaq
(and the inclusion of such shares shall have not have been
rejected by Nasdaq) and trading in the Common Stock on Nasdaq
shall not have been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer and in
substantially the same form as EXHIBIT "D" attached hereto.
h. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
i. There has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties,
operations, financial condition or results of operations of the
Company or any of its Subsidiaries.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of
Pennsylvania without regard to the principles of conflict of
laws. The parties hereto hereby submit to the jurisdiction of the
United States Federal Courts located in the Eastern District of
Pennsylvania with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or
the transactions contemplated hereby or thereby.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to
the other party. This Agreement, once executed by a party, may be
delivered to the other party
-21-
hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the exhibits and
schedules and other documents referenced herein or to be executed
in connection herewith contain the entire understanding of the
parties with respect to the matters covered herein and therein
and, except as specifically set forth herein or therein, neither
the Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No
provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged
with enforcement.
f. NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by
courier (including a recognized overnight delivery service) or by
facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if
delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case
addressed to a party. The addresses for such communications shall
be:
If to the Company:
Infonautics, Inc.
000 Xxxx Xxxxxx Xxxx, Xxxxx 0000
Xxxxx, Xxxxxxxxxxxx 00000
Attention: President and Chief Executive Officer
Facsimile: 000-000-0000
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With copy to:
Xxxxxx Xxxxx & Bockius LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Facsimile: 000-000-0000
If to the Buyer: To the address set forth immediately below the
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any change
in address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and
assigns. Neither the Company nor the Buyer shall assign this
Agreement or any rights or obligations hereunder without the
prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2(f), the Buyer may assign its
rights hereunder to any person that purchases Securities in a
private transaction from the Buyer or to any of its "affiliates,"
as that term is defined under the 1934 Act, without the consent
of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may
any provision hereof be enforced by, any other person.
i. SURVIVAL. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the Closing hereunder notwithstanding any due
diligence investigation conducted by or on behalf of the Buyer.
j. PUBLICITY. The Company and the Buyer shall have the right to
review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, or any other public
statements with respect to the transactions contemplated hereby;
PROVIDED, HOWEVER, that the Company shall be entitled, without
the prior approval of the Buyer, to make any press release or
SEC, Nasdaq or NASD filings with respect to such transactions as
is required by applicable law and regulations (although the Buyer
shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a
copy thereof and be given an opportunity to comment thereon).
-23-
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.
m. REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer,
by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this
Agreement, that the Buyer shall be entitled, in addition to all
other available remedies at law or in equity, to an injunction or
injunctions restraining, preventing or curing any breach of this
Agreement and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and
without any bond or other security being required.
-24-
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
INFONAUTICS, INC.
By:
------------------------------------------
Xxxxx Xxx Xxxxx Xxxxxx
President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
------------------------------------------
Xxxx X. Xxxxxxxx
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $3,000,000
Number of Warrants: 522,449
Aggregate Purchase Price: $3,000,000
-25-
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
THE SECURITIES REPRESENTED HEREBY OR ISSUABLE UPON CONVERSION HEREOF,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES BEING SOLD, TRANSFERRED OR ASSIGNED UNDER SAID ACT, OR AN
OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE
TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
THE UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF THIS DEBENTURE
REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE AMOUNT STATED ON
THE FACE HEREOF. SEE SECTION 1.4(b).
CONVERTIBLE DEBENTURE
February 11, 1999 $3,000,000
FOR VALUE RECEIVED, INFONAUTICS, INC., a Pennsylvania corporation
(hereinafter called the "BORROWER"), hereby promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC or registered assigns (the "HOLDER") the sum of
Three Million Dollars ($3,000,000), on August 11, 2000 (the "MATURITY DATE"),
and to pay interest on the unpaid principal balance hereof at the rate of seven
percent (7%) per annum from February 11, 1999 (the "ISSUE DATE") until the same
becomes due and payable, whether at maturity or upon acceleration or otherwise.
Any amount of principal or interest on this Debenture which is not paid when due
shall bear interest at the rate of fifteen percent (15%) per annum from the due
date thereof until the same is paid ("DEFAULT INTEREST"). Interest shall
commence accruing on the Issue Date, shall be computed on the basis of a 365-day
year and the actual number of days elapsed and shall be payable at the time of
optional conversion of the principal to which such interest relates in
accordance with Article I below or, to the extent not converted, at maturity or
upon acceleration in accordance with the terms hereof. All payments due
hereunder (to the extent not converted into Class A Common Stock, no par value
per share, of the Borrower (the "COMMON STOCK") in accordance with the terms
hereof) shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in
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accordance with the provisions of this Debenture. Whenever any amount expressed
to be due by the terms of this Debenture is due on any day which is not a
business day, the same shall instead be due on the next succeeding day which is
a business day. Except as otherwise expressly provided herein, this Debenture
may not be prepaid by the Borrower. As used in this Debenture, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed. Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
that certain Securities Purchase Agreement, dated February 11, 1999, pursuant to
which this Debenture was originally issued (the "PURCHASE AGREEMENT"). For
purposes hereof, the term "Debentures" shall be deemed to refer to this
Debenture, all other convertible debentures issued pursuant to the Purchase
Agreement and all convertible debentures issued in replacement hereof or thereof
or otherwise with respect hereto or thereto.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
(a) CONVERSION AMOUNT. Subject to the conversion limitations set forth
herein and in Section 1.1(b) below and Section 1.6 below, the Holder shall have
the right from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the date of payment of the Default Amount (as defined
in Article III) pursuant to Section 1.5(a) or Article III or any payments
pursuant to Section 1.6, each in respect of the remaining outstanding principal
amount of this Debenture, to convert all or any part of the outstanding and
unpaid principal amount of this Debenture into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into which such
Common Stock shall hereafter be changed or reclassified, at the Conversion Price
(as defined in Section 1.2 below) determined as provided herein (a
"CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled
to convert any portion of this Debenture in excess of that portion of this
Debenture upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures, the unexercised Warrants or the
unexercised or unconverted portion of any other security of the Borrower subject
to a limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13 D-G
thereunder, except as otherwise provided in clause (1) of such proviso. The
number of shares of Common Stock to be issued upon each conversion of this
Debenture shall be determined by dividing the Conversion
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Amount (as defined below) by the applicable Conversion Price. The term
"CONVERSION AMOUNT" means, with respect to any conversion of this Debenture, the
sum of (1) the principal amount of this Debenture to be converted in such
conversion, PLUS (2) all accrued and unpaid interest thereon for the period
beginning on the Issue Date and ending on the Conversion Date (as defined in
Section 1.4 thereof), PLUS (3) Default Interest, if any, on the amounts referred
to in the immediately preceding clauses (1) and/or (2), PLUS (4) at the Holder's
option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(e)
hereof or pursuant to Section 2(b) of that certain Registration Rights
Agreement, dated as of February 11, 1999, executed in connection with the
initial issuance of this Debenture and the other Debentures issued on the Issue
Date (the "REGISTRATION RIGHTS AGREEMENT").
(b) CONVERSION RESTRICTIONS. Subject to the exceptions set forth
below, the Holder may only convert this Debenture on or after the ninetieth
(90th) day following the Issue Date; PROVIDED, HOWEVER, that the restrictions on
conversion set forth in this Section 1.1(b) shall not be applicable to
conversions taking place on any Conversion Date (i) occurring on or after the
date the Borrower makes a public announcement that it intends to merge or
consolidate with any other corporation or sell or transfer all or substantially
all of the assets of the Borrower or (ii) occurring on or after the date any
person, group or entity (including the Borrower) publicly announces a tender
offer to purchase 50% or more of the Borrower's Common Stock (or any other
takeover scheme) or (iii) occurring after there is a material adverse change in
the business, operations, assets, financial condition or prospects of the
Borrower or its subsidiaries, taken as a whole, or (iv) following the occurrence
of any Event of Default (as defined below).
1.2 CONVERSION PRICE. Subject to the provisions of Section 1.5 below, the
Conversion Price shall be $4.13 (90% of the Closing Bid Price (as defined below)
on the trading day prior to the Issue Date) (subject to equitable adjustments
for stock splits, stock dividends or rights offerings by the Borrower relating
to the Borrower's securities or the securities of any subsidiary of the
Borrower, combinations, recapitalization, reclassifications, extraordinary
distributions and similar events). "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price on the Nasdaq SmallCap Market
("NASDAQ") as reported by Bloomberg Financial Markets or an equivalent, reliable
reporting service mutually acceptable to and hereafter designated by holders of
a majority in interest of the Debentures and the Borrower ("BLOOMBERG") or, if
Nasdaq is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the closing bid price of such security is available in
the over-the-counter market on the electronic bulletin board for such security,
as reported by Bloomberg, or, if no closing bid price of such security is
available in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security, then the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Borrower and the holders of a
majority in interest of the Debentures
-3-
being converted for which the calculation of the Closing Bid Price is required
in order to determine the Conversion Price of such Debentures. "TRADING DAY"
shall mean any day on which the Common Sock is traded for any period on Nasdaq,
or on the principal securities exchange or other securities market on which the
Common Stock is then being traded.
1.3 RESERVATION OF SHARES. The Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full conversion of
this Debenture and the other Debentures issued pursuant to the Purchase
Agreement. As of the date of issuance of this Debenture, 907,990 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement (the "RESERVED AMOUNT"). The Reserved Amount shall be
increased from time to time in accordance with the Borrower's obligations
pursuant to Section 4(h) of the Purchase Agreement. The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of
Common Stock into which the Debentures shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Debentures. The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Debenture and (ii) agrees that its issuance of
this Debenture shall constitute full authority to its officers and agents who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of Conversion,
and the Borrower does not have sufficient authorized but unissued shares of
Common Stock available to effect such conversion in accordance with the
provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8,
the Borrower shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Debenture
which the Holder included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock (the "EXCESS
AMOUNT") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized and duly reserved for issuance by the Borrower to permit
such conversion. The Borrower shall pay to the Holder payments ("CONVERSION
DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1)
the then outstanding principal amount of this Debenture, PLUS (2) all accrued
and unpaid interest thereon through the Authorization Date (as defined below),
PLUS (3) Default Interest, if any, on the amounts referred to in clauses (1)
and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where N = the
number of days from the day the Holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares
of
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Common Stock to effect conversion of the full outstanding principal balance of
this Debenture. The Borrower shall use its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable following the
earlier of (i) such time that the Holder notifies the Borrower or that the
Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a
Conversion Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of the Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the applicable Conversion Price, at the
Holder's option, as follows:
(a) In the event the Holder elects to take such payment in cash, cash
payment shall be made to the Holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event the Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a sufficient number
of authorized shares of Common Stock).
The Holder's election shall be made in writing to the Borrower at any time
prior to 9:00 p.m., New York City Time, on the third day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, the Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holder's right to pursue actual damages (to the extent in excess
of the Conversion Default Payments) for the Borrower's failure to maintain a
sufficient number of authorized shares of Common Stock, and each Holder shall
have the right to pursue all remedies available at law or in equity (including
decree of specific performance and/or injunctive relief).
1.4 METHOD OF CONVERSION.
(a) MECHANICS OF CONVERSION. Subject to Section 1.1 and the other
provisions of this Debenture, this Debenture may be converted by the Holder in
whole or in part (provided such partial conversion is at least $50,000, or such
lesser amount as shall remain unpaid at the time of the conversion (together
with accrued and unpaid interest thereon)) at any time and from time to time
after the Issue Date, by (A) submitting to the Borrower a duly executed notice
of conversion in the form attached hereto as Exhibit A ("NOTICE OF CONVERSION")
by facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE") on the date specified therein on the Conversion Date (as
defined below) (or by other means resulting in, or reasonably expected to result
in, written notice to the Borrower on the date specified therein as the
Conversion Date) to the office of the Borrower; which notice shall specify the
principal amount of this Debenture to be converted, the applicable Conversion
Price, and the number of shares of
-5-
Common Stock issuable upon such conversion; and (B) subject to Section 1.4(b),
surrendering this Debenture at the principal office of the Borrower.
(b) SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding anything
to the contrary set forth herein, upon conversion of this Debenture in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Debenture to the Borrower unless the entire unpaid principal
amount of this Debenture is so converted. The Holder and the Borrower shall
maintain records showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Borrower, so as not to require physical surrender of this
Debenture upon each such conversion. In the event of any dispute or discrepancy,
such records of the Borrower shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if any portion of this
Debenture is converted as aforesaid, the Holder may not transfer this Debenture
unless the Holder first physically surrenders this Debenture to the Borrower,
whereupon the Borrower will forthwith issue and deliver upon the order of the
Holder a new Debenture of like tenor, registered as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Debenture. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture
represented by this Debenture may be less than the amount stated on the face
hereof.
(c) PAYMENT OF TAXES. The Borrower shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Debenture in a name other than that of the Holder (or in street name),
and the Borrower shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) LOST OR STOLEN DEBENTURES. Upon receipt by the Borrower of
evidence of the loss, theft, destruction or mutilation of this Debenture, and
(in the case of loss, theft or destruction) of indemnity reasonably satisfactory
to the Borrower, and upon surrender and cancellation of this Debenture, if
mutilated, the Borrower shall execute and deliver a new Debenture of like tenor
and date.
(e) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon submission of a
notice of Conversion, the Borrower shall, within three business days after the
Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or cause its
Transfer Agent so to issue and deliver) in accordance with the terms hereof and
the Purchase Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order of
the Holder that number of shares of Common Stock for the portion of this
Debenture converted as shall be determined in accordance herewith. In addition
to any other remedies available to the
-6-
Holder, including actual damages and/or equitable relief, the Borrower shall pay
to the Holder $2,000 per day in cash for each day beyond a two-day grace period
following the Delivery Period that the Borrower fails to deliver Common Stock (a
"DELIVERY DEFAULT") issuable upon conversion of this Debenture pursuant to the
Notice of Conversion until such time as the Borrower has delivered all such
Common Stock (the "DELIVERY DEFAULT PAYMENTS"); PROVIDED, HOWEVER, in the event
of a failure by the Borrower to deliver shares upon conversion as a result of a
Conversion Default, the Holder shall not be entitled to receive Delivery Default
Payments but shall be entitled to receive Conversion Default Payments in
accordance with Section 1.3. Such Delivery Default Payments shall be paid to the
Holder of the fifth day of the month following the month in which they have
accrued or, at the option of the Holder (by written notice to the Borrower by
the first day of the month following the month in which they have accrued),
shall be added to the principal amount of this Debenture, in which event
interest shall accrue thereon in accordance with the terms of this Debenture and
such additional principal amount shall be convertible into Common Stock in
accordance with the terms of this Debenture.
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Borrower's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of the Holder and its compliance
with the provisions contained in Section 1.1 and in this Section 1.4, the
Borrower shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of the Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(f) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by
the Borrower of a Notice of Conversion, the Holder shall be deemed to be the
holder of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid interest on
this Debenture shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations hereunder, all rights with respect to the
portion of this Debenture being so converted shall forthwith terminate except
the right to receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have given a Notice
of Conversion as provided herein, the Borrower's obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion.
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(g) NO FRACTIONAL SHARES. If any conversion of this Debenture would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion of this Debenture
shall be the next higher number of shares.
(h) CONVERSION DATE. The "CONVERSION DATE" shall be the date specified
in the Notice of Conversion, provided that the Notice of Conversion is submitted
by facsimile (or by other means resulting in, or reasonably expected to result
in, written notice) to the Borrower or its Transfer Agent before Midnight, New
York City time, on the date so specified, otherwise the Conversion Date shall be
the first business day after the date so specified (provided that the Notice of
Conversion is actually received by the Borrower or its Transfer Agent on such
business day). The person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such securities as of the Conversion Date and all rights
with respect to this Debenture (or portion thereof) surrendered shall forthwith
terminate except the rights set forth in Section 1.4(f) and Section 1.7.
1.5 EFFECT OF CERTAIN EVENTS.
(a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder,
the sale, conveyance or disposition of all or substantially all of the assets of
the Borrower, the effectuation by the Borrower of a transaction or series of
related transactions in which more than 50% of the voting power of the Borrower
is disposed of, or the consolidation, merger or other business combination of
the Borrower with or into any other Person (as defined below) or Persons when
the Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.5(b) hereof. "PERSON" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when
this Debenture is issued and outstanding and prior to conversion of all of the
Debentures, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower, then the Holder of this
Debenture shall thereafter have the right to receive upon conversion of this
Debenture, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities or assets which the Holder would have been
entitled to receive in such transaction had this Debenture been converted in
full immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion
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Price and of the number of shares issuable upon conversion of the Debenture)
shall thereafter be applicable, as nearly as may be practicable in relation to
any securities or assets thereafter deliverable upon the conversion hereof. The
Borrower shall not effect any transaction described in this Section 1.5(b)
unless (a) it first gives, to the extent practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled
to convert this Debenture) and (b) the resulting successor or acquiring entity
(if not the Borrower) assumes by written instrument the obligations of this
Section 1.5(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "DISTRIBUTION"), then the Holder of this Debenture shall
be entitled, upon any conversion of this Debenture after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(d) PURCHASE RIGHTS. If, at any time when any Debentures are issued
and outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then the Holder of
this Debenture will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(e) ANTIDILUTION PROVISIONS. The Conversion Price shall be subject to
adjustment from time to time as provided in this Section 1.5(e).
(i) ADJUSTMENT OF CONVERSION PRICE. If and whenever on or after
the date of issuance of this Debenture, the Borrower issues or sells, or in
accordance with Section1.5(e)(ii) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price (as
defined below) on the date of issuance (or deemed issuance) of such shares of
Common Stock (a "DILUTIVE ISSUANCE"), then immediately upon the Dilutive
Issuance, the Conversion Price
-9-
will be reduced to a price determined by multiplying the Conversion Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Section 1.5(e)(ii) hereof, received by the Borrower upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(ii) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under Section 1.5(e)(i) hereof, the
following will be applicable:
A. ISSUANCE OF RIGHTS OR OPTIONS. If the Borrower in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "OPTIONS") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Borrower for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Borrower as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Borrower upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Conversion Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
B. ISSUANCE OF CONVERTIBLE SECURITIES. If the Borrower in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options), and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance of
the Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Borrower for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
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determined by dividing (i) the total amount, if any, received or receivable by
the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
C. CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional consideration payable to the
Borrower upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Borrower upon the conversion or exchange
of any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such change will be readjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
D. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Conversion Price then in effect will be readjusted to the
Conversion Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination (other than in
respect of the actual number of shares of Common Stock issued upon exercise or
conversion thereof), never been issued.
E. CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Debenture will be the
amount received by the Borrower therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Borrower in connection with such issuance, grant or
sale. In case any Common Stock, Options or Convertible Securities are issued or
sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Borrower will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Borrower
will be the Market Price thereof as of the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued in connection with any
acquisition, merger or consolidation in which the Borrower is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities,
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as the case may be. The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of Directors of the
Borrower.
F. EXCEPTIONS TO ADJUSTMENT OF CONVERSION PRICE. No adjustment to
the Conversion Price will be made (i) upon the exercise of any warrants, options
or convertible securities granted, issued and outstanding on the date of
issuance of this Debenture; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Borrower now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Borrower or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the conversion of the Debentures.
(iii) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Borrower
at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Borrower at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iv) CERTAIN DEFINITIONS.
A. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Borrower), plus (x) pursuant to Section
1.5(e)(ii)(A) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Section 1.5(e)(ii)(B) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
B. "MARKET PRICE," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on the Nasdaq SmallCap
Market ("NASDAQ") for the five (5) trading days immediately preceding such date
as reported by Bloomberg, L.P. ("BLOOMBERG"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Borrower or, at the option of a majority-in-interest of the
holders of the outstanding Debentures by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set
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forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to market value must be made hereunder.
C. "COMMON STOCK," for purposes of this Section 1.5(e), includes
the Class A Common Stock, no par value per share, and any additional class of
stock of the Borrower having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Debenture
shall include only shares of Class A Common Stock, no par value per share, in
respect of which this Debenture is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or any reorganization,
reclassification, consolidation or merger involving the Borrower.
(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.5, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Debenture.
1.6 TRADING MARKET LIMITATIONS. Unless (i) permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded or (ii) the Borrower has obtained approval of the
issuance of Common Stock upon conversion of the Debentures in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities (the "SHAREHOLDER APPROVAL") , in no event
shall the total number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
(including any shares of capital stock or rights to acquire shares of capital
stock issued by the Borrower which are aggregated or integrated with the Common
Stock issued or issuable upon conversion of the Debentures for purposes of any
such rule or regulation) exceed the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (including Rule
4460(i) of Nasdaq) (the "MAXIMUM SHARE AMOUNT"), which, as of the Issue Date
shall be 2,323,376 shares (19.99% of the total shares outstanding on the Issue
Date), subject to adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the Issue Date. With respect to each Holder of
Debentures, the Maximum Share Amount shall refer to such Holder's PRO RATA share
thereof determined in accordance with Section 4.8 below. In the event that (x)
the aggregate number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
represents at least twenty percent (20%) of the Maximum Share Amount and (y) the
sum of (i) the aggregate number of shares of Common Stock issued upon conversion
of this Debenture and the other Debentures issued pursuant
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to the Purchase Agreement PLUS (ii) the aggregate number of shares of Common
Stock that remain issuable upon conversion of this Debenture and the other
Debentures issued pursuant to the Purchase Agreement, represents at least one
hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the
Borrower will use its best efforts to seek and obtain Shareholder Approval (or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event. If
any Debentures cease to be convertible as a result of the limitations described
in this Section 1.6 (a "TRADING MARKET REDEMPTION EVENT"), and the Borrower has
not prior to, or within thirty (30) days of the date that such Trading Market
Redemption Event arises, (i) obtained the Shareholder Approval or (ii)
eliminated any prohibition under application law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Borrower or any of its securities on the
Borrower's ability to issue shares of Common Stock in excess of the Maximum
Share Amount then the Borrower shall be obligated to redeem immediately all of
the then outstanding Debentures, in accordance with this Section 1.6. An
irrevocable redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be
delivered promptly to the Holders of Debentures at their registered address
appearing on the records of the Borrower and shall state (i) that the Maximum
Share Amount has been issued upon conversion of the Debentures, (ii) that the
Borrower is obligated to redeem all of the outstanding Debentures, and (iii) the
date of redemption, which shall be a date within five (5) business days of the
earlier of (a) the date of the Trading Market Redemption Notice or (b) the date
on which the Holders of the Debentures notify the Borrower of the occurrence of
a Trading Market Redemption Event. On the date of redemption, the Borrower shall
make payment of the Default Amount (as defined in Article III) in cash.
1.7 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such Holder's allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder's rights as a Holder
of such converted portion of this Debenture shall cease and terminate, excepting
only the right to receive certificates for such shares of Common Stock and to
any remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms of this
Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, the right
to receive Conversion Default Payments pursuant to Section 1.3 to the extent
required thereby for such Conversion Default and any subsequent Conversion
Default) for the Borrower's failure to convert this Debenture.
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ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock.
2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
2.3 BORROWINGS. So long as the Borrower shall have any obligation under
this Debenture, the Borrower shall not without the Holder's written consent,
create, incur, assume or suffer to exist any liability for borrowed money,
except (a) borrowings in existence or committed on the date hereof and of which
the Borrower has informed the Holder in writing prior to the date hereof, (b)
indebtedness incurred in the ordinary course of business (which shall include
trade credit, equipment financing, accounts receivables financing and lines of
credit (not to exceed $5 million)) or (c) borrowings, the proceeds of which
shall be used to repay this Debenture.
2.4 ADVANCES AND LOANS. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not without the Holder's written
consent, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on the date hereof and which the Borrower
has informed the Holder in writing prior to the date hereof or (b) made in the
ordinary course of business.
2.5 CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Debenture, the Corporation shall not without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumption, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed the Holder in writing prior to the date
hereof or (b) made in the ordinary course of business.
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ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the
principal hereof or interest thereon when due on this Debenture, whether at
maturity, upon mandatory prepayment pursuant to Section 1.7, upon acceleration
or otherwise.
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture (for a period of at least
sixty (60) days, if such failure is solely as a result of the circumstances
governed by Section 1.3 and the Borrower is using its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable), fails to
transfer or cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this Debenture
or the Registration Rights Agreement, or fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture, the Purchase Agreement
or the Registration Rights Agreement (or makes any announcement, statement or
threat that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any announcement,
statement or threat not to honor its obligations shall not be rescinded in
writing) for ten (10) days after the Borrower shall have been notified thereof
in writing by the Holder.
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission prior to July 11, 1999
of the Registration Statement(s) (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement, or fails to obtain the effectiveness of any additional
Registration Statement (required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement) within 120 days after the Registration Trigger
Date (as defined in the Registration Rights Agreement), or any such Registration
Statement, after its initial effectiveness and during the Registration Period
(as defined in the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) cannot otherwise be made thereunder (whether by reason of the
Borrower's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement , the Borrower's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than thirty (30) consecutive days or sixty (60) days in
any twelve month period after such Registration Statement becomes effective;
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3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or
other material term or condition contained in Article II hereof or in Sections
1.3, 1.5 or 1.6 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5
of the Purchase Agreement and such breach continues for a period of ten (10)
business days after written notice thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has a material adverse effect on the rights of the
Holder with respect to this Debenture, the Purchase Agreement or the
Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall be
entered or filed by a court against the Borrower or any subsidiary of the
Borrower or any of its property or other assets for more than $200,000, and
shall remain unvacated, unbonded or unstayed for a period of twenty (20) days
unless otherwise consented to by the Holder, which consent will not be
unreasonably withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower and such proceedings remain outstanding for a period
of sixty (60) days; or
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the
listing of the Common Stock on at least one of The Nasdaq National Market,
Nasdaq Small Cap Market, the New York Stock Exchange, or the American Stock
Exchange;
3.10 DEFAULT UNDER OTHER DEBENTURES. An Event of Default has occurred and
is continuing under any of the other Debentures issued pursuant to the Purchase
Agreement.
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 120% TIMES the SUM of (w) the
then outstanding principal amount of this Debenture, PLUS (x) all accrued and
unpaid
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interest thereon for the period beginning on the Issue Date and ending on the
date of payment of the Default Amount (the "MANDATORY PREPAYMENT DATE"), PLUS
(y) Default Interest, if any, on the amounts referred to in clauses (w) and/or
(x), PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(e)
hereof or pursuant to Section 2(b) of the Registration Rights Agreement (the
then outstanding principal amount of this Debenture to the date of payment PLUS
the amounts referred to in clauses (x), (y) and (z) shall collectively be known
as the "DEFAULT SUM"), or (ii) the "parity value" of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common
Stock issuable upon conversion of such Default Sum in accordance with Article I
(without giving any effect to any limitation on conversion of the Debenture
contained herein,) MULTIPLIED BY (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
greater of such amounts being referred to herein as the "DEFAULT AMOUNT"). The
Default Amount, together with all other amounts payable hereunder, shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and the Holder shall
be entitled to exercise all other rights and remedies available at law or in
equity.
If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 000 Xxxx
Xxxxxx Xxxx, Xxxxx 0000, Xxxxx, Xxxxxxxxxxxx 00000, facsimile number
000-000-0000. Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
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4.3 AMENDMENTS. This Debenture and any provision hereof may only be
amended by an instrument in writing signed by the Borrower and the Holder. The
term "Debenture" and all reference thereto, as used throughout this instrument,
shall mean this instrument (and the other Debentures issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented,
then as so amended or supplemented.
4.4 ASSIGNABILITY. This Debenture shall be binding upon the Borrower and
its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Debenture shall be governed by the internal laws
of the Commonwealth of Pennsylvania, without regard to the principles of
conflict of laws.
4.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the Borrower is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Debenture may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this
Debenture and to earn a return from the sale of shares of Common Stock acquired
upon conversion of this Debenture at a price in excess of the price paid for
such shares pursuant to this Debenture. The Borrower and the Holder hereby agree
that such amount of stipulated damages is not plainly disproportionate to the
possible loss to the Holder from the receipt of a cash payment without the
opportunity to convert this Debenture into shares of Common Stock.
4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The Maximum
Share Amount and Reserved Amount shall be allocated pro rata among the holders
of Debentures based on the principal amount of such Debentures issued to each
Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be
allocated pro rata among the holders of Debentures based on the principal amount
of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.
4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the
Holder pursuant to Sections 1.3 and 1.4(e) hereof and pursuant to Section 2(b)
of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as
Common Stock issuable upon conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded
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all of the rights of the other shares of Common Stock issuable hereunder,
including without limitation, the right to be included in the Registration
Statement filed pursuant to the Registration Rights Agreement. For purposes of
calculating interest payable on the outstanding principal amount hereof, except
as otherwise provided herein, amounts convertible into Damages Shares ("DAMAGES
AMOUNTS") shall not bear interest but must be converted prior to the conversion
of any outstanding principal amount hereof, until the outstanding Damages
Amounts is zero.
4.10 DENOMINATIONS. At the request of the Holder, upon surrender of this
Debenture, the Borrower shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $100,000 as the Holder shall request.
4.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below, the
Holder of this Debenture shall have no rights as a Holder of Common Stock unless
and only to the extent that it converts this Debenture into Common Stock. The
Borrower shall provide the Holder with prior notification of any meeting of the
Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.
4.13. REMEDIES. The Borrower acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Debenture, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.
-20-
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this 11th day of February, 1999.
INFONAUTICS, INC.
By:
-----------------------------------------
Xxxxx Xxx Xxxxx Xxxxxx
President and Chief Executive Officer
-21-
EXHIBIT A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: INFONAUTICS, INC.
(1) Pursuant to the terms of the attached Convertible Debenture (the
"DEBENTURE"), the undersigned hereby elects to convert $ __________ principal
amount of the Debenture into shares of Common Stock of Infonautics, Inc. a
Pennsylvania corporation (the "BORROWER"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Debenture.
(2) The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC TRANSFER").
Name of DTC Prime Broker:
----------------------------
Account Number:
--------------------------------------
/_/ In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on
an attachment hereto:
Name:
---------------------------------------
Address:
------------------------------------
------------------------------------
(3) The Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
Date:
----------------------- ----------------------------------------------
Signature of Registered Holder (must be signed
exactly as name appears in the Debenture).
EXHIBIT B
TO
SECURITIES
PURCHASE
AGREEMENT
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF FEBRUARY 11, 1999, NEITHER THIS WARRANT NOR ANY
OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN
OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS.
Right to
Purchase
522,449
Shares of
Common
Stock, no par
value per
share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS, LDC,
or its registered assigns, is entitled to purchase from INFONAUTICS, INC., a
Pennsylvania corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Five Hundred Twenty-Two
Thousand, Four Hundred Forty-Nine (522,449) fully paid and nonassessable shares
of the Company's Class A Common Stock, no par value per share (the "Common
Stock"), at an exercise price of $5.97 per share(the "Exercise Price"). The term
"Warrant Shares," as used herein, refers to the shares of Common Stock issuable
upon exercise of, or otherwise pursuant to, this Warrant. The Warrant Shares and
the Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
The term Warrants means this Warrant and the other warrants issued pursuant to
that certain Securities Purchase Agreement, dated February 11, 1999, by and
among the Company and the Buyers listed on the execution page thereof (the
"Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or, upon payment of
any applicable transfer taxes, such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the Holder and its affiliates of more
than 4.99% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) of the preceding sentence.
-2-
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 5:00 p.m.,
New York City time, on the fifth (5th) anniversary of the date of issuance (the
"Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and
charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose
of issuance upon exercise of this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of this
Warrant.
(c) LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon
each national securities exchange or automated quotation system,
if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this
Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated
quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be
requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and
-3-
purpose of this Warrant. Without limiting the generality of the
foregoing, the Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this
Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or in accordance
with Paragraph 4(b) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses
or commissions or underwriting discounts or allowances in
connection therewith) less than the Market Price (as hereinafter
defined) on the date of issuance (or deemed issuance) of such
shares of Common Stock (a "Dilutive Issuance"), then immediately
upon the Dilutive Issuance, the Exercise Price will be reduced to
a price determined by multiplying the Exercise Price in effect
immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the
number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set forth in Paragraph
4(b) hereof, received by the Company upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the
Dilutive Issuance, and (ii) the denominator of which is the total
number of shares of Common Stock Deemed Outstanding (as defined
below) immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a)
hereof, the following will be applicable:
-4-
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
issues or grants any warrants, rights or options, whether or
not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities convertible into or
exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock
or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is
issuable upon the exercise of such Options is less than the
Market Price on the date of issuance or grant of such
Options, then the maximum total number of shares of Common
Stock issuable upon the exercise of all such Options will,
as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the
preceding sentence, the "price per share for which Common
Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for
the issuance or granting of all such Options, plus the
minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon
the conversion or exchange thereof at the time such
Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price
will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of
such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities, whether
or not immediately
-5-
convertible (other than where the same are issuable upon the
exercise of Options), and the price per share for which
Common Stock is issuable upon such conversion or exchange is
less than the Market Price on the date of issuance of the
Convertible Securities, then the maximum total number of
shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be
deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For the purposes of
the preceding sentence, the "price per share for which
Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will
be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of
any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the conversion or exchange
of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or
exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible
Securities still outstanding provided for such changed
additional
-6-
consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of
Common Stock issuable upon exercise of any Option or upon
conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have
expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have
been in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for
purposes of this Warrant will be the amount received by the
Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any
Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be
other than cash, the amount of the consideration other than
cash received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration
received by the Company will be the Market Price thereof as
of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any
acquisition, merger or consolidation in which the Company is
the surviving corporation, the amount of consideration
therefor will
-7-
be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be
determined in good faith by the Board of Directors of the
Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to
the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued
and outstanding on the date of issuance of this Warrant;
(ii) upon the grant or exercise of any stock or options
which may hereafter be granted or exercised under any
employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the
independent members of the Board of Directors of the Company
or a majority of the members of a committee of independent
directors established for such purpose; or (iii) upon the
exercise of the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any
time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise)
the shares of Common Stock acquirable hereunder into a greater
number of shares, then, after the date of record for effecting
such subdivision, the Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced. If the
Company at any time combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise)
the shares of Common Stock acquirable hereunder into a smaller
number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior
to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment
by the number of shares of Common Stock issuable upon exercise of
this
-8-
Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in
connection with a plan of complete liquidation of the Company,
then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of
this Warrant will have the right to acquire and receive upon
exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of this Warrant had such consolidation,
merger or sale or conveyance not taken place. In any such case,
the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock
or securities thereafter deliverable upon the exercise of this
Warrant. The Company will not effect any consolidation, merger or
sale or conveyance unless prior to the consummation thereof, the
successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the
obligations to deliver to the holder of this Warrant such shares
of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or make
any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return
of capital or otherwise, then, after the date of record for
determining stockholders entitled to such distribution, but prior
to the date of distribution, the holder of this Warrant shall be
entitled upon exercise of this Warrant for the purchase of any or
all of the shares of Common Stock subject hereto, to receive the
amount of such assets which would have been payable to the holder
had such holder been the holder of such shares of Common Stock on
the record date for the determination of stockholders entitled to
such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the holder of
this
-9-
Warrant, which notice shall state the Exercise Price resulting
from such adjustment and the increase or decrease in the number
of Warrant Shares purchasable at such price upon exercise,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation
shall be certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with
the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1%
of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the Market Price of a share of Common Stock on the
date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable
in cash out of retained earnings) to the holders of the
Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock
of any class or other rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or
substantially all its assets to, another corporation or
entity; or
-10-
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of
such event as provided in Paragraph 4(g) hereof, and the
Company's Board of Directors will make an appropriate adjustment
in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of
the Holder shall be neither enhanced nor diminished by such
event.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of
shares of Common Stock actually outstanding (not including
shares of Common Stock held in the treasury of the Company),
plus (x) pursuant to Paragraph 4(b)(i) hereof, the maximum
total number of shares of Common Stock issuable upon the
exercise of Options, as of the date of such issuance or
grant of such Options, if any, and (y) pursuant to Paragraph
4(b)(ii) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
-11-
(ii) "MARKET PRICE," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on
the Nasdaq SmallCap Market ("Nasdaq") for the five (5)
trading days immediately preceding such date as reported by
Bloomberg, L.P. ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the
average of the last reported sale prices on the principal
trading market for the Common Stock during the same period
as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding
Warrants by (b) an independent investment bank of nationally
recognized standing in the valuation of businesses similar
to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth
in the foregoing definition shall apply with respect to any
other security in respect of which a determination as to
market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Paragraph 4, includes
the Class A Common Stock, no par value per share, and any
additional class of stock of the Company having no
preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, no par
value per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof,
the stock or other securities or property provided for in
such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay
-12-
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed
assignment in the form attached hereto, at the office or agency
of the Company referred to in Paragraph 7(e) below, provided,
however, that any transfer or assignment shall be subject to the
conditions set forth in Paragraph 7(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the
Company, the Company may treat the registered holder hereof as
the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only
in accordance with the provisions of that certain Registration
Rights Agreement, dated as of February 11, 1999, by and among the
Company and the other signatories thereto (the "Registration
Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e)
below, for new Warrants of like tenor representing in the
aggregate the right to purchase the number of shares of Common
Stock which may be purchased hereunder, each of such new Warrants
to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss,
theft, or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company, or, in
the case of
-13-
any such mutilation, upon surrender and cancellation of this
Warrant, the Company, at its expense, will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement
as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other
than securities transfer taxes) and all other expenses (other
than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this
Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address
of the person in whose name this Warrant has been issued, as well
as the name and address of each transferee and each prior owner
of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of the
surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the
case of any exercise, the Warrant Shares issuable hereunder),
shall not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and under applicable state
securities or blue sky laws, the Company may require, as a
condition of allowing such exer cise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel, which
opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without
registration under said Act and under applicable state securities
or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under
the Securities Act; provided that no such opinion, letter or
status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and
holding the same, represents to the Company that such holder is
acquiring this Warrant for investment and not with a view to the
distribution thereof.
-14-
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be per sonally delivered, or shall be
sent by certified or registered mail or by recognized overnight mail courier,
postage prepaid and addressed, to the office of the Company at 000 Xxxx Xxxxxx
Xxxx, Xxxxx 000, Xxxxx, Xxxxxxxxxxxx 00000, Attention: President and Chief
Executive Officer, or at such other address as shall have been furnished to the
holder of this Warrant by notice from the Company. Any such notice, request, or
other communication may be sent by facsimile, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified or
registered mail or by recognized overnight mail courier as provided above. All
notices, requests, and other communications shall be deemed to have been given
either at the time of the receipt thereof by the person entitled to receive such
notice at the address of such person for purposes of this Paragraph 9, or, if
mailed by registered or certified mail or with a recognized overnight mail
courier upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as the
case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the
holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of
the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by
the holder is not then registered pursuant to an effective
registration statement under the Securities Act, this Warrant may
be exercised by
-15-
presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder's
intention to effect a cashless exercise, including a calculation
of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless
Exercise"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender
this Warrant for that number of shares of Common Stock determined
by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall
be the difference between the then current Market Price per share
of the Common Stock and the Exercise Price, and the denominator
of which shall be the then current Market Price per share of
Common Stock.
(d) REMEDIES. The Company acknowledges that a breach by it of its
obligation hereunder will cause irreparable harm to the holder
hereof, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Warrant will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions hereunder,
that the holder shall be entitled, in addition to all other
available remedies at law or in equity, to an injunction or
injunctions restraining, preventing or curing any breach of this
Warrant and to enforce specifically the terms and provisions
hereof, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-16-
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
INFONAUTICS, INC.
By:
--------------------------------------
Xxxxx Xxx Xxxxx Xxxxxx
President and Chief Executive Officer
Dated as of February 11, 1999
-17-
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 1999
To: Infonautics, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
---------------------------------------
Signature:
---------------------------------------
Address:
---------------------------------------
---------------------------------------
---------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth below,
to:
NAME OF ASSIGNEE ADDRESS NO OF SHARES
, and hereby irrevocably constitutes and appoints
___________________________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated: ________ __, 1999
In the presence of:
----------------------------------
Name:
---------------------------------------
Signature:
---------------------------------------
Title of Signing Officer or Agent (if any):
---------------------------------------
Address:
---------------------------------------
---------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
EXHIBIT C
TO
SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of February 11,
1999, by and among Infonautics, Inc., a Pennsylvania corporation, with its
headquarters located at 000 Xxxx Xxxxxx Xxxx, Xxxxx 000, Xxxxx, Xxxxxxxxxxxx
00000 (the "COMPANY"), and RGC International Investors, LDC (together with its
affiliates and any assignee or transferee of all of its rights hereunder, the
"INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) an aggregate of Three
Million Dollars ($3,000,000) of convertible debentures (the "DEBENTURES") that
are convertible into shares of the Company's Class A Common Stock, no par value
per share (the "COMMON STOCK"), upon the terms and subject to the limitations
and conditions set forth in such Debentures and (ii) warrants (the "WARRANTS")
to acquire 522,449 shares of Common Stock, upon the terms and conditions and
subject to the limitations and conditions set forth in the Warrants dated
February 11, 1999; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means: (a) the Conversion Shares
issued or issuable upon conversion of or otherwise pursuant to the
Debentures (including, without limitation, Damage Shares (as defined
in the Debenture) issued or issuable and shares of Common Stock issued
or issuable in respect of interest or in redemption of the Debentures
in accordance with the terms thereof); (B) the Warrant Shares issued
or issuable upon exercise of or otherwise pursuant to the Warrants;
and (C) any shares of capital stock issued or issuable as a dividend
on or in exchange for or otherwise with respect to any of the
foregoing.
(iv) "REGISTRATION STATEMENT" means a registration statement of
the Company under the 0000 Xxx.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or prior
to March 31, 1999, file with the SEC a Registration Statement on Form S-3 (or,
if Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Initial Investors, which consent will not be unreasonably
withheld) and pursuant to Rule 415 covering the resale from time to time by the
holders thereof of the Registrable Securities underlying the Debentures and
Warrants issued or issuable pursuant to the Securities Purchase Agreement, which
Registration Statement, to the extent allowable under the 1933 Act and the rules
and regulations promulgated thereunder (including Rule 416), shall state, to the
extent permitted by the law and the SEC, that such Registration Statement also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of or otherwise pursuant to the Debentures and
upon exercise of or otherwise pursuant to the Warrants (i) to prevent dilution
resulting from stock splits, stock dividends
-2-
and similar transactions or (ii) by reason of changes in the Conversion Price of
the Debentures in accordance with the terms thereof or the exercise price of the
Warrants in accordance with the terms thereof. The number of shares of Common
Stock initially included in such Registration Statement shall be no less than
1.25 times the sum of (x) the number of Conversion Shares that are then issuable
upon conversion of or otherwise pursuant to the Debentures and (y) the number of
Warrant Shares that are then issuable upon exercise of or otherwise pursuant to
the Warrants, without regard to any limitation on the Investor's ability to
convert the Debentures or exercise the Warrants. The Company acknowledges that
the number of shares initially included in the Registration Statement represents
a good faith estimate of the maximum number of shares issuable upon conversion
of or otherwise pursuant to the Debentures and upon exercise of or otherwise
pursuant to the Warrants.
b. PAYMENTS BY THE COMPANY. The Company shall use its best efforts to
obtain effectiveness of the Registration Statement as soon as practicable but in
any event within one hundred twenty (120) days after the date of closing (the
"CLOSING DATE") under the Securities Purchase Agreement (the "REGISTRATION
DEADLINE"). If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC on or before the Registration Deadline or
(ii) after the Registration Statement has been declared effective by the SEC,
sales of all of the Registrable Securities cannot be made pursuant to the
Registration Statement, or (iii) the Common Stock is not listed or included for
quotation on the Nasdaq SmallCap Market ("NASDAQ"), the Nasdaq National Market
("NASDAQ NMS"), the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for quotation, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(b) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of the Debentures or Registrable Securities an amount equal to the
then outstanding principal amount of the Debentures (and, in the case of holders
of Registrable Securities, the principal amount of Debentures from which such
Registrable Securities were converted) ("OUTSTANDING PRINCIPAL AMOUNT"),
multiplied by the Applicable Percentage (as defined below), times the sum of:
(i) the number of months (prorated for partial months) after the Registration
Deadline and prior to the date such Registration Statement is declared effective
by the SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required in any Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution, or to the failure of
the Investors to conduct their review of any such Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner or other matters
relating to the Investors or their manner of sale; (ii) the number of months
(prorated for partial months) that sales of all of the Registrable Securities
cannot be made pursuant to any such Registration Statement after the
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement, but excluding Allowed Delays (as defined in Section
3(e)); and (iii) the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the Nasdaq, Nasdaq NMS,
NYSE or AMEX or that trading thereon is halted after any such Registration
Statement has been declared
-3-
effective. The term "APPLICABLE PERCENTAGE" means two hundredths (.02). (For
example, if the Registration Statement becomes effective one (1) month after the
Registration Deadline, the Company would pay $20,000 for each $1,000,000 of
Outstanding Principal Amount. If thereafter, sales could not be made pursuant to
the Registration Statement for an additional period of one (1) month, the
Company would pay an additional $20,000 for each $1,000,000 of Outstanding
Principal Amount.) Such amounts shall be paid in cash or, at each Investor's
option, may be added to the principal amount of the Debentures and thereafter be
convertible into Common Stock at the "CONVERSION PRICE" (as defined in the
Debentures) in accordance with the terms of the Debentures. Any shares of Common
Stock issued upon conversion of such amounts shall be Registrable Securities. If
the Investor desires to convert the amounts due hereunder into Registrable
Securities, it shall so notify the Company in writing within two (2) business
days of the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the mechanics set forth under
Article I of the Debentures), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) business days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period.
c. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of this
Section 2(c), if at any time prior to the expiration of the Registration Period
(as hereinafter defined), the Company shall file with the SEC a Registration
Statement relating to an offering for its own account or the account of others
under the 1933 Act of any of its equity securities (other than on Form S-4 or
Form S-8 or their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans), the Company shall send to each Investor who is entitled to registration
rights under this Section 2(c) written notice of such determination and, if
within fifteen (15) days after the effective date of such notice, such Investor
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities such Investor requests
to be registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities
in proportion to the number of Registrable Securities sought to be included by
such Investors; PROVIDED, HOWEVER, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and PROVIDED, FURTHER, HOWEVER, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration
-4-
Statement by reason of demand registration rights. No right to registration of
Registrable Securities under this Section 2(c) shall be construed to limit any
registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(c) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. Notwithstanding anything to the contrary
set forth herein, the registration rights of the Investors pursuant to this
Section 2(c) shall only be available in the event the Company fails to timely
file, obtain effectiveness or maintain effectiveness of the Registration
Statement to be filed pursuant to Section 2(a) in accordance with the terms of
this Agreement.
d. ELIGIBILITY FOR FORM S-3. The Company represents and warrants that
it meets the registrant eligibility and transaction requirements for the use of
Form S-3 for registration of the sale by the Initial Investors and any other
Investors of the Registrable Securities and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not later
than March 31, 1999, a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter use its best
efforts to cause such Registration Statement relating to Registrable Securities
to become effective as soon as possible after such filing (but in no event later
than the Registration Deadline), and keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which all of the Registrable Securities (in the opinion of counsel to the
Initial Investors) may be immediately sold to the public without registration or
restriction (including without limitation as to volume by each holder thereof
pursuant to Rule 144(k) (or any successor rule)) under the 1933 Act (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus used in connection with the Registration
Statements as may be necessary to keep the Registration Statements effective at
all times during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable
-5-
Securities of the Company covered by the Registration Statements until such time
as all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statements. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities issued or issuable upon
conversion of or otherwise pursuant to the Debentures and upon exercise of or
otherwise pursuant to the Warrants, the Company shall, if permitted, amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefore, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within twenty (20) business days after the necessity therefor arises (based on
the market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof, but in any event no later than
ninety (90) days after the date on which the Company reasonably first determines
(or reasonably should have determined) the need therefor. The payment provisions
of Section 2(b) above shall be applicable with respect to such obligation.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of any Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by each Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions
-6-
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be required
in connection therewith or as a condition thereto to (a) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in any
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare and file with the SEC a supplement or amendment to,
or document incorporated by reference in, such Registration Statement to correct
such untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided that, for not more than twenty (20) consecutive trading days
(or a total of not more than forty five (45) trading days in any twelve (12)
month period), the Company may delay the filing of such supplement, amendment or
other document or other public disclosure of the material non-public information
concerning the Company, the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company and, based
upon the advice of counsel to the Company, otherwise required (an "ALLOWED
DELAY"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(e) with respect to the information giving rise
thereto.
f. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
g. The Company shall permit a single firm of counsel designated by the
Initial Investors to review each Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of the Registration Statement without prior notice to
such counsel. The sections of each Registration Statement covering information
with respect to the Investors, the Investors' beneficial ownership of securities
of the Company or the Investors' intended method of
-7-
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
h. The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 0000 Xxx) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
i. The Company shall make available for inspection by (i) any
Investor, (ii) one firm of attorneys and one firm of accountants or other agents
retained by the Initial Investors, and (iii) one firm of attorneys and one firm
of accountants or other agents retained by all other Investors (collectively,
the "INSPECTORS") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably deemed necessary by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; PROVIDED, HOWEVER,
that each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(i). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
j. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through other
-8-
means, give prompt notice to such Investor prior to making such disclosure, and
allow the Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
k. The Company shall (i) cause all the Registrable Securities covered
by each Registration Statement to be listed on each national securities exchange
on which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or (ii) to the extent the securities of the
same class or series are not then listed on a national securities exchange,
secure the designation and quotation, of all the Registrable Securities covered
by each Registration Statement on Nasdaq NMS or, if not eligible for the Nasdaq
NMS on the Nasdaq and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
l. The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the effective
date of each Registration Statement.
m. The Company shall cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to each Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an instruction in the form attached hereto as EXHIBIT 1 and an
opinion of such counsel in the form attached hereto as EXHIBIT 2.
n. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
o. From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority-in-interest of the Registrable
Securities.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
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4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request, and to update as necessary.
At least three (3) business days prior to the first anticipated filing date of
each Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to each Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes
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and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses incurred in connection with registrations, filings
or qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualification fees, printers and accounting fees,
the fees and disbursements of counsel for the Company, and the reasonable fees
and disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company, provided that such
fees and expenses shall be counted against the maximum amount of fees and
expenses to be reimbursed pursuant to Section 4(f) of the Securities Purchase
Agreement.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any underwriter
(as defined in the 0000 Xxx) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC), or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
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Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
expressly for use in connection with the preparation of such Registration
Statement or any such amendment thereof or supplement thereto, which shall
include the information set forth in the prospectus about the Investors, the
interests of the Investors in the Company, and the Investors' intended plan of
distribution, but only to the extent that any of the foregoing information is
furnished by the Investors in writing expressly for use in connection with such
Registration Statement; (ii) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter
and any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls such
stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation by such Investor, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be liable under
this Agreement (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds to such Investor as a result of
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the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in such Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent the indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that (i) no
contribution shall be made under circumstances where the indemnifying party
would not have been liable for indemnification under the fault standards set
forth in Section 6, (ii) no
-13-
seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 0000 Xxx) shall be entitled to contribution
from any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be
-14-
bound by all of the provisions contained herein, including providing necessary
updates under Section 4(a) hereof, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, a majority of the
Initial Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Infonautics, Inc.
000 Xxxx Xxxxxx Xxxx, Xxxxx 0000
Xxxxx, XX 00000
Attention: President and Chief Executive Officer
Facsimile: 000-000-0000
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With copy to:
Xxxxxx Xxxxx & Bockius LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Facsimile: 000-000-0000
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely within such Commonwealth. In the
event that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal Courts located
in the Eastern District of Pennsylvania with respect to any dispute arising
under this Agreement or the transactions contemplated hereby.
e. This Agreement and the Securities Purchase Agreement (including all
schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
-16-
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority-in-interest of the Registrable Securities,
determined as if the all of the Debentures and the Warrants then outstanding
have been exercised for Registrable Securities.
k. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Investors by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions hereunder, that the Investors shall be
entitled, in addition to all other available remedies at law or in equity, to an
injunction or injunctions restraining, preventing or curing any breach of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.
l. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
INFONAUTICS, INC.
By:
-----------------------------------------
Xxxxx Xxx Xxxxx Xxxxxx
President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
-----------------------------------------
Xxxx X. Xxxxxxxx
Managing Director
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